Overview:

• Banks, technology companies and investment firms have seen reasons to invest in blockchain.
• Sorry, blockchain can’t make centralized services disappear, at least not any time soon.
• Gartner predicts the value blockchain generates will exceed $176 billion by 2025, and $3.1 trillion by 2030.

The genesis

A look at blockchain’s past

Before Bitcoin there was no blockchain. It is through the cryptocurrency that the world got to hear about blockchain for the first time. Bitcoin is blockchain’s first-ever application. However, today blockchain powers a lot more than anarcho digital currencies like Bitcoin. It is a backend that can do practically everything for the enterprise.

In a nutshell, blockchain is a virtual machine or an operating system running on top of a peer-to-peer network of computers. This virtual machine runs and supports a wide range of applications we’ve come to know as decentralized applications (dApps). The virtual machine can also serve as a robust digital database and a shared ledger for payment transactions. What makes a blockchain is the fact that computers on the peer-to-peer network form an ongoing consensus on code execution as well as data storage without a central server or authority to oversee the process.

Meanwhile, the true potential of blockchain to facilitate management and exchange of value as well as data processing, storage and sharing in a well-structured peer-to-peer manner was unleashed with the arrival of the Ethereum blockchain and its smart contracts concept.  While decentralized apps replace the traditional apps, and the blockchain takes the place of centralized databases and servers that are riddled with single points of failures, smart contracts are the new Application Programming Interfaces (APIs).

But, central authorities are going nowhere:

Indeed, we’ve been here before, and using history, we might accurately predict what could happen in the future. The Internet is the other technology that many thought would take central authorities or go-betweens out of business, but it didn’t. In the early days, many saw a future where all communications would become peer-to-peer, peer-to-peer protocols.  Today, almost all texts, images, programs, and videos that people share around the world go through web giants like Facebook, Google, YouTube and Twitter.

 What many didn’t see in the early Internet days is the power of the desire for quality user experience (UX), reliability, convenience as well as the need to have someone to talk to when things fail to work correctly. Centralized systems are excellent at delivering all these.

It is for the same reasons that the blockchain technology is not going to make centralized service providers obsolete. Indeed, the technology, like the Internet, will most likely end up making things easier and cheaper for everyone, including corporations.

Indeed, the blockchain has proven that it can support people to transfer money, create contracts, register patents, and manage assets without relying on trusted intermediaries. However, we can already see where, why, and how we will still need intermediaries or centralized service providers around. It starts with the need for superior user experience, convenience and reliable customer support. And then it extends to the need for guarantors and enforcers in the real-world.

Let’s say you can prove ownership of a piece of real estate through the use of a blockchain application. In the event someone occupies it and does not want to heed your request to vacate, you would need a central authority or intermediary like a court to enforce your right over the property. In fact, the need for intermediaries becomes more apparent when you acknowledge that by nature, we humans are selfish. And living in a society that is complex, our social, business, and political interactions have to be regulated. That requires trusted intermediaries.

It is true that by relying on central authorities, we are always at the risk of experiencing abuse of power by those we give the responsibility. And that is where the blockchain comes in to provide additional checks and balances in particular, through immutability and the auditing capacity it offers.

The current status

Overview of permissioned blockchain

Public blockchain is an excellent piece of technology. However, its structure makes it unsuitable for specific use cases. In particular, some of its aspects make enterprises users uncomfortable to be associated with it. Besides, they complicate enterprise users’ process of meeting regulatory requirements. Some of the features that make it hard for businesses to use public blockchains include the fact that participants on the networks are anonymous, that anyone can join the networks without being vetted, and that anyone can write and read the shared databases.

And that is where investment in private, enterprise or permissioned blockchains becomes necessary. In particular, because with private blockchains, participants only join the networks through a negotiated process, and their identity is known. It is important to point out that there are also blockchains that take the best from both worlds. They are referred to as hybrid (or consortium) blockchains. Hyperledger Fabric and R3 Corda are examples of blockchains that can be considered to be hybrid.

