Why Enterprise Blockchain Is No Friend To Small Businesses

Why Enterprise Blockchain Is No Friend To Small Businesses

Image by Pete Linforth from Pixabay

The word enterprise describes a technology customized to meet business needs. In the case of enterprise blockchain, it could be misleading. And that is especially the case when we focus on small businesses.

Recently there has been a concerted effort to label or brand private blockchains as enterprise blockchains.

Even Blockgeeks, the respected online source of blockchain training material, has written a long guide where they refer to private blockchains as enterprise blockchain.

The online technology magazine Hackernoon too has a similar content that uses enterprise in place of private, permissioned, or decentralized/distributed ledger technologies (DLT).

You can see the trend with other publishers, including Forbes. Indeed, private blockchain projects describe themselves as enterprise blockchains.

“The mission of HLP is to…create an enterprise-grade, open-source distributed ledger framework and code base, upon which users can build and run robust, industry-specific applications, platforms, and hardware systems to support business transactions.”~Hyperledger

Private blockchains are designed so that one can only join their networks as a peer with permission from an administrator or by negotiating with the already existing peers.

Usually, it is a company or a consortium that designs and launches a private blockchain. Quorum is an example of a private blockchain by a company — it is a JP Morgan project.

Hyperledger Fabric and R3 Corda are examples of private blockchains by consortiums (with hundreds of major banks, financial institutions and technology companies as members).

It is essential to point out that it is not really who designs and launches a blockchain that makes it a public or private blockchain.

It is more about whether those wishing to join the network have to ask for permission or negotiate their entry.

For example, while Satoshi Nakamoto was a private citizen — we presume — Bitcoin is a public blockchain. Meanwhile, Cardano was designed and built by a private company, Input-Output (IOHK), but is a public blockchain too.

And that is because you can join its peer-to-peer network, write on its shared ledger and read what is recorded on it — all these without having to seek permission from anyone.

The term enterprise might easily convince a small business owner that private blockchain is the best for them.

But is it?

No, it is not, necessarily.

In fact, as a small business, you can build any kind of system, process, or application you need on a public blockchain like Bitcoin or Ethereum.

And that is besides being able to set up a miner or a node owner, and contributing to the core protocol or software without the need to ask for permission.

Of course, with software upgrades, you have to convince the community to accept your proposals.

Contrast that with a private blockchain like Hyperledger Fabric, R3 Corda or Quorum. To connect to the network as an equal peer on the network, you have to be let in.

And going by who the contributors of the network nodes are on most of the private blockchains, definitely not every qualifies.

It helps a lot if you are a major bank or technology company. And you have to pay a subscription fee, which is up to $250,000 on Hyperledger (for a premium membership).

And that is where the problem lies regarding small businesses. They might get enterprise software solutions, but they will not find acceptance and respect as equal peers on those networks.

In particular, there is little chance that a small business can ever propose a protocol change that the network ends up embracing and adopting.

For a proposal by a small business to receive any attention on a private blockchain, it has first to get backing from a premium member, and it shouldn’t be a threat to their business models.

Remember, every small business is a potential competitor or threat to a major corporation.

“No one wants to give up authority. Think about it. It goes against an enterprise’s ability to control their own destiny. Full, complete blockchain is about no central authority. It’s just peer-to-peer.”~Avivah Litan, vice president of research at Gartner.

It is expected that if major corporations are building a blockchain, or any other infrastructure, they are doing it with a focus on how it helps them continue being ahead of everyone.

Anyone thinking that a large corporation or a group of major banks and technology companies building private blockchains are engaged in some form of charitable mission is mistaken.

Meanwhile, public blockchains are open source community projects. They are not beholden to or controlled by any self-seeking or self-preserving entity.

At least not in a way that would put the interest of small businesses on the back banner.

