Is Enterprise Blockchain Finally Ready to Deliver?

In 2017 and early 2018, as would-be entrepreneurs fell over themselves to find any and every use case for digital tokens, enterprise blockchain was flying high. The principles of peer-to-peer interactions, verifiable ownership of assets, and a tamper-proof database were touted to revolutionize every industry over the sun—no more need for brokers, lawyers, or even a corporate management structure.

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Q3 2020 hedge fund letters, conferences and more

Famously, one company even managed to put 200% on the value of its stock simply by including the word “blockchain” in its name.

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But within months, enterprise blockchain simply vanished. Suddenly, it was universally accepted that the entire idea was overpromised and underdelivered. Even a former blockchain leader from Ernst & Young, who had previously been a proponent of the “blockchain, not Bitcoin” mantra, decided to throw the entire concept of enterprises using blockchain under a bus.

However, during recent months, enterprise blockchain has been showing signs of a possible recovery. Nothing to rival the previous hype, but there are some indicators that projects and businesses are developing blockchain solutions to high-scale, real-world problems.

So, what went wrong in the first place, and what’s changed in the meantime?

Underdeveloped Technology

The lack of immediate adoption shouldn’t surprise anyone familiar with the issues surrounding public blockchains. Hype notwithstanding, the fact is that the technology was simply never ready for the kind of enterprise adoption that seemed possible in 2017 and 2018.

ConsenSys and the Enterprise Ethereum Alliance have done much to promote the use of Ethereum among businesses. But even diehard Ethereum fans can’t deny the challenges it faces. The original smart contract platform is still yet to undergo its scalability upgrade, and in the meantime, it remains slow, clunky and congested.

As if those issues weren’t enough, the current DeFi craze has thrown open the doors on the risks of smart contract vulnerabilities, with projects like Yam Finance and Bzx suffering losses as a result.

Furthermore, DeFi itself is displaying eerie similarities with the ICO boom of three years ago – a vast amount of cash pumping in, dark mutterings of looming regulation, pseudonymous project founders, and most recently, decentralized exchanges used to mask the movements of stolen tokens.

It’s enough to send even the most forward-thinking corporate CTO running for the hills.

There are, of course, plenty more blockchain platforms. But recent research indicates that even the best-known, such as EOS and XRP, are “ghost chains” handling few transactions of real value.

Unmasking the Identity Gap

For most in the cryptocurrency community, blockchain’s pseudonymity is a feature, not a bug. The fact it may be used for nefarious purposes is just an unfortunate side-effect, necessary to achieve the higher imperative of total privacy.

But the fact is that this approach leaves enterprises out in the cold. Most businesses need to maintain identity records for all transaction counterparties, in case authorities flag them for an audit. Otherwise, they risk falling foul of KYC and anti-money laundering legislation.

Pseudonymity also offers little recourse in the event of a dispute. Nevertheless, businesses also need a degree of privacy to ensure that their confidential information about customers and suppliers doesn’t get into the public domain.

Motoring firm Daimler recently announced that its in-house blockchain development shop is working on an identity solution that will be interoperable across multiple blockchains.

Elsewhere, Concordium is a prime example of the new breed of platforms aiming to buck the trend of public blockchains by including an identity protocol baked into the technology stack. No user can create an account without having to first undergo an off-chain identity check. On-chain zero-knowledge proofs of identity enable participants to transact with privacy.

However, when the authorities show up with a legal demand to identify a party to a transaction, it invokes a process involving trusted parties that allows a legal identification to take place.

“Whilst privacy is a basic human right protected by the law, anonymity has no place in our current society,” says Michael Jackson, a former COO of Skype who serves as a strategic advisor to the platform.

Jackson acknowledges that his belief “doesn’t make friends in libertarian circles.” That may be something of an understatement, as many segments of the crypto community would view his comments as nothing short of heresy.

Outsourcing the Development Gap

Firms as big as Daimler, which pulled in revenues worth around $200 billion in 2019, have the financial clout necessary to develop their own blockchain solutions. But the same can’t be said of most enterprises.

In fact, if there’s one defining trend in corporate IT over the last decade, it’s the “as-a-service” model - extending across infrastructure, platforms and software. The software-as-a-service market alone is expected to nearly double over the next six years.

However, when it comes to public blockchains, there is a gap in the blockchain-as-a-service segment. In many cases, enterprises seeking to harness the power of a public blockchain need to hire a specialized developer in house. This approach works in direct opposition to enterprises attempting to outsource their IT operations.

However, where public blockchains do offer the outsourcing service as part of the package, enterprises are more willing to engage. One example from this year is the Austrian government’s use of blockchain in addressing the challenges of the COVID-19 pandemic.

The country’s Federal Ministry for Digital and Economic Affairs allocated a grant to a project called QualiSig to develop prototypes helping the government to fight fraud, fake news and manage health data. The project is based on the Ardor public blockchain, which is operated by development firm Jelurida. Although researchers from Danube University Krems undertook the build work, Jelurida was heavily involved in the project, offering consulting and guidance to help the project succeed.

Playing Catch-up

Because it’s taken several years for reality to catch up with the potential, enterprise blockchain still has some way to go.

However, signs of a revival can be seen. Nothing is going to change overnight, but perhaps over the next five or even ten years, the mainstream business case for blockchain might finally live up to its initial promise.