Tech Mahindra

Where is enterprise blockchain heading?

The long-term future for enterprise blockchain is Centralized Decentralized Applications, starting with financial applications.

In May 10, Microsoft quietly announced that it is retiring its Azure Blockchain Service as of September 10. The announcement was barely noticed and was disclosed in Microsoft’s Migration Guide documentation.

This move comes a few months after IBM –the heavy hitter in Enterprise Blockchain with the most resources and projects amongst its peers — folded its dedicated enterprise blockchain product group. It integrated its remnants into the IBM Sterling Supply Chain unit, where TradeLens, Food Trust and Blockchain Transparent Supply blockchain platforms sit today.

What does the folding of these units tell us about Enterprise (Permissioned) Blockchain? 

Blockchain as a Service (BaaS) is not an area where enterprises need the most help. BaaS addresses the easiest part of blockchain implementation, i.e. provisioning and operating nodes, and related basic services. Instead, enterprises need help aligning their use cases and business ecosystems with blockchain distributed ledger technology. Most users are not clear on why they need the technology.

The value of permissioned blockchain is hard to understand since it does not implement the most revolutionary aspect of public blockchains – i.e. trust minimization and elimination of central authority, achieved via decentralized consensus.

There is real business value in enterprise blockchain so long as all participants agree to the terms of participation. Our 2020 survey showed that about 14% of projects made it into production (see Blockchain Trials Show Business Executives Drive Focused Solutions to Production), but even then, transaction volume is limited. Hard to use technology is not the reason most projects don’t make it into production. Instead, business processes, governance issues, and misaligned use cases are.

Many promising use cases are still in early stages, mainly because of process and governance issues and not because of technology. Project participants are often stuck in those areas, and access to BaaS infrastructure services is the least of their concerns.

Future of Enterprise Permissioned Blockchain

Several blockchain service providers add application services on top of basic infrastructure services, making them more useful to enterprises than just basic BaaS. But the problems inherent to task force management and group governance are never going to go away, no matter how great the blockchain technology services are. Companies simply do not want to give up control. If anything, they want to usurp more of it.

The simple answer is to recognize this fact – central authority is here to stay in the enterprise.  But that doesn’t mean centralized organizations cannot embrace decentralized applications wrapped by their centralized services.

What next for enterprise blockchain?

The long-term future for enterprise blockchain is Centralized Decentralized Applications, starting with financial applications (CeDeFi) but extending to many other areas we call CeDeX (X is for everything), as noted in figure 2’s list of sample domains.

Lots of pieces must fall into place for CeDeFi and CeDeX to succeed. Centralized companies like banks, must determine how to add value, protections and new revenue streams to DeFi while their legacy businesses are cannibalized by decentralized protocols and contracts. DeFi technology also needs to mature, and the user experience needs to markedly improve.

This transition WILL inevitably happen – as the center of gravity shifts to innovative lucrative DeFi/DeX applications that customers really want for financial gain or for access to new markets and services. It will take 3-5 years to come to fruition, but it will combine the best of both worlds – new school innovations with old school protections, such as KYC, custodial services, fraud detection, escrow services, and more.  At that point, standalone enterprise blockchains will morph into CeDeX environments.

To prepare for this world, enterprises should use blockchain abstraction middleware protocols and systems to build their applications. They should write applications and smart contracts that are blockchain-neutral and which can eventually be ported to whatever backend blockchain protocol they wish to interface with in the future. This type of architecture is already alive and well in DeFi and it makes sense for all blockchain applications to adopt this approach.

 

The author is Avivah Litan, Distinguished Research Vice President at Gartner, Inc.

 

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