Public blockchains, in particular, don’t make sense for many businesses where privacy is required. Pseudonymous isn’t good enough, and generally speaking, modern databases are pretty good at what they do. However, some projects are making strides towards making data on the blockchain more opaque for enterprise.
Blockchain proponents claim the distributed technology behind bitcoin could improve supply chain management, quality assurance, accounting, smart contracts, improve trust in transactions, and potentially the voting process of shareholders.
But, despite this potential, companies have generally shied away from adopting the technology. Switching systems over to blockchain would be very expensive, and corporations would naturally do research and development before making any such decisions.
Blockchains Are Not Private Enough for Enterprise
Full nodes are responsible for validating transactions and blocks. But, in order to do this, each full node has access to the blockchain transaction data itself, making this information publicly available.
In short, blockchains contain data that does not link transactions to a specific individual, but, with enough cumulative data, researchers could deduce who is whom on the blockchain.
There are already big companies who do just this, such as Chainalysis, a blockchain analysis firm that recently found ‘whales’ were not the largest source of bitcoin price volatility. This could undermine the privacy (and security) of some users, particular major corporations for whom privacy is so important. They don’t want spying competitors to learn their trade secrets, reveal customers’ personal information etc.
The New York Times covered how pseudonymous location data can simplify identification, allowing malevolent entities, private companies, and governments to follow transactions on the blockchain.
Since the blockchain is theoretically immutable, if an address you’ve used to conduct private business is made public as one of your own, then the transaction history will forever be publicly known. This is a particularly big problem for organizations who are regulated when it comes to the data of their customers. (think GDPR and the California Privacy Act)
Indeed, privacy coins have been around for several years now, such as Bitcoin Dark and Monero. But, companies are looking for something different.
Let’s take a look at some of the projects attempting to make blockchain technology more enterprise-friendly.
“Data confidentiality mechanisms ensure that individuals or organizations are prevented from accessing data that they are not authorized to access, such as classified information of other organizations’ transactions,” writes Elli Androulaki, Sharon Cocco and Chris Ferris for IBM. “Anonymity requires that participants of transactions are concealed.”
It’s not exactly clear how IBM is improving upon the already existing encryption in the databases companies currently use. Without that important information, it might lead an enterprise considering blockchain to stick with their old-fashioned databases that keep things confidential as is – barring a hack.
Amazon Web Services (AWS) and Kaleido want to create an “easy button” so businesses that can start taking advantage of distributed ledgers. Towards this end, Amazon introduced Hyperledger and Ethereum templates.
“Introducing Kaleido to AWS customers is going to help customers move faster and not worry about managing blockchain themselves,” AWS said in its statement.
Kaleido offers a full-stack SaaS for creating, operating and scaling enterprise blockchain solutions,” writes Amazon about its AWS Marketplace. “Far beyond AMI scripts, Kaleido accelerates the entire journey from PoCs to live networks with rapid member onboarding, hardened enterprise scale, analytics, and flexible shared IT governance.”
The likes of Amazon and IBM have competition from blockchain-centric startups, too.
MIT’s MedRec calls itself “a network, not a service.” Currently, a pilot project with the Beth Israel Deaconnes Medical Center, the open-source platform creates an authentication log for the governing of medical record access. Medical researchers provide “the mining” that secures and sustains the authentication log on a “private, Ethereum network.”
“Electronic Health Records (EHRs) were never designed to manage the complexities of multi-institutional, lifetime medical records,” writes MedRec. “As patients move between providers, their data becomes scattered across different organizations, losing easy access to past records. As providers — not patients — are the primary stewards of EHRs, patients face significant hurdles in viewing their reports, correcting erroneous data, and distributing the information.”
The situation is much like consumer finance, where an individual may have several bank accounts, credit cards, loans, and assets but no unified way to access and control them. In the case of finance, however, there is an infrastructure in place that greases the wheels: currency. With medical information, we are still in the age of barter.
