Enterprise Blockchains
As companies navigate an increasingly digital and interconnected global market, the question of what technological infrastructure best facilitates the execution of core business strategies has taken center stage. Concurrently, the introduction of blockchain technology introduces novel ways to enhance stakeholder alignment through the redefinition of outdated existing data sharing, transactional, and trust formation frameworks.
Emerging inter and intra-organizational blockchain initiatives are evidently experiencing growing pains, but they importantly continue to address, iterate, and enhance the privacy, cooperation, and operational security within and/or around an organization’s technology framework. In one aspect, the progressive adoption of private and permissioned blockchains-enabled enterprise systems like Hyperledger and Corda demonstrate the interest in the business-to-business (and gradually business-to-customer) benefits that blockchain technologies provide. On the other hand, public blockchain adoption lags close behind, with new solutions addressing confidentiality and scaling limitations steadily being released.
This article delves into the current state of both traditional enterprise systems and blockchain-enabled solutions, exploring their respective strengths, limitations, and the impact they hold for the future of business operations.
Blockchains: A Shift from Speculation to Utility
Blockchains are distributed ledgers that enable a network of participants to transact digital assets and record transactions in real-time. A distributed network of nodes (computers) work together to validate the legitimacy of transactions and state of the network. Once consensus is reached, these transactions are appended to the network, forming immutable and chronological blocks of information.
To outside observers, the technology may seem to primarily facilitate investments, exuberant speculation, and the recreation of already existing software. However, beneath the noise, more governments and businesses than ever are allocating human and capital resources to explore how blockchain technology can optimize existing processes and generate new lines of business. In a 2023 report by Coinbase, more than half of Fortune 100 companies have had blockchain initiatives underway since the beginning of 2020, with 60% of the initiatives either in the pre-launch stage or already launched.[1] These initiatives illustrate the prevalence of demand for blockchain’s tangible benefits.
Like traditional ledgers, blockchains serve as a single source of truth for the accuracy of data and integrity of acting participants. The significance of the technology lies in its ability to enable this in a digitally native, cross-departmental, and cross-organizational capacity. These forces underscore the industry-defining potential that blockchain technology has evolved into, transcending the speculative origins that once defined it.
What are Enterprise Systems
In today's fast-paced and interconnected business landscape, enterprises are constantly seeking ways to streamline their operations, enhance collaboration, and ensure data security. Enterprise systems, often referred to as Enterprise Resource Planning (ERP) systems, serve as comprehensive software solutions tailored to the integration and automation of diverse business processes within an organization. Prominent ERP vendors include Oracle’s NetSuite and Fusion Cloud, SAP, Microsoft, Salesforce, Infor, and other various software providers that streamline finance, accounting, marketing, and human resource processes. Their pivotal functions are characterized by several aspects:
Enterprise systems address the need of data integration. They act as a unifying force, consolidating data originating from different departments and functions into a singular, centralized database. Through this consolidation, intra-organization data silos are dismantled, resulting in an uninterrupted flow of information across the entirety of the organization.
Enterprise systems help automate a multitude of routine tasks. Processes such as order management, inventory control, and payroll administration can be efficiently overseen through these automated mechanisms, thus augmenting overall operational efficiency. By doing so, manual intervention is minimized (but not completely avoided), leading to a reduction in the potential for errors.
Enterprise systems promote streamlined collaboration among various departments. Real-time access to shared data facilitates improved communication and fosters a culture of cooperation. Software enabling a collaborative environment not only bolsters the quality of decision-making but also nurtures cross-functional synergies that contribute to an organization's growth.
Enterprise systems offer a suite of reporting and analytics tools. In a global setting where data-driven strategies are paramount, access to such tools becomes a strategic asset. These tools empower organizations to extract valuable insights from their generated data, and as a result enable well-informed decision-making and strategic planning.
Key Risks and Problems with Traditional Enterprise Systems
Centralized Data Control and Vulnerabilities: Traditional enterprise systems centralize data control, making them susceptible to single points of failure and security breaches. Breaches in the centralized system can have far-reaching consequences, potentially compromising sensitive information, disseminating malicious information, and eroding trust within and towards organizations.
