A Centralized Blockchain: The Challenges that Companies Face when Adopting Blockchain Technology
It is rarely the case that solutions on public blockchains are considered for commercial introduction. Both businesses and public entities rely more and more on private networks for process optimization and reengineering. What challenges do companies face when integrating private blockchains into their operations? Let us see where the problems could lie.
A private blockchain is a system with certain arrangements made between its members, with regard to levels of access and rules for writing down and verifying the data.
Blockchain-powered solutions can substantially simplify processes where:
— there is a need to build trust between multiple members and counteragents;
— parties exchange data and documents, carry out settlements, and make deals.
Unlike public blockchains, technical capabilities of private networks can protect the system against DDoS attacks, promptly update smart contracts, and perform transactions as quickly as possible. The most popular programming languages for smart contracts are Go, Kotlin, and Rust, for they have a more advanced functionality than that of languages used for smart contracts in public networks.
Ideally private networks have peer-to-peer relationships between their members; however, after a pilot has been tested, a governance problem may arise. A network operator is needed — a particular legal entity that would ensure an SLA. This inevitably leads to centralization, since all management issues are now in the hands of a single company. Not only does it change an entire blockchain landscape, but also it runs counter to its core principle: decentralization.
A similar situation arises when a private network becomes a packaged product, for instance when we need to affirm the legal value of the network. A packaged product assumes technical support and its particular operator. Such a model also contradicts the principle of decentralization.
What we end up with is, in fact, a “centralized blockchain.” A joint venture whose members manage a private network and use off-chain governance can solve the problem. In off-chain governance, companies make an agreement and, instead of hiring a blockchain operator, share the duties among themselves. The enterprise utilizes a system of voting, which determines whether changes are accepted by the system.
A more technological option is also possible: on-chain governance. In such a model all decisions about voting, adding or removing members, or updating smart contracts become part of a blockchain, with nodes carrying out all operations online.
Implementing a technical part, on-chain governance is much easier than legal and operational parts. Lots of large companies operate within an established paradigm and meet strong resistance when trying to promote innovations that redesign the basic principles of work.
Companies, however, do not give up and try to come up with a solution. Maersk, a global leader in container logistics, and IBM have launched TradeLens, the first global blockchain-powered platform for commerce with more than 100 adopters worldwide. TradeLens brings together port and terminal operators, ocean carriers, customs, freight forwarders, and logistics companies. The solution targets all members of the global logistics ecosystem. The ultimate goal of TradeLens is to advance global commerce and simplify documentation procedures and monitoring. TradeLens is a neutral platform, an industry governed joint venture. This approach allows to ensure decentralization and equality of all parties.
Despite complicated legal and organizational aspects of adopting the technology, there is a positive trend. In 2019, the industry witnesses how large companies scale up blockchain solutions and expand the pool of users.
Orbita, a centre for blockchain practical application, has published a review for ForkLog, where they list recent initiatives in the blockchain industry. One striking example is we.trade, a blockchain-powered platform for trade finance. The Finnish bank Nordea joined we.trade at the beginning of May 2019. All major European banks, such as Société Générale, Deutsche Bank, Santander, CaixaBank, and UniCredit, among others, are already platform members. we.trade operates on the Hyperledger Fabric blockchain-powered platform and allows companies to establish new commercial relations. The platform offers online transactions and an international payment solution. we.trade targets both small and middle companies engaged in cross-border shipments and aims to establish an ecosystem for commercial transactions.
By July 2019, Russia plans to put into operation a blockchain solution for electronic mortgages based on the Masterchain platform. Pilot transactions were carried out at the end of 2018. Several Russian banks, such as Sberbank, Gazprombank, Raiffeisenbank, Absolut Bank, Ak Bars, and GK Region, were the first to test the new system.
The number of blockchain use cases grows by the day. Even though private networks pose certain challenges, companies try and find a consensus on their way to decentralization and transparent business processes. We believe that blockchain-powered solutions are in the vanguard of digital transformation and have the potential to transform the business environment.