Of course, each player on the public blockchain is self-seeking. However, the robust games theory on most successful blockchains such as Bitcoin and Ethereum makes it possible that all stakeholders can effectively collaborate to make the technology work for all — individuals, small businesses and large corporations

And that creates a room for small businesses to get genuine leverage from the technology. In particular, they have a more significant say on how the technology is designed and managed.

For a start, they can join the network without having to prove to anyone that they can be a worthy stakeholder.

And they can join the process of improving the core protocol by making proposals and submitting them to other users of the network, including other small businesses. Indeed, they can even write code and convince others to make it part of the core software.

Most importantly, though, small businesses can build all kinds of applications on top of public blockchains. And they do not need to rely on a corporation or a consortium to give them the appropriate API.

Now let’s go through some of the things that many point out as advantages of private or enterprise blockchains.

First, is that private or enterprise blockchains offer better privacy safeguards for users and businesses. The narrative goes that public blockchains have all the data on a platform where it is accessible to anyone.

Data on public blockchains is indeed recorded on a shared public ledger, which anyone can download or read online.

However, there is a vital detail to consider. Having data on the blockchain doesn’t necessarily translate to it being available to, accessible to, or readable by anyone.

On many public blockchains, without access to additional data, which users privately hold, in particular, private keys, the record is more or less gibberish.

One has to overcome the encryption that is part of the core protocol of the public blockchains

The use of the word public in describing public blockchains does not equate them to not providing privacy to users.

Indeed we are seeing some of the most potent privacy protocols being implemented on public blockchains. These include the Zero-Knowledge Proofs (zk-SNARKS) implementation, which makes it possible for a peer-to-peer network to prove and confirm the correctness of information without accessing the details.

Besides, small businesses can build specific applications on public blockchains that offer levels of access to their data, in particular using cryptography.

So indeed, public blockchains can offer even better privacy than private blockchains.

Secondly, private blockchains make it easier for businesses to meet regulatory requirements. This is a reason often given with a focus on a single use case of the technology, and that is payment.

However, it is turning out that blockchain can do a lot more for businesses than just process payment.

Indeed, it has the potential to replace the centralized backend for all the systems and applications that businesses use.

For the most part, regulations do not very much differentiate, for example, whether you host your business website on a centralized server or a public blockchain. Wherever you decide to run your application does not really matter.

Also, while user identities are masked on the public blockchain, a business can choose a different way to maintain the records of its customers on its own application on the blockchain.

It is also important to point out that there seems to be a contradiction between stating that public blockchains are inappropriate for compliance because they are anonymous and saying that they fail to provide privacy.

Thirdly, that private blockchains offer enterprise users the ability to correct data when the need arises. And that is contrasted by the fact that data on a public blockchain is immutable.

Immutability on the blockchain is a feature that many, including small businesses, might find very useful. Indeed, the finality and sovereignty of a transaction make a public blockchain reliable.

Having a situation where a central authority can arbitrarily roll back or change the details of a transaction can be misused. And indeed, immutability is one of the primary reasons why an enterprise or individual would choose to migrate to the blockchain.

With proper processes and appropriately designed smart contracts, small businesses do not need to have a transaction changed or rolled back. And if they do, a robust smart contract can be drawn to help in such situations.

Another advantage of private blockchains often cited is that they are fast and cheaper to use, primarily because different nodes on the network can process separate transactions, unlike with Bitcoin, for example, where all nodes work on the same transactions.

This sounds true, especially when blockchain scalability is a subject of discussion. Indeed, public blockchains, in particular, Bitcoin and Ethereum, have had scalability challenges.

However, we are witnessing the implementation of scaling solutions such as Lightning Networks for Bitcoin, Raiden for Ethereum and Sidechains for integrated networks. Public blockchains are acquiring the capacity to handle significant traffic and process transactions fast.

In summary, we are most likely going to see private blockchains sell themselves as enterprise blockchains even more.

However, we should acknowledge that they are best designed for the needs of major corporations. And small businesses stand to benefit more by using public blockchains.

