Microsoft quietly announced on May 10 that it is retiring its Azure Blockchain Service as of September 10. The announcement was barely noticed and was disclosed in Microsoft’s Migration Guide documentation.
This move comes a few months after IBM –the heavy hitter in Enterprise Blockchain with the most resources and projects amongst its peers — folded its dedicated enterprise blockchain product group. It integrated its remnants into the IBM Sterling Supply Chain unit, where TradeLens, Food Trust and Blockchain Transparent Supply blockchain platforms sit today. See IBM Blockchain Is a Shell of Its Former Self After Revenue Misses, Job Cuts: Sources and IBM Sterling Solutions
What does the folding of these units tell us about Enterprise (Permissioned) Blockchain?
- Blockchain as a Service (BaaS) is not an area where enterprises need the most help. BaaS addresses the easiest part of blockchain implementation, i.e. provisioning and operating nodes, and related basic services.
- Instead, enterprises need help aligning their use cases and business ecosystems with blockchain distributed ledger technology. Most users are not clear on why they need the technology.
- The value of permissioned blockchain is hard to understand since it does not implement the most revolutionary aspect of public blockchains – i.e. trust minimization and elimination of central authority, achieved via decentralized consensus.
Instead of eliminating central authority, permissioned blockchain replaces it with task force authority managed by consortia. Task forces are good at producing studies and academic papers but often fail at getting projects implemented.
Too many cooks in the kitchen translates to competing priorities and budgets.
- In fact, enterprise blockchain ledgers are barely distributed – and typically run on less than a handful of nodes, usually managed by a vendor and/or sponsoring organization. What’s the point in using distributed ledger technology when it’s not even distributed?
Value of Enterprise (Permissioned) Blockchain; Some Successful Projects
- Still, there is real business value in enterprise blockchain so long as all participants agree to the terms of participation. Our 2020 survey showed that about 14% of projects made it into production (see Blockchain Trials Show Business Executives Drive Focused Solutions to Production), but even then, transaction volume is limited.
- Hard to use technology is not the reason most projects don’t make it into production. Instead, business processes, governance issues, and misaligned use cases are.
- We identified and documented several innovative enterprise use cases that leverage unique-to-blockchain technology components, i.e. immutable shared systems of records and automated contracts. These projects include clinical pharmaceutical trials (see Bloqcube ) authenticated provenance for data and assets, and asset tracking for food supplies or shipments. See Truth and Transparency in Supply Chain: 3 Case Studies on How Blockchain, AI and IoT Are Shedding Light for case studies.
- But even these promising use cases are still in early stages, mainly because of process and governance issues and not because of technology. Project participants are often stuck in those areas, and access to BaaS infrastructure services is the least of their concerns.
Future of Enterprise Permissioned Blockchain
Several blockchain service providers add application services on top of basic infrastructure services, making them more useful to enterprises than just basic BaaS. These services include Kaleido and Consensys Quorum (Ethereum based). In fact, Microsoft suggested its BaaS users consider Quorum as an alternative to their dying service.
But the problems inherent to task force management and group governance are never going to go away, no matter how great the blockchain technology services are. Companies simply do not want to give up control. If anything, they want to usurp more of it.
The simple answer is to recognize this fact – central authority is here to stay in the enterprise. But that doesn’t mean centralized organizations cannot embrace decentralized applications wrapped by their centralized services.
CeDeFi and CeDeX
We believe the long-term future for enterprise blockchain is Centralized Decentralized Applications, starting with financial applications (CeDeFi) but extending to many other areas we call CeDeX (X is for everything), as noted in figure 2’s list of sample domains.
Lots of pieces must fall into place for CeDeFi and CeDeX to succeed. Centralized companies like banks, must determine how to add value, protections and new revenue streams to DeFi while their legacy businesses are cannibalized by decentralized protocols and contracts. DeFi technology also needs to mature, and the user experience needs to markedly improve.
This transition WILL inevitably happen – as the center of gravity shifts to innovative lucrative DeFi/DeX applications that customers really want for financial gain or for access to new markets and services. We already see this trend unfolding during recent Gartner client inquiries.
The future of enterprise blockchain is centralized protection services and products wrapped around decentralized apps.
It will take 3-5 years to come to fruition, but it will combine the best of both worlds – new school innovations with old school protections, such as KYC, custodial services, fraud detection, escrow services, and more. At that point, standalone enterprise blockchains will morph into CeDeX environments.
To prepare for this world, enterprises should use blockchain abstraction middleware protocols and systems to build their applications. They should write applications and smart contracts that are blockchain-neutral and which can eventually be ported to whatever backend blockchain protocol they wish to interface with in the future. This type of architecture is already alive and well in DeFi and it makes sense for all blockchain applications to adopt this approach. See Chainlink white paper for example of this architecture. Chainlink 2.0 and the future of Decentralized Oracle Networks
The world of DeFi and Decentralized Apps is simply too valuable to belong only to crypto mavens and digital asset day traders.
After all, blockchain democratizes participation for all of us and we all stand to benefit.