Blockchain harbors the enormous potential to upend many entrenched business practices by applying the technology’s underlying features. Yet, the technology still hasn’t gained a strong foothold in organizational use. Experts repeatedly argue that legacy blockchain technology like Bitcoin (BTC-USD) was never intended to serve enterprise-level use cases.
For instance, public blockchains’ decentralized and permissionless structure doesn’t quite fit the needs of enterprises and organizations that manage sensitive data. The idea of ledger transparency doesn’t fit this mold. On top of that, most existing blockchains aren’t scalable enough to meet organizational demands for high throughput.
So, are these shortcomings holding back blockchain from achieving commercial success? Is there a potential way to cater to the varied requirements of enterprises and organizations without compromising the core traits of blockchain technology?
To answer these provoking questions, we invited Parallelchain’s Director of Product Management, Clayton Mak, to discuss the limitations of legacy blockchain, the emergence of permissioned and hybrid blockchains, and how advances in these areas may catalyze greater enterprise adoption.
Blockchain is yet to receive commercial success, especially in terms of enterprise adoption. What do you think is holding it back?
Clayton: It has always been the case that the adoption of new technology among enterprises takes a considerable amount of time, and the reasons are manifold. There are many discussions on how certain characteristics of blockchain are incompatible with enterprise requirements or may be undesirable by enterprises, such as the permanence and undiscriminating distribution of data.
But there is another aspect – one that we mostly overlook. Enterprises are resistant to change. As long as the established systems are still working, there has to be some compelling reason, with measurable and tangible superiority, for enterprises to replace their existing systems or habits of doing things. After all, the adoption of new technologies comes with cultural changes, costs, certain risks, and uncertainties.
Big brands like IBM, Microsoft, Amazon, and others are experimenting with enterprise blockchain. Could you please explain what an enterprise blockchain is and how it differs from a regular blockchain?
Clayton: An enterprise blockchain has to be based on a permissioned scheme; it is either semi- or entirely permissioned because enterprises demand complete ownership of their data and that all access to the data must be pre-authorized for trade secrets protection and for complying with consumer data protection rules.
In this context, a permissionless blockchain typically has tens of thousands of nodes. It achieves the goal of decentralization at the expense of speed, while an enterprise blockchain is much smaller in terms of the size of the network (e.g., Hyperledger has 16 ‘endorsing peer’ nodes) and cannot afford to be slow. Otherwise, they risk losing business or falling victim to double-spending.
Last but not least, consensus is integral to the operation of a permissionless blockchain. It is key to lowering the risk of fraudulent transactions in a leaderless network. However, enterprise blockchains are typically private networks where participation is restricted to specific parties; consensus may not be applicable to such environments, nor may it be desirable because enterprises are autonomous entities that demand sole control over their own governance and decision-making and do not seek consensus from one another.
Blockchain’s permissionless and public ledger model is often criticized for its lack of privacy. Do you think this inherent design is a problem in enterprise adoption?
Clayton: Absolutely. Enterprises do not share data, not even with their business “partners,” because your partner in one activity today can be your competitor in another activity tomorrow; you never know. If leveraging blockchain means that enterprises have to put their sensitive data into open networks, then they would rather avoid the blockchain space entirely.
Please help our readers understand the different types of blockchains for enterprise use cases. What are the key features of private, hybrid, and consortium blockchains?
Clayton: Private blockchains work in closed networks, one that is controlled under a single entity. These blockchains tend to be on much smaller scales, with people only being able to contribute to the network if they are given access by the controlling entity. These types of blockchains are best for internal processes.
Hybrid blockchains combine private and public blockchains. They effectively let enterprises set up a permissioned blockchain and allow them to control who can access specific data stored in the blockchain and what data will be opened up to the public.
Consortium blockchains are blockchains in which multiple members can collaborate, and there is no one controlling entity. This is good for businesses that want to collaborate while securing highly private data.
Do you agree that existing Layer-1 blockchains aren’t scalable enough to meet enterprise needs? What should the blockchain community do differently to facilitate more real-world applications?
Clayton: It would be hard for anyone to disagree with that. As mentioned earlier, in the permissionless blockchain space, it is the norm to prioritize decentralization over speed, as the former is also a key factor for the network’s security, but enterprise blockchain is not the same. It does not necessarily require a large number of nodes or distributed trust. However, high TPS (transactions per second) and low latency are absolutely essential.
It is only until Web2 and Web3 systems can trust and leverage one another to the fullest without compromising their respective independencies and privacies that the blockchain ecosystem will become truly robust.
What is ParallelChain? How does it stand out from the existing Layer-1 blockchains, and how exactly will it help accelerate enterprise-level blockchain adoption?
Clayton: ParallelChain is a dual-blockchain ecosystem powered by ParallelChain Mainnet and ParallelChain Enterprise: permissionless and permissioned layer-1 blockchains with native interoperability to bridge the infrastructural divide between the Web2 enterprise and Web3 systems.
Interoperability is not only about enabling data communication between blockchains or token swapping. ParallelChain is adding a new dimension to interoperability: interaction between decentralized and centralized solutions. It enables Web2 service providers to integrate DeFi elements into their offerings and to use blockchain in a somewhat, or completely, private and performant manner.
For example, an enterprise launching an NFT collection on ParallelChain will be able to link pseudonymous blockchain accounts to its own (permissioned) customer database. This needs the right technology with the right privacy model, and ParallelChain is exactly that.