Data Silos and Fragmentation: The structure of traditional systems often leads to data silos and fragmentation. According to a study from International Data Corporation in 2020, 80% of all enterprise data is siloed and fragmented.[2] As data generation continues to scale at unprecedented rates, departments may utilize disparate systems like datacenters, SaaS applications, cloud infrastructure, and edge locations that do not effectively communicate with one another. This leads to a lack of visibility and complicates data exchange between departments.
Lack of Transparency and Accountability: Traditional systems lack transparency across processes, making it difficult to trace the origin of data and changes. The lack of unity and opacity in data storage and representation across the different modalities of ERP systems not only hinders accountability, but it exacerbates challenges in auditing and compliance efforts.
Inefficient, Complex, and Costly Intermediaries: Enterprise systems are expensive and often require connectors and adapters between systems. Between the various business departments within an organization, middleware, data integration tools, authentication and authorization services, master data management systems, workflow engines, and application programming interfaces allow data to be correctly formatted, standardized, and integrated to be effectively used. A 2022 analysis by Oracle NetSuite, a provider of ERP solutions itself, revealed that most implementations cost three to four times what was initially budgeted, take 30% longer than expected, and fall short in data accuracy, user experience, and the accessibility of comprehensive analytics.[3] These intermediaries introduce avoidable complexity and costs, slowing down processes and creating bottlenecks within an organization’s technology stack.
Key Mitigants and Solutions with Blockchain-enabled Enterprise Systems
In an enterprise context, blockchains as data structures introduce new ways for organizations to reconcile, store, and distribute business data within and across organizations.
Security in trust-less systems: While data generation and consumption continue to compound, distributed databases address the crucial issue of data integrity. Because data stored on a blockchain is (generally) immutable and consensus is required to append new data, the lack of central authority and single point of failure collectively mitigate the ability to deploy deceptive tactics aimed at misrepresenting data. In this regard, external threats are also curtailed through cryptography that makes data decryption and manipulation especially challenging.
Enhanced collaboration and data sharing: Blockchains abstract away the need for trust from department to department, and organization to organization. In doing so, the value in blockchain-enabled enterprise systems scale exponentially. Corporations have acknowledged this, 70% of overall survey respondents in Deloitte’s 2021 blockchains survey identifying data security regulation as the greatest component in need of modification.[4] Within the organization, teams and projects can become more confident in the integrity of data, and thus have a higher propensity to collaborate, share, and use data in an informed and effective way.
This collaborative advantage extends beyond a single organization, as ecosystem partners can access specific portions of data relevant to their operations and market. When privacy is of concern, new distributed technologies like private, permissioned, and public platforms with integrated confidentiality guarantees enable organizations to collaborate with ecosystem participants without sacrificing proprietary or sensitive transactions and information.
Compliant, automated, and cost-reducing systems: Provenance and auditability are natural byproducts derived from the inherent chronological ordering and immutability of transactions provided by blockchains. In junction with smart contracts, organizations can cultivate a framework that can self-execute predefined actions when certain conditions are met, reducing overhead and virtually eliminating the possibility of non-compliance due to human error.
Smart contracts not only aid in the adherence to regulatory requirements, but improve the management of data around procurement, production, inventory, and distribution. From tedious manual reconciliation tasks to complex legal agreements, traditional workflows are replaced by specialized and automated software which reduce or completely remove the need for resource-intensive human intervention. This, coupled with compliancy guarantees, leads to significant cost savings and enhanced operational efficiency.
Comparison of Enterprise Blockchain Solutions
Blockchain-enabled enterprise solutions fall into three categories: public, consortium, and private blockchains. Each entail distinct tradeoffs that impact various aspects of operations.
Public Blockchains: Public blockchains are open and decentralized networks that allow anyone to participate, validate transactions, and create new blocks. They operate without a central authority and require all validator nodes to participate in consensus, block creation, and state maintenance to ensure the accuracy and security of transactions.
Pros: Public blockchains are particularly useful for scenarios where the highest levels of decentralization, transparency, and network security and resiliency are crucial.
Cons: The public nature may not suit enterprises with strict privacy needs (although developing solutions are discussed below), and scalability challenges might arise due to their open nature.
Consortium Blockchains: Consortium blockchains are networks that are managed and operated by a predefined group of organizations or entities with a shared interest. Unlike public blockchains, consortium blockchains have restricted access, as participation is limited to the members of the consortium. Accordingly, consensus participation, block creation, and state maintenance are also limited to the members (validators) of the consortium.
