The compelling value proposition of Enterprise Blockchain

The goal of this article is to portray my subjective and for ease of use significantly simplified understanding of blockchain technology as the ultimate value settlement layer on top of the internet that enterprises will use to transact with each other and their customers. Please note that we are still very early in its development - let's say internet adoption in the early 90s.

The basics of blockchain

Blockchain is not a groundbreaking new technology. Its merit lies in the way it combines principles and technologies known for decades, such as cryptography or digital ledgers, into a unique blend of properties that allow its users to transact, exchange value, and do business in a completely new way:

• Distributed: You do not need to run or spend any resources on any infrastructure to use it.
• Decentralized and Permissionless (Public): As no central authority controls the network, no central point of failure or attack exists. No one limits your access to the network nor has control over what you can or cannot do.
• Trustless Consensus and Fast Settling: It allows you to complete transactions almost instantly 24/7 while preventing the nodes operating the network from abusing the system.
• Immutable and Secure: Once you execute a transaction successfully, it is recorded on the blockchain. It cannot be modified or deleted.
• Transparent: You can access and view all transactions on the chain, making it resistant to fraud and corruption as malicious developments are visible and traceable.

Numerous blockchain platforms are available with various degrees to which they preserve the properties listed above, making them more or less suitable for certain applications. Particular attention should be dedicated to permissionless (public), as permissioned (private) blockchains use an access control layer to govern who has access to the network.

Advanced properties that make blockchain attractive for businesses

To make blockchain truly compelling for businesses, it should possess additional values:

• Scalable and Interoperable: Blockchain must meet the transaction capacity as well as price per transaction needs of its user base. For example, the pharma supply chain might require capacity of several billion transactions per day. As there are various solutions to this issue, they need to be interoperable to maintain user-friendliness and basic properties of the blockchain, such as being secure and decentralized.
• Programmable: Blockchains that provide computation logic allow you to digitize and automate nearly any existing and imaginable business logic and represent almost any digital or physical asset as a token.
• Privacy [1]: This is a must for organizations as they need to conceal their transactions and on-chain business logic from their competition. Again, various solutions exist to tackle it.
• Sustainable: Sustainability is no longer an option. There are blockchain designs that provide energy-efficient ways to validate transactions.

Blockchains with such properties are suitable not just as a transaction layer among two or more parties [2]. Through standardized APIs (Application Programming Interfaces) they can also be integrated into their internal systems such as ERPs (e.g. SAP or MS Dynamic) or CRMs (e.g. SalesForce), acting effectively as a powerful medium of value exchange such as SWIFT for finance and payments or EDI, Electronic Data Interchange, for interchange of business information (e.g. purchase orders or invoices). This way, they remove the need for manual interventions beyond organizations' internal systems (i.e. automated, simultaneous reconciliation across all parties' systems).

Unlike SWIFT or EDI, blockchains allow transparency and programmable logic for all parties that adopt common standards [3]. Furthermore, their programmable logic allows various automated multiparty interactions without any central intermediary utilizing tokens representing FIAT (similar to SWIFT) or assets (similar to EDI) as a medium of exchange as well as tracking their metadata (e.g. batch size or amount of emissions produced throughout the production) within the whole business ecosystem (e.g. multiple tiers of suppliers).

From theory to practice: Ethereum on the scene

To quote our EY Global Blockchain Leader Paul Brody, "Blockchains will do for networks of enterprises and business ecosystems what enterprise resource planning did for a single company." Reviewing the properties against the blockchain of your choice should give you a fair guide for choosing a suitable platform to experiment with. From a global perspective, there is an obvious candidate to look into – Ethereum and its vibrant ecosystem.

Ethereum is the most decentralized and permissionless (public) blockchain ecosystem. It has by far the most varied distribution in many domains, from the community working on its improvements to nodes running the network, to clients used for its consensus and execution. This gives it immutability, transparency, security and achieves transaction finality in a few minutes.

