The interoperability challenge will make or break enterprise blockchain platforms
Blockchain technology for the enterprise world is coming of age, but businesses are at risk of burdening themselves with platforms that are ultimately destined for the same technology scrapheap as Betamax video players, pagers and PDAs.
Blockchain holds the potential for a better-connected future for businesses. At the very heart of the hype surrounding this technology is the issue that the platforms used by businesses today simply do not talk to each other effectively.
Today, the systems used for various functions in a bank’s front, middle and back offices usually run on completely different technologies, standards and protocols, as do the systems used by their counterparties. This means that data that should be the same in these different locations across the bank and at the institutions with which it trades invariably is not. And billions, if not trillions, of dollars are wasted every year dealing with the implications. However, in the blockchain-enabled future these isolated islands of asset representations will be no more.
Financial agreements will only need to be recorded once to a blockchain platform’s ledger. And these accurate, immutable records can then be shared across various blockchain-based applications on that platform, whether they be for trade finance, syndicated loans, FX or collateral lending, to name a few use cases. The blockchain platform provides the guarantee that ‘I see what you see’. The data is correct in all places at all times.
Or at least that’s the promise being sold to businesses.
In reality, there is a very real risk that those firms who don’t understand that public blockchain technology like Bitcoin and Ethereum is different to purpose-built enterprise blockchain technology — and vice versa — will make some catastrophically unwise platform decisions in the coming weeks, months and years.
The mess of disparate, legacy systems businesses are forced to use today will simply be replicated — albeit underpinned by shiny new blockchain technology. The root of this potential interoperability crisis lies in the way in which public blockchain platforms deal with privacy — and some software companies’ attempts to fit a square peg into a round hole by applying them to the enterprise world.
By design, these platforms send details of a transaction to all parties on the network for verification purposes. They were built to enable the transfer of value between mutually distrusting individuals, utilising the network to achieve consensus. In the regulated world of financial services, firms need to know who they are transacting with by law and they have strong business requirements to restrict information only to those with a need to know, so the same model is clearly not applicable.
Nevertheless, a number of major players in the enterprise software world are trying to modify versions of the Bitcoin blockchain and Ethereum to solve some of the hardest problems in financial technology.
These are amazing technologies, but not obviously the starting point for a platform seeking to solve the problem of managing and evolving complex financial agreements between identifiable parties in the financial services sector.
The public Ethereum platform, for example, had the right vision — to facilitate multiple interoperating applications on a single network — but it turned out the platform’s architecture just wasn’t able to deliver the vision for enterprise use cases, largely because of the way it addresses data privacy. The right vision with the wrong architecture.
Starting with a platform like Ethereum that broadcasts all information and then trying to patch it up simply makes no sense. It will likely have serious implications down the road when it comes to integrating different blockchain-based applications on that platform with each other. To take one possible scenario, why would you want all the information from your FX blockchain application broadcast to all the nodes in your trade finance application?
Even those platforms that patch up the problem with convoluted cryptographic techniques end up being very specific to a use-case, ultimately rendering them obsolete as general-purpose enterprise platforms that can be used for different purposes by different businesses.
Realising that this problem is not easily solved working within the limitations of a public blockchain template or with the cryptographic techniques currently being touted, we are starting to see a wholesale retreat from the vision outlined earlier.
Software companies are now trying to sell the idea of a blockchain platform where one business application is deployed as an independent, standalone network that is incompatible with all the other applications on different deployments of the platform elsewhere. This completely undermines a key foundation of the value proposition of the technology.
Enterprise Ethereum was created to remedy the issues with the public Ethereum platform in a business context, but inevitable challenges with the underlying technology has led to false-starts, numerous divergent implementations and a focus that has diverted from achieving interoperability of multiple applications on the same network. Efforts are now based on the wrong architecture and the wrong vision– the worst of both worlds.
is means that assets earned on one application on a platform based on whatever codebases eventually emerge from the Enterprise Ethereum committees will not be easily usable on another. Each application will require its own identity, consensus and governance processes. The firms who deploy nodes to connect to these applications will be lumbered with expensively duplicated and incompatible infrastructure in their data centres. And the industry will then have to spend millions of dollars inventing ways to make these isolated applications interoperate with each other. The complete opposite of what the enterprise blockchain revolution is intended to deliver, and a complete replication of the technology nightmare firms find themselves in today.
By contrast, what businesses really need from an enterprise blockchain platform is the ability for multiple applications to run across a common layer of identity, consensus and governance. Once connected to the infrastructure, firms would then be able to transact with multiple different groups of trading partners, for different purposes and under different legal frameworks, all at the same time and with guaranteed privacy.
This would mean that multiple different blockchain applications, designed for completely different purposes, can be deployed today to solve specific problems and yet, in the future, contracts and other information managed by these applications could be combined in new ways for purposes unimaginable today. And as we found out, the only way to achieve this was to develop a purpose-built enterprise blockchain platform from scratch — pursuing the right vision with the right architecture. The results of this effort will go live throughout this year as our Corda platform and its network of interoperable applications are deployed commercially.
We live in an age when new technological ideas can come to fruition faster than ever before. The internet took decades to transition from invention to ubiquity; blockchain has taken a matter of years, so it is natural for there to be some hiccups and growing pains along the path to full-scale enterprise deployment.
Businesses that make the right choices will begin to feel the benefits of blockchain in 2018, as we move to a new reality where anybody can transact seamlessly for any contractual purpose without friction.
If you are on the frontline of a business making the switch to blockchain, the time to make your platform decision is now. Don’t be the executive who signs off on a platform that becomes the legacy system of tomorrow. Make the right choice today.
This was originally published on Financial News.