With that stated, the following are further advantages of Private and Hybrid blockchains:

• Higher capacity— The structure of private blockchains gives them a higher capacity. For example, the Hyperledger Fabric can process up to 1000 transactions per second. Meanwhile, Bitcoin and Ethereum can only do less than 15.
• Low risk of illegal activity — Given that the identity of the participants in the network is known, each is obliged to be legally responsible and accountable.
• Increased privacy — Since a private blockchain is only accessible to those with permission, users who, for whatever reason, do not want their data accessible to the public or competitors can feel more comfortable using the protocol.
• Governance that can easily act — As compared to public blockchains, it is easier to find consensus on the need to update, fix or change the private blockchain protocol. A clear governance structure is always there to guide the process.
• Less energy consumption — Private blockchains do not use energy-consuming consensus mechanisms such as Proof-of-Work (PoW) that Bitcoin and Ethereum use.
• No cryptocurrency — while cryptocurrencies are a useful application, their legal status is often a source of controversy and can scare away enterprise users of the technology.  Private Blockchains do not come with cryptocurrencies since participants do not need as a reward incentive.
• Regulatory compliant -Enterprises users of technology want to feel comfortable that they are not going to be in trouble with the regulator. A private blockchain easily collaborates with regulators.

However, not everything is excellent with private or hybrid blockchains. They have disadvantages as well. These include a lack of transparency as only those with permission can read and write on them. They also do not benefit from a wider pool of developer resources that is available to public blockchains. Also, having every entity build their own blockchain may eventually lead to numerous silo-ed networks that do not talk to one another. That will beat the fundamental essence of the blockchain technology, which is the sharing of resources through a peer-to-peer network. It is also important to point out that building consortiums requires corporate partnerships, which is not always easy to get, especially given that often the members are competitors in the marketplace.

Pioneers disrupting industries with enterprise blockchains

While the Blockchain technology is still at its early stage, there are those in the mainstream who have seen its potential. Major financial institutions, technology companies, and investment firms are investing in initiatives that match blockchain with viable use cases. The following are some examples of how major players are using private blockchain to disrupt industries:

1. Blockchain World Wire is IBM’s attempt to provide the financial sector with a cross border real-time and simultaneous payment settlement solution. They’ve combined the power of the blockchain and the Stellar protocol to come up with this solution.
2. TradeLens is a joint venture by IBM and Maersk, which seeks to increase efficiency and transparency in global trade.  Using the blockchain technology, TradeLens provides a tamper-proof supply chain management software that digitizes documents and simplifies trade workflow. It is estimated that the system can potentially save about $180 Billion that is lost annually to inefficiencies in the current systems.
3. Fusion LenderComm, is a new product by Finastra (finastra labs), the world’s third-largest financial technology company. Fusion LenderComm is a syndicated lending platform on R3’s Corda. Agents can publish loan data on the ledger, and lenders can access it through a self-service portal. According to reports by Thomson Reuters,  global syndicated lending totaled $4.6 trillion in 2017. And that was from close to 10,000 transactions
4. OpenBazaar is a P2P marketplace built on the blockchain. Andreessen Horowitz, Bitmain and Union Square Ventures are among its top financial backers. The e-commerce industry is a lucrative one, with total global retail sales reaching $2.3 trillion in 2017. Statista projects that annual retails sales will exceed $4.88 trillion by 2021.

State of adoption today and obstacles:

For Proofs-of-Concept (POCs), Ethereum, Hyperledger Fabric and R3’s Corda are the most popular blockchains.

However, due to both business and technological obstacles, none of the Proofs-of-Concept that enterprises have built are deployed. In particular, enterprises still struggle with identifying high-value use cases. Also, they find it a challenge to align their business strategy with solutions on blockchain. Besides, they cannot measure the benefit or impact the technology has on their systems. Meanwhile, using consortiums as a means of accessing the technology is proving to be inefficient in particular because of the competing interests of the stakeholders.