An open-source project focused on maintaining privacy within the enterprise blockchain environment, called the Zagg Protocol, acknowledges that transparency of account balances across nodes “often presents an unworkable situation within an enterprise environment.”
Zagg notes that state channels, which represents a two-way channel between users (or a user and a machine) that allow for state-altering operations off the blockchain, don’t offer total privacy.
The project planned to build on Stellar but recently announced it chose DigitalBits as a partner due to its privacy features (and its being backed by the largest wallet provider in the Stellar ecosystem, Lobstr). Zagg claims that existing UTXO-based privacy blockchains don’t support complex coding or smart contracts.
ZAGG’s Zero-Knowledge Proofs (zk-SNARKS) ensure secure and private validation while avoiding double-spending. Zero-knowledge proofs are a type of consensus protocol. In a ZKP, one party proves to another party that certain states on a system are true without revealing certain information.
While traditional blockchains detail a sender and receiver’s address and the amount transaction, ZKPs do not reveal or share information other than the boolean of whether it is valid or invalid and were perhaps first made popular in the blockchain industry when Zcash 00 incorporated them into their cryptocurrency.
Polkadot is working on a solution to enable different blockchains to communicate with each other. Designed to create interoperability between chains, the idea here is that smart contracts and applications on Polkadot could one day seamlessly transact with data and assets on other chains.
Parachains would be a major component of Polkadot. Used to gather and process information and pass that information to a relay chain. The information would then be passed to “Bridges”, which connect back to a base-blockchain, like Ethereum.
MESG is working on connectivity and interoperability between blockchains, as well as blockchains with non-blockchain technology. Developers would be able to use a marketplace to monetize open-source code, the startup claims.
“Integration and adoption issues are not directly linked, but they share a common problem,” Anthony Estebe, MESG CEO, told Forbes. “Blockchain adoption is hard because for now, the user experience is still terrible, but if there are more ways to connect blockchains to the existing world that will help a lot user experience.”
Lambda, a blockchain-based storage network, is developing two features it claims will make blockchain palatable to enterprise: Provable Data Possession (PDP) and Proofs of Retrievability (POR). Both are intended to produce an immutable and secure solution for storing, accounting for and exchanging large volumes of data across more than one party.
The company’s CEO, Lucy Wang, claims that Lambda incorporates access control via multi-authority attribute-based encryption (MA-ABE).
Details about how all of this works, like with too many blockchain startups, are sparse.
Blockchain Might Not Be The Right Solution
The applications of asset tokenization in enterprise range from prevention of double-spending to the automation of tasks. But before its full benefits can be realized in an enterprise setting, organizations will need to be confident that their enterprise blockchain lacks the transparency so often coveted by crypto-proponents.
That is perhaps why banks are trying to develop private blockchains on their own. The above-mentioned Hyperledger might be one example. Another is R3, a distributed technology consortium comprised of the world’s biggest banks.
Completely private blockchains allow companies to control and protect their IP better than a public ledger – or so the thinking goes. In fact, these companies might still decide that they don’t need blockchain at all in their businesses – whether it be a private or a public blockchain.
Their decision might ultimately hinge upon how many nodes exist and how they’re distributed. A public blockchain like Bitcoin has thousands of nodes making it much more tamper proof and resilient to attack.
Private nodes, on the other hand, will have a lot less as the number of participants on exclusive networks will be much smaller, which may defeat the entire purpose of choosing a blockchain over a database.
Blockchains are not plug and play, it takes years upon years to establish these decentralized networks. Trial by fire is the only way to prove the validity and security of a new network.
— ɃitConsultants (@BitConsultants) January 22, 2019
With this in mind, a blockchain might be useful for enterprises where there could be some potentially untrustworthy participants on the network. A centralized database controlled by a single entity is otherwise much more efficient, and the potentially untrustworthy participants would be excluded by default.
Will enterprises eventually find a use-case for blockchain technology? Share your thoughts below!
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