Source: EY.com, Modified by Anthony Bertolino

From Private Blockchains to Public Ethereum

While Private Blockchains have previously dominated enterprise and institutional use, the transition to Public Ethereum has commenced.

The First Blockchain — Bitcoin

Source: hackernoon.com

The world’s first blockchain hit the scene in 2009 and quickly took the world by storm. It was a novel invention that combined various computer science breakthroughs to create the world’s first first non-sovereign Crypto Money, known as Bitcoin (BTC). The following years saw a number of new blockchains launch, such as Litecoin, Gridcoin, Ripple, NXT and others. While all of these new blockchains touted the ability to change global commerce and enterprise, they never delivered anything of notable value.

The First Programmable Blockchain — Ethereum

Source: consensys.net

In 2015, Ethereum was created — the world’s first fully programmable and turing complete blockchain. Ethereum completely swayed the blockchain landscape forever, as it allowed the creation of entirely new value systems such as Decentralized Applications, Token Systems, Stable-Value Digital Currencies, Digital Identity Systems, Decentralized File Storage, Decentralized Autonomous Organizations (DAOs) and much more. In addition to these new creations, it brought innovation to many existing industries including Finance, Supply Chain, Retail, Real Estate and other use cases. Ethereum is a playground for innovation and to this day the vibrant community is still adamant about changing the world as quickly as possible.

Ethereum vs Private Blockchains

Source: intheblack.com

While the Ethereum community is moving fast and breaking things, enterprises and institutions are much slower moving. They require and rely on crucial features such as Privacy, Identity, Messaging, Voting and High Performance.

Public Ethereum is open and accessible to anyone, even the pseudonymous. It can be used for anything you desire, without the need for approval from a third party. It removes platform risk, which has plagued the history of the internet. Game Theory and Crypto Economics are used to set up situations that economically award honest participants, while costing the dishonest. This creates a neutral playground that can provide value to all.

Private Blockchains are very different. They typically require permission to access or use, which can be considered a walled garden. At their core, they rely on the fact that they know who a user is. When an entity is identified, they have reputation risk, legal risk and financial risk which holds them accountable for their actions. Until recently, blockchain activity by most enterprises, institutions and government agencies has been done on private blockchains.

The First Major Private Blockchains — Quorum and Hyperledger Fabric

Quorum is a private permissioned implementation of Ethereum created by JP Morgan. While Public Ethereum is open and accessible to anyone, Quorum is a consortium blockchain — all participants are pre-approved by a designated authority. Smart Contracts can be built in a similar fashion to Public Ethereum using the Solidity programming language. Quorum even has its own stablecoin, known as JPM Coin.

Hyperledger Fabric is a project founded by the Linux Foundation, with original contributions from IBM and Digital Asset. Fabric has a modular architecture that makes it more of a “plug and play” system. It has an “Open Smart Contract” model, which allows for Account Model (like Ethereum), UTXO Model (like Bitcoin) and others.

In addition to Quorum and Fabric, there has been numerous other private blockchains created over the past 5 years. This has caused high costs and fragmentation across enterprise adoption of blockchain technology.

If every company had their own private blockchain consortium, doing business between consortiums would be unscalable and unmaintainable. Just like industry portals at the start of the Internet age (MSN, AOL, etc) we are seeing consortiums follow the same route. For most companies, by the end of this year, it will be cheaper to do business on a public blockchain than it will be to do business on a private blockchain — Paul Brody, Global Innovation Leader at EY

Internet vs Intranet

Source: artofarticle.com

Since history often rhymes, it can be useful to look back at past technological phenomenons and make comparisons to today. The Public vs Private Blockchain discussion is eerily similar to the early Internet vs Intranet days.

Intranets are networks that can be accessed only by a specific group and no one else. They are similar to private blockchains in that they are both permissioned. Corporations, government agencies and universities widely used intranets before moving forward with the adoption of the internet. While intranets have inherent value, they act as walled gardens and do not allow communication with the vast outside world of the internet.

The internet is global and open to all, but in the the early days there was a major lack of security and privacy. Overtime, this was remedied through the creation of HTTPS, Firewalls and other privacy features. This can be compared to recent privacy advancements within Public Ethereum, through things like Zero Knowledge Proofs, Dark Contracts, Trusted Compute, Mixers and more.

Walled Gardens vs Community Composability

Source: mokoloprojects.org

Private Blockchains, Intranets and even the Internet consist of Walled Gardens. They are designed to control and keep all operations contained inside. While this can have benefits (and risks) for security and privacy, it primarily creates lock-in for users while potentially locking-out competitors. Occasionally, these centralized power-structures have shown that they will abuse users and competitors in order to retain power and profit.

When a system is decentralized, collaborative and open to all, it can create magic. This can be seen through Composability — leveraging existing projects in order to build something completely new. Over the past few years, Public Ethereum has seen a cambrian explosion of innovation due to the benefits of composability. This not only allows things to be created that never previously existed, but for them to be built much faster and of higher quality than ever imagined. Existing systems competing with Ethereum are quickly losing ground due to a community zeal that has never been seen before in open source. If you want to learn more about Ethereum composability, look no further than Network Effects and Friendly Developer Moats.