Figure 5: Ostacles to adoption of Enterprise Blockchain

How the future looks:

Forecast of tech evolution

In 2020 we are likely to see more interfacing between different private blockchains as well as public blockchains through the use of sidechain protocols.

By 2022, the need to scale and make blockchains more efficient and interoperable will necessitate the replacement of wasteful consensus algorithms that public blockchain currently use, such as POW with more efficient ones such as DPOS, POS, Avalanche and Algorand. Also, second-layer scaling solutions such as Lightning Network, State Channels, sidechains and Plasma are likely to be implemented on more blockchains, including private blockchains.

By 2023, we are likely to see even more private blockchains as the need for open, fair and reliable blockchains that are not entangled in the cryptocurrency quagmire grows. We are also likely to see more innovation in regard to privacy on these blockchains. Probably technologies like Zk-SNARK will become the industry standard.

Smart contracts are the APIs of blockchain technology. And owing to the importance of this application in managing transactions and regulating inter-business interactions, we are going to see even more innovation around it, especially on enterprise blockchains.

By 2028, private blockchains, public blockchains, hybrid blockchains, and their enterprise applications will have formed one vast fully integrated network akin to the World Wide Web.

Forecast on the business value on blockchain

According to Gartner, a world’s leading research and advisory company, the value that blockchain will generate for businesses will hit slightly over $176 billion by 2025. And by 2030, that it will exceed $3.1 trillion.

However, the journey there will be in three phases. The first phase is between 2018 and 2021. During this period, we will see numerous Proofs-of-Concept as enterprises explore different use cases.  Gartner predicts that 80% of the blockchain applications will fail. The second phase will run between 2022 and 2026. During this period, businesses will establish successful use cases, and that will drive much confidence in the technology and trigger massive adoption. The third phase will happen between 2027 and 2030. During this period, blockchain will become a central technology in the global economy. It will generate over $3 trillion in the form of reduced costs of operation and increased revenue.

It is important to point out, however, that the adoption of blockchain will happen at varied paces depending on specific industries and sectors.

Factors that will affect growth:

Several factors will influence the growth and adoption of blockchain by businesses. The following will have the most impact:

1. The level of technological maturity: Technology can only deliver depending on how developed it is. A more mature technology will support the development of more complex applications.
2. Identification of viable use cases: It is one thing to have cool technology, and it is another to find a meaningful use for it. If impactful use cases for blockchain are proven, that will incentivize more businesses and organizations to adopt it.
3. Government policy: Technology functions within a legal environment. Government policy, as well as enacted laws, can spur innovation or stifle it. This will not be any different with blockchain.
4. The network effect: If blockchain can gain a sizable social proof, it will reach the tipping point and then benefit from the network effect.
5. Robust community: already cryptocurrencies like Bitcoin have attracted enthusiastic communities. For other blockchain applications to succeed, including those on private blockchains, they may need similar communities.

Conclusion

Blockchain 2.0, which began with the launch of Ethereum, provides capacity for use cases beyond cryptocurrency. Indeed, we now know that any application can be powered by blockchain. However, just like it happened with the Internet evolved, we should not expect central authorities to cease to exist. That is because the best user experience and customer support come from centralized service providers. Also, some aspects of the services offered on the blockchain will require enforcement through a centralized authority. Meanwhile, businesses have particular needs and requirements that only private and hybrid blockchains can meet. That includes scalability, privacy transparency in regard to participants, fast governance structures, and regulatory compliance.

As things stand now, we do not understand the full impact and potential of blockchain. It is an area that financial institutions, technology companies and investment firms are actively investigating. Besides, both business and technological obstacles have stood in the way of deploying Proofs-of-Concept.

With that stated, enterprise blockchain will evolve to be scalable and integrate with both other private blockchains as well as public blockchains. Meanwhile, the evolution of blockchain will occur in three phases; exploration, establishment, and massive adoption. Despite the challenges and obstacles in its way, blockchain has the potential to disrupt and fundamentally transform industries within the next decade. Indeed, the technology projected to generate value worth over $3 trillion within that time.