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What is enterprise blockchain? Everything you need to know

Blockchain
(Image credit: Shutterstock / phive)

If you say ‘blockchain’ to the average person and ask them what immediately springs to mind, you might get references to Bitcoin, the dark net, fortunes made and lost, Facebook’s Libra. Or, you might just get a blank stare.

So when you tell them that some of the world’s most conservative firms are using it or that the Italian banking system now depends on it, it’s perhaps no surprise when their heads start to spin.

It is indeed true that many of us in the ‘enterprise blockchain’ world have been working for over five years now to apply techniques pioneered by Bitcoin to solve problems for today’s businesses. But the technologies we’ve built and the applications we’re developing couldn’t be further from that starting point, and we haven’t already done a good job of taking people on the journey that we ourselves have travelled.

About the author

Richard Brown is CTO at R3

Here, I will attempt to dispel the myths around enterprise blockchain that do it a disservice and explain what it actually is, and how it can bring benefits to the business world.

Back to the beginning

In attempting to separate blockchain and Bitcoin, it might seem counter-intuitive to begin by talking about how Bitcoin came about; but the truth is, you can’t explain the history of blockchain without talking about Bitcoin.

When the pseudonymous Satoshi Nakamoto released ‘Bitcoin: a peer-to-peer electronic cash system' in 2009, the world was introduced to a manifesto which proposed an alternative form of currency that was a “purely peer-to-peer version of electronic cash”. This particular form of alternative cash, as launched by Nakamoto, is Bitcoin.

Importantly, Nakamoto didn’t wake up one day wanting to ‘build a blockchain’. No. Instead, it turned out that the vision of a peer-to-peer electronic cash system required an architecture where there was no single party in overall control, where each participant could verify transaction histories for themselves, and where everybody needed a way to be sure that their view of the ledger was the same as everybody else’s. The need for a blockchain architecture emerged from Bitcoin’s requirements.

But once the idea of a shared network where each participant verifies updates for themselves and where there is an agreed mechanism to ensure people are in agreement has been created, it’s natural to start to identify other problems it can also solve.

So it’s helpful to think of Bitcoin as simply one of a number of different applications of blockchain technology. 

At its core, a blockchain is an architecture for a distributed network where each participant can verify that their view of any relevant transactions is identical to that of their counterparts. It allows you to build applications where each participant knows for sure that “what you see is what I see” (WYSIWIS). This is what Nakamoto needed in order to make Bitcoin work: a way for each participant to check things for themselves (no trusted third parties) and a way to ensure everybody reaches the same conclusion as to what actually happened in a case where two valid but competing actions happen at near the same time (double-spend prevention).

But, what does that actually mean, and how does it apply in an enterprise context?

Unpicking the enterprise blockchain definition

The description I have above doesn’t sound like much. But when you know you’re in sync with your trading partners and know you have agreed up front what the rules are for any updates, it creates some extremely powerful possibilities.

For example, consider a borrower negotiating a loan from a complex syndicate of lenders. Lots of moving parts, lots of lawyers, lots of incompatible IT systems, and a set of contracts that might last for the next thirty years.

If you could be sure that all participants ultimately ended up with the same view of the deal and shared the same business rules about how the contract would evolve in the coming years, you could massively reduce the amount of error, duplication, queries and reconciliations.

The “WYSIWIS” idea, when applied to networks of businesses trying to manage a complicated business process, is extremely alluring. And it’s the fundamental promise of a blockchain architecture.

But there’s also a problem. 

The traditional permissionless blockchain architectures – in which all data is shared with all parties – upon which the likes of Bitcoin were built, don’t fit well in an enterprise environment. Worse, permissionless blockchains try hard to obscure the identity of their participants, whereas businesses want to be completely sure who they’re signing contracts with!

So my firm and others found ourselves in a curious position at the starts of our journeys five years ago. The fundamental WYSIWIS promise of blockchains have the potential to transform entire industries but the specific implementations that support the public cryptocurrencies have designs that render them useless in an enterprise context!

This is why the blockchains being used to solve real problems for businesses today are almost entirely ground-up developments. Heavily inspired by the public platforms, but architecturally different in fundamental ways.

Email, but for machines?

At its heart, enterprise blockchain is creating a way of allowing different systems to speak to one another in a way that ensures they can be sure they are in sync, so that businesses can do what they already do, but better.

One way to think of blockchain is as email for machines. Emails work very well to allow us to communicate and share information with people at all the firms we work with. But, blockchain lets us communicate and share information with systems in the firms with which we work. It serves as a common technology that can be used by all industries.

Bearing the same attributes that email does for inter-firm communication, enterprise blockchain brings together institutional-grade identity management; self-sovereign service advertisement; secure asynchronous messaging; shared business and flow logic; and integration capabilities. This is the essence of what you need to link applications in different firms together.

Moving from a world where everybody builds and runs their own distinct applications, which are endlessly out of sync, to one where everybody is using a shared market-level application, dramatically drives down deviations and errors. And that’s what we mean when we talk about ‘helping businesses do what they do better’.

Herein lies the real opportunity for blockchain technology: to optimise not just entire firms, but entire markets. Most businesses are centralised but the markets that most businesses operate in are decentralised.

Market-level optimization                          

Enterprise blockchain is the enabler of this market-wide transformation, and enterprise blockchain platforms achieve some of their magic because they make seemingly trivial improvements to inter-firm business processes. In doing so, they dramatically drive up levels of automation and consensus.

The promise of enterprise blockchain has made incredible headway since it first came to mainstream consciousness some five years ago. We have seen uses cases in just about every industry imaginable and there are few sectors which could not benefit from its core features of trust and transparency.

As with any disruptive technology, understanding its premise and coming to terms with the idea of departing from the status quo will perhaps be the greatest challenge in unlocking enterprise blockchain at scale.

Blockchain when applied to solve business isn’t about upending legacy systems, but connecting them and offering a new technology that can enable them to work together, better.

If the first fifty years of financial technology were focused on optimising the operations of individual firms, the future will undoubtedly be about optimising entire markets. This is the ultimate promise of enterprise blockchain technology for financial services and beyond.

Richard Brown is CTO at blockchain firm R3