Pros: A balance between controlled participation and varying levels of decentralization allows enterprises to collaborate in a trust-less modality while avoiding public access to confidential and proprietary data. So far, consortium blockchains have proven to be the most widely used configuration among the most well-known businesses and organizations due to their versatility in practical and strategic applications.
Cons: The limited decentralization of network validators places consortium blockchains in the “middle” of degrees of scalability and security. By only allowing trusted actors to validate the network, they are more susceptible to malicious network attacks than public blockchains, and do not reap the maximum scalability benefits of a centralized network.
Private Blockchains: Private blockchains are networks that restrict access to a specific group of authorized participants within an organization. These blockchains are often solely utilized and managed by organizations for internal uses. Consensus participation, block creation, and state maintenance are conducted on a purely organization-level. Unlike public and consortium blockchains, private blockchains prioritize privacy and control.
Pros: Strictly inter-organizational blockchains emphasize data privacy and control due to their lack of external validator nodes. In turn, they offer a secure and controlled environment for handling sensitive information.
Cons: The concentration of nodes securing the network leads to a reliance on a central entity for consensus and governance, fundamentally altering trust assumptions enabled by permissionless blockchains.
Private, Permissioned, and Public Enterprise Blockchain Solutions & Use-Cases
Among the permissioned and private enterprise blockchain infrastructure solutions, a few platforms tend to frequently appear: Hyperledger’s Fabric, R3’s Corda, and Quorum. The coupling of permissioned and private solutions is a result of the versatility and customizability of the underlying architecture, which enables both strictly inter-organization and inter-organization configurations. A business-oriented analysis of architectural differences between these platforms further illustrates this fact and offers a clearer picture of which solutions are most applicable to their respective enterprise use cases.[5] Below are summaries of enterprise use-cases of permissioned, and private protocols:
Fabric: Hyperledger Fabric was collaboratively developed in 2016 by the Linux Foundation and IBM as a part of a suite of open-source, enterprise-grade blockchain protocols and tools. At its core, Fabric is centered around a versatile and modular architecture suitable for a diverse range of enterprise environments spanning from healthcare and supply chains to banking and other financial services. This is achieved through “pluggable,” (highly customizable) components, whereby depending on organization specific requirements, various consensus, identity and privacy parameters can be deployed. Vendors of Fabric include the likes of Accenture, Consensys, Fjitsu, and Oracle
In 2019, the Bank of Japan and the European Central Bank jointly announced project Stella and determined that safety in cross-border payments could be improved, and the delivery of cash payments could be conceptually designed and operated using Fabric and Corda. Other monetary authorities like the Monetary Authority of Singapore and the Central Bank of UAE have conducted research and successful implementations of Fabric’s technology, as detailed in the Central Bank of UAE’s 93-page report detailing Project Aber.[6]
In a retail context, together with its technology partner IBM, Walmart created a food traceability system based on Hyperledger Fabric. In two of their proof of concept projects, Walmart used the technology to trace mangos sold in US stores, while the other aimed to trace pork in its China stores. Certificates of authenticity introduced a renewed sense of trust to the pork industry in China, filling a void that had long been present within the system. Similarly, in the case of mangoes in the United States, the once laborious process of tracing their provenance, which consumed a full 7 days, has been brought down to a mere 2.2 seconds. Now, Walmart can trace the origin of over 25 products from 5 different suppliers using a system powered by Hyperledger Fabric.[7]
Corda: Corda was established in 2014 by R3’s consortium group including Goldman Sachs, Barclays, UBS, and HSBC. The platform emphasizes a framework catered towards regulated financial services by automating complex legal agreements, driving faster settlement, and de-risking the management of digital assets.
In 2019, the Bank of Canada and Monetary Authority of Singapore successfully delivered the desired objective of performing atomic transactions between Corda and Quorum using Hash Time-Locked Contracts, but cited concerns over the involvement of intermediaries.
Leveraging the network connectivity of consortium groups, partnerships with essDocs and Bolero used Corda to integrate electronic bills of lading, enabling banks and corporates to securely share and track this information. TradeCloud also uses Corda to enable commodity producers, consumers, and traders to automate Letters of Credit processing by providing orders securely and in real-time.
