The question of whether enterprises should use public or private blockchains for business has become extremely relevant today. A recent report from Fortune Business Insights predicted that the blockchain market will reach $21 billion by 2025, highlighting the fact that large companies are adding momentum to the market through new investments.
Unsurprisingly, as more players enter the blockchain arena, information regarding the best blockchain solutions for enterprises is coming up for debate. For instance, during the online Consensus: Distributed Conference, Adam Caplan, the senior vice president of emerging technology at Salesforce, commented that public blockchains are not secure enough for enterprises to leverage.
What does the market need?
When asked to elaborate, Caplan told Cryptox that while Salesforce customers would like all the benefits that a public blockchain can provide, such as audit trails and full transparency, enterprise customers still require data to be shared selectively:
“Our customers are saying they want to share data with our partners and collaborate more strongly — all the benefits of classic blockchains, but they also don’t want to share information with everyone. They may want to share certain data with companies inside their network, but not outside the network. They also require granular security tools.”
Speaking of their own use case, Caplan said that the Salesforce blockchain caters mainly to business-to-business customers who require different permissions and security settings across a blockchain network. He noted that for these organizations, everything boils down to governance and understanding who can access data. As such, Caplan mentioned that public blockchains for enterprise use are starting to “fade away,” as the hype around enterprise blockchain technology becomes a reality, adding:
“We are now moving past the hype of enterprise blockchain from a few years ago and are focusing more on the business value and ROI blockchain can bring to companies. As we move in this direction, elements such as running your own infrastructure, decentralization and the meaning of consensus starts to fade away, along with the theory of public blockchains for enterprises.”
While this may be the case for Salesforce, Caplan did note that public blockchains do provide security for certain use cases. He mentioned that Bitcoin (BTC) is secure while being entirely public. He further commented that financial use cases involving digital currencies and assets are appropriate models for public blockchains.
Why would enterprises use public blockchains?
The question then becomes whether public blockchains can be leveraged to fit a variety of enterprise use cases, even those outside of the financial realm. This is important to consider, especially when recognizing why enterprises would use blockchain networks in the first place.
Findings from an EY report conducted by Forrester Research shows that most companies consider blockchain technology as a solution to improve business performance, preserving data integrity, which could lead to new revenue or business models. Other blockchain use cases include improved efficiencies for supply chain management, payment support processes and digitization of document flows.
However, the report notes that pressure to join a private network started by another company is not a key driver for adopting blockchain technology. And while private blockchains are a popular choice among enterprises, the report highlights the considerable growing interest in public blockchain networks for all of the mentioned use cases.
EY’s global blockchain leader, Paul Brody, elaborated on this, telling Cryptox that classic blockchain systems are capable of doing two things that traditional legacy systems cannot:
“First, blockchains can execute transactions reliably and properly without intermediaries. Secondly, they act as an immutable form of record keeping. Both of these features are things that private blockchain networks are not capable of.”
Brody explained that by definition, private blockchain networks require intermediaries. Moreover, he said that these systems will probably never be considered as immutable record storage since there are not enough nodes on independent systems, adding: “Whereas the Ethereum blockchain has 10 thousand nodes, it’s not uncommon for private blockchains to have a few nodes and execute within a single cloud provider infrastructure.”
Clearly, there is much potential for public blockchains to flourish in the enterprise world, yet work remains to ensure security, scalability, regulatory requirements and more. Furthermore, EY has been working with Microsoft and ConsenSys to develop an open-source blockchain project called Baseline Protocol, which runs on the public Ethereum mainnet.
According to Brody, the idea for Baseline Protocol emerged about a year ago when EY was working on another project called Nightfall — a solution to ensure a scalable, inexpensive, reliable and private infrastructure for public transactions. Brody noted that Nightfall removed major obstacles for making public blockchains viable for private transactions (lowering gas fees), yet some challenges remained. Baseline Protocol attempts to mend the remaining challenges associated with enterprises, and according to Brody:
“Public blockchains need verified identity of participants and we wanted to close that gap. Baseline protocol takes the work of Nightfall and adds more elements around private transaction information, like identity management, allowing companies to conduct end-to-end secure reliable public blockchain transactions.”
While progress for Baseline Protocol is still underway, ConsenSys’s lead developer, John Wolpert, mentioned that Baseline can improve contact tracing, specifically addressing security flaws noted in a proposal for a contact tracing system recently made by Google and Apple.
