The Enterprise Headache Of A Decentralized Blockchain

For blockchain technology, the crux of many of its purported benefits for the enterprise is its decentralized nature, which, proponents of distributed ledger technology (DLT) have said, promotes visibility and makes it more difficult for data to be manipulated.

The security benefits of decentralization make blockchain an attractive fit in corporate finance. Popular use cases that have emerged in recent years include blockchain’s potential to securely transmit remittance data along with payments in cross-border B2B transactions, enable companies to use smart contracts to enforce business agreements in B2B trade and mitigate the risk of fraud in supply chain transactions.

Open source blockchain technologies and developer sandboxes have made the creation of proprietary enterprise solutions, built on DLT, easier than ever — in theory.

As Sophia Lopez, founder and COO at Kaleido, told PYMNTS in an interview, the lack of a central authority can make enterprise development and the implementation of blockchain-based solutions extremely difficult and friction-filled. For example, corporates often go it alone when creating a blockchain solution, and that lack of a central intermediary can make it difficult for companies to find guidance.

“There is a lot of blockchain experimentation with enterprises,” she said, “but they really don’t have this skill on their team[s]. When you have to gain all of those skills at the same time [that] you’re trying to identify what the use case and ROI could be, it can really grind things to a halt.”

However, that’s only the beginning.

A company that wants to develop a blockchain solution must find collaborators, like business partners and banks, to participate in the tool. After all, Lopez noted, “it’s not a blockchain until you have multiple parties.”

The reliance of blockchain on collaboration has ushered in what Lopez described as “shared IT.” While, in theory, this promotes cooperation, and encourages all participants to be on the same page, in reality, it leads to problems as companies move from the proof of concept to the pilot phase of their solutions.

“In enterprise IT today, it’s hard enough for financial institutions [to, say,] bring a new application into their own data center[s] with their own team[s],” she said. “Now, you’re looking at a new type of distributed application, with one copy on the shared ledger with multiple parties.”

The coordination of development and deployment between enterprises can be a headache, particularly when there are large, multinational conglomerates involved, sometimes working with competitors on a blockchain solution, each with its own agenda. Lopez noted that, as a result, many of the proprietary blockchain solutions that companies create are too brittle to scale up for use with participants.

Furthermore, as more participants join a project, new challenges emerge: The ability for a solution to integrate with the legacy back-office systems and data sources across a range of companies can be a huge hurdle, according to Lopez.

Considering these pain points, the challenge of enterprise blockchain adoption, thus, becomes how to enable seamless collaboration across parties, while protecting the decentralized nature of blockchain technology. Lopez noted that when one organization attempts to take the lead on a blockchain project, and have the rest of its participants flex to fit into the program, more challenges arise.

“We definitely see people who are in leadership roles in their industries reaching out to their peers, and collaborating on forming new networks,” she said. What “tends to be a little more problematic” is when a company independently creates a solution and tries to get other businesses to join. Collaboration must be part of the equation from the get-go.

Businesses with internal innovation labs and proactive leaders can certainly propose a use case for a blockchain solution, she added. However, once the idea is formed, those business leaders need to reach out and choose their collaborators to find the most success.

That understanding led to the rise of an array of blockchain consortia over the last five years, with banks, corporates and FinTech firms increasingly cooperating on new DLT solutions. Lopez said having a company like Kaleido step in to guide businesses along the way can support product development and deployment without compromising the decentralized nature of blockchain technology. That must be a third party, she added, so that no one network operator appears to be dominating over the rest of the project’s participants — a strategy that can be “met with a lot of suspicion.”

As companies continue to progress along their digital transformation journeys, legacy business systems, payment rails and supply chain networks are shifting onto modern business networks, driven by an ecosystem model. As that occurs, companies that choose to explore and adopt blockchain must feel they are part of that transformation.

“If companies feel they don’t have a seat at the table of one of these new networks or ecosystems, from a business model perspective, they’re really going to be left behind,” said Lopez.