Going Public — Considerations for Enterprises using Public Blockchains
The case for public blockchain-based solutions grows stronger by the day. I’m not alone in this perspective and one can see a trend: Over 50% of Forbes “Blockchain 50” large enterprises are experimenting with the ethereum blockchain. Given that fact, I would like to address key considerations for enterprises looking to go public and deploy on the public Ethereum main-net.
Enterprises are used to having full control over their application’s performance, intellectual property, privacy, and abiding by any data regulations. These all remain for private blockchain solutions as long as the participants are known and proper governance is defined and followed. But what about for public blockchain-based solutions?
The following issues could be construed as primary considerations for enterprises in the process of going public (adopting public blockchain applications or deploying applications to the Ethereum main-net):
- Scalability
- Governance
- Data privacy
- Security
- Handling hard forks
- Regulatory Compliance
Governance
Governance provides a structure for delegating technology decisions, assigning accountability, and measuring performance against strategic objectives. In layman’s terms, governance is about identifying who does what and how, not forgetting about the when. The goal with any governance model is to provide assurance that there are no gaps in decision making which could lead to a delay in response. For public blockchain-based applications, what changes to existing governance models need to happen if any? Let’s dive into several key questions concerning application governance.
Business Impact — Is the application deemed business-critical?
Finance Oversight — Does the solution involve tokenizing real world assets, transferring value, or payment?
Process of fixing bugs — When a security flaw or logic error is found, who implements a fix? Who approves the fix?
Operations — How does the DevSecOps process change with multiple stakeholders involved?
Backup Plan — If there is a major disruption like a hard fork or spike in transaction cost, are there sufficient centralized alternatives the application can switch to? Or a backup private blockchain?
Support — Is there a 3rd party offering guidance if the application experiences failures related to the blockchain component?
I’ve made a blockchain governance model matrix that helps determine the proper governance model for enterprise applications, and provides some blockchain application examples below. It has three dimensions: complexity (low to high), information transfer (assets or information), control (low to high).
- Governance Model: Centralized or Federalized
Example: Trade Finance
Blockchain-based trade finance solutions aim to solve many known pain-points around trade regarding information flow, trusted data, and transaction times. These solutions grow in value as multiple parties join the solution and high value assets are represented. Implementing changes to complex processes and managing the real-world implications of certain outcomes would require a centralized governance model. A model highly visible with defined structure in place for all parties to trust is required. You can find a few examples of trade finance networks here.
2. Governance Model: Balanced
Example: Options Contract
In balanced governance models, decisions are made centrally but discretionary flexibility is permitted (decision point can be from governing body or agent in charge). Options contracts contain clearly defined rules and logic to determine outcomes that are straightforward. Only two parties enter this agreement. There are predefined options contracts in use today on the blockchain with minimal risk to loss of funds or incorrect decisions being made. A balanced governance model approach would suffice where decisions are made centrally but discretionary flexibility is permitted (decision from portfolio trader in charge).
3. Governance Model: Distributed
Example: Traceability of Supply Chain
In distributed governance models, product and services teams control most decisions with some degree of coordination and organizational hierarchy. Tracking a finite resource across a value chain requires some agility from stakeholders as the supply chains change. A distributed governance model empowers teams to make timely decisions such as adding or removing participants.
4. Governance Model: Agile
Example: Mobility-as-a-Service (MAAS)
In agile governance models, product and services teams can operate with complete authority with documented exceptions for escalations. MAAS solutions powered by the blockchain can have many functions such as ride hailing, EV charging, and fractionalized ownership. Given all the moving parts, product teams need to have control when extending functionality or correcting unexpected or mistaken transactions.
Regulatory Compliance
Relationships can be modelled through code. Blockchains give confidence in achieving transaction finality and with trusted autonomous execution when certain terms or conditions are met. As more businesses and individuals start using public blockchains to transact with each other, enterprises must address the same regulatory compliance standards set in the physical world.
At the surface, regulators should rejoice at the increase of business transactions on the public blockchains given blockchain’s unique attributes:
- Immutable Records
- Proof of Ownership
- Programmable Controls
- Data Privacy via Encryption
- Ease of Inclusion
- Near real-time transaction visibility
Ethereum offers a tamper-proof immutable record of all transactions with an extremely low chance of being altered. Transactions could be transfers of cryptocurrency assets or instructions for a smart contract to execute code. Regardless of the context, every transaction is recorded and provides some standard metadata around the transaction such as the sender, receiver, and date-time.
Though Ethereum accounts are pseudo-anonymous, enterprises can share with regulators their public addresses, any contracts deployed, and even the application binary interfaces (ABIs) of those contracts. Armed with all this information, regulators can track all public activity on the public blockchain and any private activity on the public blockchain through cryptographic approval initiated by the enterprise. Regulators can be participants in these networks and be able to see the pertinent data demanded to be shared in real-time. For enterprises, it’s easy to permission access through smart contract controls. EY recently made an open-sourced contribution to the Ethereum blockchain. The project called Nightfall contains all the code needed to conduct private transactions on the public main-net. It also has the ability for a 3rd party to view the transaction details such an auditor or regulator.
Another area regulators often look at is the ease of inclusion for joining business networks. The barrier of entry is extremely low for the public blockchains. Enterprises only need a blockchain account with enough ether to cover their transaction costs and be whitelisted to participate in the enterprise’s application.
In the coming years as public blockchains mature, I see an intense shift towards public blockchains with regulators being active & willing participants in enterprise applications using blockchain.
