Proof of Process as a Strategic Solution for Regulatory Complexity

One of the many potential benefits that blockchain can offer is the possibility of efficiently implementing  'proof-of-process' validations. 

A 'proof-of-process' is where some activity has been validated as having occurred against a particular entity, such that subsequent processes which (for various reasons) require that activity to have been performed can proceed.

One particular area where this approach could offer significant efficiencies is in 'know-your-client' (KYC) processes, as explained in this blog post:

http://regtechfs.com/blockchain-to-the-identifier-rescue/

The current rapid and ongoing changes in the financial services regulatory environment create an environment rich for potential applications of 'proof-of-process'. Coupled with the likely rise of 'as-a-service' technology solutions for businesses (see 'The Ten Tenets Driving the As-A-Service Economy'), the need for ways to efficiently leverage multiple participants in a business process becomes more obvious.

The big question, however, is whether the current crop of blockchain-based technologies will be suitable or appropriate for addressing these use cases.

Specifically, 'bitcoin' is based on very expensive 'proof-of-work' algorithms, which, while providing a very trust-worthy blockchain, limits the number of transactions that can be performed per second. Also, as the number of bitcoins is limited, the number of use cases relying on bitcoins must have some absolute maximum before bitcoins become too expensive for practical use.

The introduction of bitcoin 'side-chains' provides a route to address this problem, but within any given side-chain the issue of balancing trust with effort remains an issue. Projects like Ethereum attempt to address this, providing more of a role for 'proof-of-stake' algorithms, but Ethereum has yet to prove itself as sufficiently robust in the hostile environment of the open Internet.

There are many situations in which 'trusted' participants can be identified, such as, for example, in regulated environments where regulators can assess and validate the trust-worthiness of entities. 

The question is whether any solution is able to remain robust if any of those 'trusted' participants is compromised. 

In any event, the solution is likely not to be as free or as cheap as would be preferred: proof-of-work is expensive, but proof-of-stake is theoretically subject to attacks leading to centralisation-bias. Some balance between the two is needed, such that regulated or 'trusted' participants can efficiently, reliably and cost effectively validate blockchain transactions.

The alternatives are obvious:  centralised, regulated, heavily scrutinised central authorities who take on the burden of validating activities for one or more parties at significant process and IT expense. This is obviously a very expensive option. Seen in that light, even a moderately expensive blockchain-based solution is substantially cheaper, lower risk and efficient. 

The path forward is not yet obvious, but the actionable opportunities will become clearer as blockchain innovation continues.