Public Blockchains for Enterprises

The bad news is that private blockchains don't have a compelling value proposition. You could easily agree on the rules for setting up a central server if you and other companies could agree on a single vendor to create and manage a blockchain.

 As any technical expert can tell you, blockchains are complex and costly to create and maintain. They don't make much sense if you only need a database or a web server.

Private blockchain advocates will point out the benefits of decentralization in decision-making, data distribution, and redundancy. However, all these capabilities can be easily replicated with existing fault-tolerant, disaster-resistant services that have proven track records at 99.999%.

Almost all enterprises have reached this conclusion. EY and Forrester conducted a survey in 2019 that found that two companies were willing to start their own private blockchain for every company that joined another company. It is impossible to scale a sustainable network. A majority of private blockchain users believe that a public network is the best path to success.

Why is it that private blockchains are still so popular? Large enterprises are extremely risk-averse. They want to reach the real thing, public blockchains. But they want to do it in the most risk-free way possible.

Most people will create an Ethereum-based private blockchain. This would allow them to connect to and migrate to the public Ethereum main networks in the future, once they are familiar with the technology. Permissioned systems can be customized in a way that makes them unsustainable over the long term.

Private blockchains are created to operate in the Ethereum ecosystem. They are built for a world where all participants have been carefully vetted and security risks are manageable. There is no irreversible transaction. Private blockchains are able to be restored from backups and rules and systems modified. They can store sensitive customer and user data, run complex smart contracts, and they don't charge any gas fees. It's almost like blockchain technology, but without all the scary things about blockchains: irreversible transactions and total transparency, aggressive hackers, and per-transaction fees.

It is possible to build private networks from a technical perspective. However, it is very easy to realize the limitations of private networks and begin to think about how to migrate to the public ecosystem. The trouble starts once that happens.

These fragile ecosystems were created in a safe and comfortable world of design-by-committee with only nice people at each table. They would be destroyed if exposed to the actual Ethereum blockchain ecosystem. These sheltered ecosystems will drift further away from public standards over time. It would cost so much to migrate these systems to the Ethereum public network, it would be more affordable to just rewrite the entire thing.

There is a better way. Instead of creating a private blockchain, companies who are unable to make it public should consider building permissioned sidechains that connect to the Ethereum network. These sidechains, though still permissible, would be more closely connected to the public Ethereum main network's standards and tools. Even if they are not permitted to use the same security standards and tokens as the public networks.

This model would make it much easier and more feasible to migrate to a public network. It also reduces the risk of stranded investments. These permissioned systems can still interact with the liquidity and users in the main network as an integrated layer 2.

There are many compelling benefits that blockchains can bring to many businesses and processes. However, these advantages are worth the risk if companies have a clear roadmap for the future. Some use cases, such as product traceability, can be easily handled by public blockchains. Privacy concerns are not present in most cases. The whole point of public transparency is accountability.

The risks and rewards associated with more complex business processes like procurement are greater. Smart contract-based procurement systems will allow companies to not only negotiate discounts or rebates but also ensure they get the incentives they are looking for.

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To put procurement agreements on a Blockchain, you must be comfortable with the privacy technology and payment technology. Initiatives such as the Baseline Protocol have made a significant contribution to privacy via zero-knowledge proofs, off-chain storage, and other methods. Private data is not stored on-chain and there's no chance of it being exposed.

Enterprise users will be able to build these products first on permissioned sidechains, which will enable them to become familiar with the issues and challenges while still being close to the public Ethereum network. Is it necessary to make the public blockchain available? For one simple reason, yes.To access all the services on public blockchains.

Nearly all permissioned system suffer from a lack in supplier diversity and partner diversity. It is difficult enough to get several companies to agree on the rules. Imagine trying to get financial partners, logistics providers, and insurance companies on the same page. It's unlikely to happen. It is not necessary to make the ecosystem accessible to the public infrastructure. Networks that are open to competition will bring more choices, greater choice, and more services.

Public blockchains, most likely Ethereum, will play a similar role in the economy as the open and public internet. Private networks, much like corporate intranets, won't disappear, but they'll become less strategic for the ecosystem and the companies involved.