Transitioning to Public Ethereum — The Mainnet

Over the past 12 months, we have seen clear intention from many enterprises, governments and institutions to transition from Private Blockchains to Public Ethereum. While this was impossible just a few short years ago, technological breakthroughs are allowing Public Ethereum to not only provide the same benefits of Private Blockchains, but novel benefits as well.

Ernst & Young (EY) recently conducted a study on enterprise executives with blockchain responsibilities, and this was the result:

Source: Going Public, EY 2020 Blockchain Summit

The transition to Public Ethereum can be best seen by the following five examples:

1. Nightfall by EY

Source: btcmanager.com

In May 2019, Ernst & Young (EY), one of the largest consultancy firms in the world released a set of cutting edge technologies and microservices dubbed Nightfall. It allows users to transact on Public Ethereum in private through Zero Knowledge Proofs (ZKP).

We’re trying to put together an entire suite of capabilities that would include audit and security [and] would allow an enterprise to say yes we are comfortable that we can do secure, private, reliable and regulatory compliant business transactions on a public blockchain network — Paul Brody, Global Innovation Leader at EY

2. The Mainnet Initiative by the Enterprise Ethereum Alliance (EEA)

Source: consensys.net

In August 2019, the Enterprise Ethereum Alliance announced the Mainnet Initiative which aimed to accelerate collaboration between enterprises and the Ethereum community working on Public Ethereum. Before the Mainnet Initiative, enterprises interested in mainnet interoperability and development did not have a formal space to collaborate on building a single technical roadmap.

In the past year, we have seen the great acceleration of interest in and adoption of Ethereum technology by the enterprise. Notably, there have been tangible and committed efforts to use Public Ethereum mainnet by the enterprise and to build infrastructure for mainnet that will also serve many business use cases for the long-term. Major organizations from the big four and from big tech to pharma, major financial service companies, central banks, and large energy companies are all turning significant attention to Ethereum — Joseph Lubin, Founder of ConsenSys

3. ConsenSys’ Pantheon becomes HyperLedger Besu

Source: medium.com

Pantheon was originally built to be the gold-standard for enterprise blockchain. It was designed to not only provide the benefits of a private blockchain, but also have the ability to leverage the advantages of Public Ethereum.

In August 2019, Pantheon joined the Hyperledger family and was renamed Hyperledger Besu. This was an excellent step towards allowing enterprises that trust Hyperledger products to be able to transition to Public Ethereum. Hyperledger chose Pantheon because of its open-source license and its ability to build enterprise ready applications on Public Ethereum.

We’ve always wanted to be a gateway for enterprises to use public chains while also meeting the needs of private and permissioned networks. I think this is a good step in that process — Grace Hartley, Strategy and Operations at PegaSys

4. The Ethereum Mainnet Integration for Enterprises (EMINENT)

Source: btcmanager.com

In January 2020, the EMINENT Task Force was created with a focus on standards and specifications used to integrate Public Ethereum with enterprise “systems of record. This effort contains large contributions from Unibright, Anyblock Analytics, Chainlink and other member organizations.

Getting the Mainnet working as an always-on enterprise service bus ( #magicbus ) is a powerful idea that security-minded CISOs can get behind. Imagine a world where you don’t need to expend massive capital to support every new partner integration. To make this work, we need experts laying down the standards for common-sense integration with enterprise systems of record. Unibright has the experience connecting blockchain to ERP. Chainlink has the experience keeping different databases, run by different companies, in a state of consistency. That’s a promising combination — John Wolpert, Group Vice Chair and Convener of Mainnet Working Group

5. The Baseline Protocol

Source: btcmanager.com

In March 2020, The Baseline Protocol was announced by Ernst & Young (EY), ConsenSys, Microsoft, AMD and 10 other innovative companies. It was created with the intention of allowing enterprises to use the Public Ethereum Mainnet as a common frame of reference. Public Ethereum is always on, always auditable and ensures companies can’t be locked out or restricted from using it. It will allow synchronization and interoperability for crucial enterprise systems like ERP, CRM and more.

Businesses spend hundreds of millions of dollars on ERP, CRM and other internal systems of record. Failure to properly synchronize these systems between organizations causes considerable disruption and waste: disputes, lost inventory, inflated capital costs, regulatory actions, and other value leakage — Where to Use Baseline Protocol

Gradually, then Suddenly

While Private Blockchains will still be around for many years to come, the adoption of Public Ethereum is growing by the day. This is not only due to a legion of dedicated developers all over the world, but enterprises, institutions and governments as well. I believe we will see the continual transition from Private Blockchains to Public Ethereum as education and understanding of its value penetrates the minds of executives, entrepreneurs, builders and innovators alike. For those paying attention it will be gradual, but others might suddenly wake up and find Public Ethereum to be the Global Settlement Layer for not only enterprise, but for the entire world.

About the Author

Anthony Bertolino is dedicated to educating the world about Ethereum and the future of finance. He studied Blockchain Technology at U.C. Berkeley and currently lives in Los Angeles, California. If you want to learn more or have any questions, reach out to him on Twitter.

Educating people about blockchain technology, crypto assets and the future of finance.