Quorum: Quorum is an enterprise-focused blockchain platform developed by J.P. Morgan. It is based on the Ethereum blockchain but includes additional features to support privacy and permissioned access. The Quorum platform was acquired by ConsenSys in 2020, with a myriad of public and private use-cases arriving in the last few years.[8]
In 2021, the Chinese University of Hong Kong announced the Medoxie platform which used Quorum to record all COVID-19 related events such as test results, temperature checks, vaccinations, and immunity in a decentralized private, and secure environment.[9] In addressing public blockchain tradeoffs, ConsenSys also engaged Mastercard to co-develop ConsenSys Rollups, an effort to make Ethereum scalable and suitable for private use. [10]
Despite the limitations in participation, public auditability, and decentralization of private blockchains, adoption has significantly outpaced public alternatives. Public blockchains face two issues: They reveal sensitive enterprise data, and they are expensive to use on a transaction level. Recognizing in a non-enterprise setting that the former is actually a valued benefit of blockchains, today, public solutions like Polygon’s Nightfall protocol are addressing these critical-path concerns. Below are brief summaries of real uses-cases facilitated by public blockchains:
Polygon Nightfall: Polygon is an Ethereum layer two scaling solution that enhances Ethereum scalability and usability. Nightfall, an optimistic Zero-Knowledge roll-up that helps enable private transactions on the public Ethereum Blockchain.
Ernst and Young, one of the big four accounting firms, has partnered with Polygon to co-develop the product.[11] EY First contributed to the development of the protocol in 2019, and officially teamed up with Polygon to release the beta version of Nightfall in 2021. EY’s core blockchain software and service offerings – EY OpsChain and EY Blockchain Analyzer – use Nightfall to private and efficient transactions on the Ethereum Mainnet.
Avalanche Evergreen Subnets: Avalanche is a base layer blockchain protocol designed to provide facilitate fast and scalable decentralized applications. Their evergreen subnets allow developers to tailor their blockchain environments for specific use-cases, optimizing factors like consensus mechanisms, governance rules, and network partners.
The latest deployment of Avalanche’s Evergreen “Spruce” Subnet has seen support from institutional partners T. Rowe Price Associates, WisdomTree, Wellington Management, and Cumberland, enabling them to experiment with decentralized financial applications to execute foreign exchange and interest rate swaps, with other areas for exploration like tokenized equity, credit issuance, trading, and fund management in the roadmap. Although partners will not be putting capital at risk, the network will allow “institutional participants to experience the full functionality of Avalanche’s subnet architecture.”
Mark Garabedian, Director of Digital Assets at Wellington Management: “Avalanche Subnets provide a potential settlement solution that enables financial transactions with enhanced operational efficiencies, reduced risks, and regulatory compliance without creating liquidity islands or reduced interoperability. We look forward to experimenting with this technology to determine its suitability for institutional workflows, and its potential to reduce costs thus adding value for our clients.”
Cosmos Appchain: Cosmos is a decentralized network of interoperable blockchains, aiming to enable seamless communication between independent blockchain platforms. Within the Cosmos ecosystem, Appchains are individual blockchains that can be created to address specific use cases or applications.
Application-specific blockchains (“AppChains”) provide enterprises the ability to manage large dApps on independent, and scalable infrastructure powered by the Cosmos ecosystem. The Cosmos SDK enables streamlined development, while the Inter-Blockchain Communication protocol (“IBC”) and Tendermint Proof-of-Stake protocol facilitates the interoperability and security between other AppChains (“Zones”) via a central “hub.” While largely used by blockchain-native protocols today, the Cosmos ecosystem hosts some of the largest projects including Wormhole, Osmosis, Persistence, and Provenance, which provide a variety of decentralized financial, social, and infrastructure solutions.
Challenges with Implementing Blockchain into Enterprise Systems
While the mentioned benefits are undoubtedly compelling, achieving product-market fit in implementing blockchain into enterprise systems requires a delicate balance between technological innovation and alignment with market needs. One of the largest challenges limiting the success of blockchain-enabled enterprise systems rests upon corporations’ ability to embrace new standards of technology, communication, and cooperation, all of which require horizontal and vertical reconfiguration at scale. This need for coordination underscores the importance of consortium groups, which facilitate industry wide discussion and implementation of blockchain-enabled enterprise systems.