Related: Zero-Knowledge Proofs, Explained
In terms of security, Brody pointed out that Baseline Protocol has solved security challenges associated with public blockchains through zero-knowledge proofs, mentioning that enterprise data never gets stored on-chain. The only information stored on-chain in this instance is links, hashes and mathematical proofs. He further explained that zero-knowledge proofs are key to solving scalability issues on the Ethereum blockchain, adding:
“By December of last year, we could perform 20 transactions on a single block. We have a mathematical roadmap that will allow us to do more than 2 thousand transactions in a single block. Zero-knowledge proofs are a key technology to enable scaling.”
Kevin Feng, the chief operating officer of VeChain, also mentioned that public blockchains have come a long way over the past few years. Feng told Cryptox that once enterprises have a better understanding of the benefits of public blockchains, they will see that open networks are better than private ones:
“We have observed the trend that many enterprises are moving to open blockchains. Many of our clients, like Walmart, are using the VeChain blockchain to track information on their products and then digitally certify that data.”
Feng mentioned that VeChain recently partnered with the popular fashion brand H&M to provide supply chain tracing data to customers. He explained that more than 4,000 sustainable products were traced using “My Story” — a traceability platform powered by VeChain and developed by the international classification society DNV GL.
Like Baseline Protocol, VeChain also leverages zero-knowledge proofs. Feng noted that sensitive information is not stored on-chain but rather the hashes or timestamps are placed on the blockchain so everyone can see certain information that took place during specific times.
Feng further pointed out that governance is another major concern when it comes to enterprises using public blockchains but that have different governance mechanisms available, like “proof-of-authority,” where authority nodes are run by enterprises or individuals, rather than relying on mining power.
Danny Brown Wolf, the head of partnerships at Orbs, also told Cryptox that a number of enterprises are interested in shifting from private blockchain models to hybrid approaches, and eventually moving entirely to open blockchains.
Wolf explained that there still is concern around “trusted third party” controlling private blockchain networks. “Salesforce acts as the trusted third party, meaning companies must trust Salesforce to handle their data,” she said. Like EY and VeChain, Orbs is also attempting to solve problems around public blockchains for enterprise use, as Wolf noted:
“We designed Orbs to overcome the issues of governance by giving every application it’s own virtual chain, connected to the main chain. This allows for autonomy when it comes to governance, which can be done at a virtual chain level rather than at an infrastructure level. In turn, power is easily maintained by organizations, while still providing strong guarantees of a public blockchain to users and partners.”
The debate boils down to…
While both private and public blockchains are clearly capable of catering to enterprises, it may be too early to tell if one is better than the other. Brian Behlendorf, the executive director of Hyperledger and an open-source advocate, told Cryptox that it would be inappropriate to say that public blockchains are better for all potential enterprise use cases — just as it would be inaccurate to say public blockchains have no potential uses for enterprises. He said:
“Already, we see some companies that have made the decision to use public blockchains in limited ways — whether it’s taking payment in cryptocurrencies, non-fungible tokens like baseball trading cards, and even some stablecoin-like usage, such as the Tradeshift/Monerium e-money partnership. We also think there is a lot of potential in public, permissioned ledgers, like the Sovrin Foundation’s identity utility network.”
Although this may be, Behlendorf noted that the vast majority of industries interested in leveraging blockchain technology still have regulatory standards around data residency, privacy protection, auditing and taxes, along with higher performance requirements that any public ledger is capable of currently supporting. Due to these reasons, Behlendorf believes that it will take a long time for enterprises to transact primarily on public blockchains. Echoing Behlendorf, Gari Singh, the chief technology officer of IBM Blockchain, expressed similar concerns to Cryptox:
“Generally speaking, permissionless blockchains are not suitable for most current enterprise use cases. Enterprises must adhere to many regulatory and compliance requirements and without knowing who the participants (both validators and client) are, it’s not possible to conform to these requirements.”
Yet, while a private blockchain model may currently seem more suitable for enterprise needs, Brody remains optimistic, noting that private blockchains continue to lack a key element for businesses to successfully function — a working ecosystem — saying:
“Most private blockchains are parties that no one came to. Even those with participants don’t have a robust or competitive service provider network. But Ethereum has an enormous network of service providers. Our goal is to migrate this DeFi network from transactions that are done entirely in the public, into transactions performed privately.”
