Paul Brody, a principal and the Global Blockchain Leader at EY, explains a transition that will bring blockchain from niche use cases to general-purpose transactions.
We were promised a global financial and industrial revolution. We got a mango tracker.
Three years since enterprises started exploring the possibilities in blockchain, it’s perfectly understandable to be disappointed with what we’ve got so far.
But believe it or not, the seemingly banal applications for blockchain we’re seeing, from food traceability to software licenses, are a big deal and rightly worth celebrating.
The biggest journeys take place one step at a time, and when it comes to enterprises, it’s a particularly long journey. That 22,000-word software license agreement you clicked “yes” to without reading? Enterprises are reading every word of those things and arguing over the details. Adoption of technology inside the enterprise is sticky and durable, but it is also very slow as these systems are fragile and have many decision makers.
If you want to beg forgiveness rather than ask for permission a la Uber, that’s your call. If you want to put a Fortune 500 company’s cars into an asset-sharing system, be prepared to spend the next year locked up with the legal team.
As important as the milestones achieved so far have been, there’s a much longer way to go and in this series of articles, I will examine the key transformations that need to take place for blockchains to go from interesting prototypes to production systems solving niche problems to general-purpose tools for moving value of all kinds around.
We’re just transitioning from the interesting prototype into the niche problem-solving category, with things like food and wine traceability and software licenses leading the way as good case examples.
Right now, nearly all enterprise blockchain examples are confined to private networks and, typically, non-financial systems. To get from niche use cases to general-purpose transactions suitable for all businesses, four transitions must happen.
The first is a shift from private, permissioned blockchains to their chaotic, public and permissionless counterparts. Like the move from private company systems to the internet, it looks scary now, but in a few years, we will all look back upon it as inevitable.
There’s a good reason, however, that nearly all enterprise solutions today run on private networks: privacy. Public, permissionless blockchains, though they are based on key principles of cryptography, actually run most data in the “clear” – which is to say unencrypted. If you want to buy raw materials from suppliers and partners and you do so over the public networks like ethereum today, your pricing deals and volumes and partners will all be easily visible to your competition. Not very attractive.
And so companies have opted for private networks. But private networks, even industry consortia, don’t scale very well. If you form a private network for food traceability and you want to ship the food and ensure that shipment, you’ll end up needing half a dozen different blockchain connections to complete the whole transaction.
Some companies are working hard on connecting up lots of different private blockchains. That’s going to be expensive and our fear is that hackers will have a field day with those interoperable systems. This isn’t a strategy that has worked in other industries and eras, and we don’t see it having a better fate this time around either.
If you’ve been around long enough, you remember when companies had point-to-point connections for their email systems. It worked, just barely, but only for a few companies to talk to each other.
…while keeping data private
The internet and public key encryption made it possible for us to email everyone, everywhere securely without any predefined interconnections. With zero knowledge proofs, we believe the same will be possible for blockchain transactions.
This technology, which has been proven in a number of prototypes, is now being industrialized. It will allow all companies to work on public blockchains and to enter into contracts with each other securely and privately.
The mathematical principles that underpin zero-knowledge proofs are very complex, but the effect is very simple. I can prove to you something is true (e.g. I have a certain number of mangos, or I have delivered them to a certain customer or location) without enabling anyone else to understand the underlying data.
This means you can preserve the immutability and redundancy of a blockchain by allowing anyone to verify the truth of information and approve a transaction – something that is critical to consensus algorithms in decentralized systems – without exposing the details for all to see.
The same scenario we discussed before (buying product, shipping it, ensuring it and tracking it and paying for it) can not only be done with a single contract with multiple parties, it can all take place on the same blockchain and be executed securely, privately and reliably.
Getting on to a shared, public infrastructure is critical for blockchains to scale globally and to move from very specific industry solutions into general purpose tools for moving value and enabling business agreements.
Though we think it will take some time to fully industrialize the implementation of zero-knowledge proofs, the payoff will enormous.
In my next article, I will take a look at the second key revolution we expect in blockchain technology: the transition from notarization to tokenization.