It has never paused or stopped working since its launch on July 30th, 2015. It is fully programable, and by upgrading to Proof-of-Stake, it is maximally sustainable, with annual electricity consumption estimated at 2,601 MWh [4]. AirBnB, Netflix, and Bitcoin have approximately 8x, 173x, and 50,000x higher annualized energy consumption, respectively [5].? Due to its lively community of researchers and developers, a prospering ecosystem of scalability and privacy solutions allows fast, cheap, 24/7 transactions and business logic execution.

As this network ecosystem attracts proportionally the largest developer pool in the crypto space, it provides the highest variety of projects (i.e. applications or protocols) to interact with, which draws the attention of the highest number of active (corporate) users. This self-propelled flywheel positions Ethereum and its ecosystem as the most probable blockchain on which we will store and exchange value in the future, similar to how the internet provided a platform for information exchange.

Let's get to business

Now that we understand what blockchain is and what to look for when choosing one, let's have a closer look at the ecosystem of our choice - Ethereum - and discuss real-world use cases.

Similarly to the view of Paul Brody, I believe that public blockchain will massively impact how the global economy and society work and the way we do business as it has the potential to become the trustless, constantly running transaction layer for organizations, individuals, and public services without any intermediary.

It is impossible to list all potential use cases, so let us look into a few obvious ones we have already realized :

• Tokenization of assets: In complex supply chains, it is possible to tokenize raw materials, and transform these tokens throughout the production into work product tokens, warehouse stocks, and transport batches, all the way up to the end user. ?? Use case: Birra Peroni is the first industrial organization to mint unique non-fungible tokens using EY OpsChain Traceability https://go.ey.com/3vgbdTy
• Traceability of assets: As this cycle allows for the ultimate traceability of materials and products up to the lowest distinguishable level, blockchains seem to be an essential enabler for sustainability and actual circular economy, e.g. regressive decomposition of products into subcomponents or raw materials, and their full reusability in new production cycle. ?? Use case: How blockchain helps the public see the truth in the story https://www.ey.com/en_cz/consulting/how-blockchain-helps-the-public-see-the-truth-in-the-story
• Automated business logic: By transforming business contracts into smart contracts, it is possible to enforce even the most complex business logic and automatically execute payments and goods reconciliation among all parties involved in the entire lifecycle. ?? Use case: EY and Microsoft expand Xbox enterprise blockchain platform for rights and royalties management https://go.ey.com/3Dz73Yi

A few industry-focused illustrative cases:

• Real Estate use case: Tokenizing property ownership increases liquidity and lower entry requirements for a real estate marketplace.
• Financial services use case: Digitization of financial instruments or shifting from traditional, centralized economic systems to peer-to-peer finance enhances transparency and efficiency, while programmable money or payments create endless improvement possibilities.
• Energy and Resources use case: Track tokenized emissions and their offset with verified carbon permits while providing a transparent overview of such mechanism.

The future of blockchain

Many more use cases already exist or are about to be discovered as the technology will be progressively integrated into many domains of our daily lives and operations (e.g. tamper-proof proof-of-human or origin in the emerging AI era).

The technology is still in the early years of research, development, standardization, and adoption. There is a long way ahead of us to discover new compelling use cases beyond what we can imagine based on today's experience and expectations.

One of the main challenges is how to integrate the technology value proposition into our regulatory frameworks and ensure rules agreed on the blockchain are enforced in real-life or applied to physical objects (i.e. enforce the exchange of material goods for FIAT that was contractually done on-chain in the form of tokens).

Despite all the indisputable advantages of blockchain technology, it still needs to tackle various risk vectors.

Disclaimer: The article represents the subjective views of its author at the time of its publication. It is informal and provides no investment, legal or other advice. The article is significantly simplified and only portrays some of the complexity of blockchain technology.

References:

[1] Unlike anonymity, privacy allows for compliance with regulatory requirements (i.e., identification of transacting parties for regulators without revealing business rules or transaction details to the competition).

[2]Wallets or profiles representing the transacting parties on-chain.

[3] Standardization is one of the main challenges blockchain must tackle in the near to medium term to fuel broader adoption among enterprises.

[4] This value changes as nodes enter and leave the network.

[5] Source: Ethereum Energy Consumption | ethereum.org