As Bitcoin and blockchain grew increasingly
popular, banks and large corporations began
to take notice of the potential applications
of this new technology.
However, while cryptocurrencies such as Bitcoin
wanted to eliminate the need for banks by
creating a public distributed ledger, banks
wanted to harness the same blockchain technology
without making their own institutions redundant.
Instead, banks wanted to use blockchain technology
to create “permissioned blockchains”,
or private networks in which some central
authority controls who is able to take part
in consensus and validate transactions on
the network.
This interest eventually led to the rise of
enterprise blockchains.
Such permissioned blockchains were not open
and not trustless, and lacked the economic
incentives we’ve studied in the past.
But this is all ok, since the goal here wasn’t
to create another public blockchain network
like Bitcoin.
Instead, it was to separate the “blockchain”
from “Bitcoin.”
The general movement was that of curiosity
and competition – to see how blockchain
technology could apply to businesses, and
improve their competitive edge.
The sentiment around this was mixed though.
Many saw this as just glorified public key
cryptography – and at its core, just a new
buzzword to boost hype and traffic and stock
prices.
At the same time, others encouraged the research
into fundamental blockchain technologies,
as they were more compliant and better suited
for enterprise use than associated public
blockchain systems.
While many use cases exist for enterprise
blockchains, most problems that enterprise
blockchain aims to solve fall within three
broad classifications: solving coordination
failures, horizontally integrating systems,
and creating self-sovereign decentralized
networks.
Although many enterprises now wish to take
advantage of blockchain technology, true enterprise
blockchain solutions are typically very situational.
In their current state, blockchains do the
equivalent of making a computer hundreds or
thousands of times less efficient, since each
node in the network must redundantly make
the same computations as all other nodes in
the network.
In order to come to consensus, these nodes
must then communicate with other nodes all
around the world, which further introduces
latency issues.
As a result, blockchains are far less scalable
than traditional systems.
Additionally, blockchains introduce security
risks, as hacks are no longer restrained to
compromising data but can allow perpetrators
to steal money directly.
All these factors combined mean that enterprise
blockchain use cases must have specific scaling
and use case requirements that would make
a non-blockchain solution unfeasible.
And as previously mentioned, industry has
shown that enterprise blockchains are most
optimally used to solve coordination failures,
horizontally integrate systems, and create
self-sovereign distributed and decentralized
networks.
Let’s look back at the previous slide.
Coordination failures between multiple parties
seeking to work together often exist due to
trust issues.
Blockchain solves this issue by creating arbitrary
incentive structures and being able to operate
in the public domain without the coordination
of a centralized entity, making it ideal for
enterprise projects such as public infrastructure.
Blockchain is also an integration technology
– it combines data silos together into a
single integrated system that captures greater
economies of scale.
By ensuring data immutability, integrity,
auditability, and authenticity, blockchains
enforce a common API and data standard, allowing
multiple systems to be immediately interoperable.
Lastly, blockchain provides new decentralized
models to work with alongside existing centralized
ones, thus preventing the possibility of centralized
corruption.