Below are summaries of some of the most established consortium groups:
Contour: Contour is a non-profit consortium of banks and financial institutions that uses blockchain technology to improve the efficiency and security of trade finance. It was founded in 2018 and has over 50 members, including HSBC, BNP Paribas, and ING.
GSBN: GSBN is a blockchain consortium of global shipping companies that uses blockchain technology to track and trace shipping containers. It was founded in 2019 and has over 100 members, including Maersk, MSC, and CMA CGM.
Aura Blockchain Consortium: Aura is a non-profit association of luxury brands that uses blockchain technology to track the authenticity of luxury goods. It was founded in 2021 and has 20 members, including LVMH, Prada Group, Cartier, and OTB Group.
MediLedger: MediLedger is a blockchain consortium of healthcare organizations that uses blockchain technology to track the provenance of prescription drugs. It was founded in 2017 and has over 20 members, including Pfizer, Novartis, and Johnson & Johnson.
PharmaLedger: PharmaLedger is a blockchain consortium of pharmaceutical companies that uses blockchain technology to track the provenance of clinical trials. It was founded in 2018 and has over 20 members, including Roche, Sanofi, and GSK
FISCO BCOS: FISCO BCOS is a blockchain platform developed by the Chinese government that is designed for enterprise use. It is a permissioned blockchain that can be used to build a variety of applications, including supply chain management, financial services, and government services. FISCO BCOS has over 1,000 members, including banks, insurance companies, and government agencies.
While demand for blockchain-based enterprise systems is evident, even some of the largest organizations are choosing to abandon consortium initiatives. Examples include the well-known Marco Polo Network, a trade finance network backed by 30 of the largest banks including BNP Paribas, BNY Mellon, and SMBC, along with TradeLens, another trade finance network backed by IBM and Maersk, which have both entered insolvency.[12] Slow and delayed progress in production, failure to attain commercial viability (customers), and prolonged depletion of cash reserves are the most prominent drivers of abandonment. Iterating through these challenges, while recognizing the transformative potential of blockchain technology, remains a dynamic pursuit where adaptability and strategic alignment will continue to shape the evolution of these initiatives.
Conclusion
The landscape of enterprise blockchains presents a complex interplay between traditional systems and innovative blockchain-enabled solutions. Current experimentation and the selective instances of meaningful traction shape a foundation for a positive trajectory built upon core principles of trust, integrity, and cooperation, all of which increase in relevance and impact in an increasingly interconnected world. The journey toward integrating blockchain into enterprise operations encompasses a multitude of factors, from addressing security concerns to streamlining collaboration and data sharing, but progress persists. With tradeoffs embedded in both public and private blockchain solutions, enterprises are in a promising position to first identify critical operational needs and long-term objectives, and then capitalize on enterprise solutions materially enhanced by blockchain technology’s benefits. Despite continued iterations of control (permissioned vs public), scalability (monolithic vs modular), and security (P2P vs trusted UI), the undeniable value of blockchain's technological advancements continues to drive its evolution and adoption in enterprise environments.
Disclaimer: The information provided in this article is for discussion purposes only and should not be considered as investment advice. The content of this article is based on personal opinions, observations, and research, and it is subject to change without notice. Readers are advised to conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions. The author and the publisher of this article are not responsible for any actions taken based on the information presented herein. Investing in financial markets involves risks, and past performance is not indicative of future results.
[1] https://www.theblock.co/post/235977/more-than-50-of-fortune-100-companies-report-blockchain-initiatives-coinbase-finds
[2] https://www.grax.com/wp-content/uploads/2021/10/GRAX-IDC_The-Business-Value-of-DataOps_FINAL.pdf
[4] https://www2.deloitte.com/content/dam/insights/articles/US144337_Blockchain-survey/DI_Blockchain-survey.pdf
[7] https://8112310.fs1.hubspotusercontent-na1.net/hubfs/8112310/Hyperledger/Printables/Hyperledger_CaseStudy_Walmart_Printable_V4.pdf
[9] https://consensys.net/blog/quorum/the-chinese-university-of-hong-kong-and-consensys-announce-the-medoxie-covid-19-digital-health-passport/
[10] https://consensys.net/blog/press-release/consensys-launches-consensys-rollups-with-the-support-of-mastercard-fostering-innovation-and-scalability-on-the-ethereum-mainnet-for-private-and-permissioned-blockchains/
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