The word enterprise describes a technology customized to meet business needs. In the case of enterprise blockchain, it could be misleading. And that is especially the case when we focus on small businesses.

Recently there has been a concerted effort to label or brand private blockchains as enterprise blockchains.

Even Blockgeeks, the respected online source of blockchain training material, has written a long guide where they refer to private blockchains as enterprise blockchain.

The online technology magazine Hackernoon too has a similar content that uses enterprise in place of private, permissioned, or decentralized/distributed ledger technologies (DLT).

You can see the trend with other publishers, including Forbes. Indeed, private blockchain projects describe themselves as enterprise blockchains.

“The mission of HLP is to…create an enterprise-grade, open-source distributed ledger framework and code base, upon which users can build and run robust, industry-specific applications, platforms, and hardware systems to support business transactions.”

~Hyperledger

Private blockchains are designed so that one can only join their networks as a peer with permission from an administrator or by negotiating with the already existing peers.

Usually, it is a company or a consortium that designs and launches a private blockchain. Quorum is an example of a private blockchain by a company — it is a JP Morgan project.

Hyperledger Fabric and R3 Corda are examples of private blockchains by consortiums (with hundreds of major banks, financial institutions and technology companies as members).

It is essential to point out that it is not really who designs and launches a blockchain that makes it a public or private blockchain.

It is more about whether those wishing to join the network have to ask for permission or negotiate their entry.

For example, while Satoshi Nakamoto was a private citizen — we presume — Bitcoin is a public blockchain. Meanwhile, Cardano was designed and built by a private company, Input-Output (IOHK), but is a public blockchain too.

And that is because you can join its peer-to-peer network, write on its shared ledger and read what is recorded on it — all these without having to seek permission from anyone.

The term enterprise might easily convince a small business owner that private blockchain is the best for them.

But is it?

No, it is not, necessarily.

In fact, as a small business, you can build any kind of system, process, or application you need on a public blockchain like Bitcoin or Ethereum.

And that is besides being able to set up a miner or a node owner, and contributing to the core protocol or software without the need to ask for permission.

Of course, with software upgrades, you have to convince the community to accept your proposals.

Contrast that with a private blockchain like Hyperledger Fabric, R3 Corda or Quorum. To connect to the network as an equal peer on the network, you have to be let in.

And going by who the contributors of the network nodes are on most of the private blockchains, definitely not every qualifies.

It helps a lot if you are a major bank or technology company. And you have to pay a subscription fee, which is up to $250,000 on Hyperledger (for a premium membership).

And that is where the problem lies regarding small businesses. They might get enterprise software solutions, but they will not find acceptance and respect as equal peers on those networks.

In particular, there is little chance that a small business can ever propose a protocol change that the network ends up embracing and adopting.

For a proposal by a small business to receive any attention on a private blockchain, it has first to get backing from a premium member, and it shouldn’t be a threat to their business models.

Remember, every small business is a potential competitor or threat to a major corporation.

“No one wants to give up authority. Think about it. It goes against an enterprise’s ability to control their own destiny. Full, complete blockchain is about no central authority. It’s just peer-to-peer.”

~Avivah Litan, vice president of research at Gartner.

It is expected that if major corporations are building a blockchain, or any other infrastructure, they are doing it with a focus on how it helps them continue being ahead of everyone.

Anyone thinking that a large corporation or a group of major banks and technology companies building private blockchains are engaged in some form of charitable mission is mistaken.

Meanwhile, public blockchains are open source community projects. They are not beholden to or controlled by any self-seeking or self-preserving entity.

At least not in a way that would put the interest of small businesses on the back banner.

Of course, each player on the public blockchain is self-seeking. However, the robust games theory on most successful blockchains such as Bitcoin and Ethereum makes it possible that all stakeholders can effectively collaborate to make the technology work for all — individuals, small businesses and large corporations

And that creates a room for small businesses to get genuine leverage from the technology. In particular, they have a more significant say on how the technology is designed and managed.

For a start, they can join the network without having to prove to anyone that they can be a worthy stakeholder.

And they can join the process of improving the core protocol by making proposals and submitting them to other users of the network, including other small businesses. Indeed, they can even write code and convince others to make it part of the core software.

Most importantly, though, small businesses can build all kinds of applications on top of public blockchains. And they do not need to rely on a corporation or a consortium to give them the appropriate API.

Now let’s go through some of the things that many point out as advantages of private or enterprise blockchains.

First, is that private or enterprise blockchains offer better privacy safeguards for users and businesses. The narrative goes that public blockchains have all the data on a platform where it is accessible to anyone.

Data on public blockchains is indeed recorded on a shared public ledger, which anyone can download or read online.

However, there is a vital detail to consider. Having data on the blockchain doesn’t necessarily translate to it being available to, accessible to, or readable by anyone.

On many public blockchains, without access to additional data, which users privately hold, in particular, private keys, the record is more or less gibberish.

One has to overcome the encryption that is part of the core protocol of the public blockchains

The use of the word public in describing public blockchains does not equate them to not providing privacy to users.

Indeed we are seeing some of the most potent privacy protocols being implemented on public blockchains. These include the Zero-Knowledge Proofs (zk-SNARKS) implementation, which makes it possible for a peer-to-peer network to prove and confirm the correctness of information without accessing the details.

Besides, small businesses can build specific applications on public blockchains that offer levels of access to their data, in particular using cryptography.

So indeed, public blockchains can offer even better privacy than private blockchains.

Secondly, private blockchains make it easier for businesses to meet regulatory requirements. This is a reason often given with a focus on a single use case of the technology, and that is payment.

However, it is turning out that blockchain can do a lot more for businesses than just process payment.

Indeed, it has the potential to replace the centralized backend for all the systems and applications that businesses use.

For the most part, regulations do not very much differentiate, for example, whether you host your business website on a centralized server or a public blockchain. Wherever you decide to run your application does not really matter.

Also, while user identities are masked on the public blockchain, a business can choose a different way to maintain the records of its customers on its own application on the blockchain.

It is also important to point out that there seems to be a contradiction between stating that public blockchains are inappropriate for compliance because they are anonymous and saying that they fail to provide privacy.

Thirdly, that private blockchains offer enterprise users the ability to correct data when the need arises. And that is contrasted by the fact that data on a public blockchain is immutable.

Immutability on the blockchain is a feature that many, including small businesses, might find very useful. Indeed, the finality and sovereignty of a transaction make a public blockchain reliable.

Having a situation where a central authority can arbitrarily roll back or change the details of a transaction can be misused. And indeed, immutability is one of the primary reasons why an enterprise or individual would choose to migrate to the blockchain.

With proper processes and appropriately designed smart contracts, small businesses do not need to have a transaction changed or rolled back. And if they do, a robust smart contract can be drawn to help in such situations.

Another advantage of private blockchains often cited is that they are fast and cheaper to use, primarily because different nodes on the network can process separate transactions, unlike with Bitcoin, for example, where all nodes work on the same transactions.

This sounds true, especially when blockchain scalability is a subject of discussion. Indeed, public blockchains, in particular, Bitcoin and Ethereum, have had scalability challenges.

However, we are witnessing the implementation of scaling solutions such as Lightning Networks for Bitcoin, Raiden for Ethereum and Sidechains for integrated networks. Public blockchains are acquiring the capacity to handle significant traffic and process transactions fast.

In summary, we are most likely going to see private blockchains sell themselves as enterprise blockchains even more.

However, we should acknowledge that they are best designed for the needs of major corporations. And small businesses stand to benefit more by using public blockchains.

Published at Thu, 30 Jan 2020 13:30:11 +0000

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