16 July 2018
Priya Lakshmi

BlockchainandAI Enthusiast

Priya Lakshmi - Wipro

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Un-’block’ your business 1.0: Enterprise Blockchain Interoperability: Are we there yet ?

26 April 2018  |  5998 views  |  0

I have had a busy and interesting first quarter of the year with many of my days filled with evaluating a new start-up / technology vendor who has come up with a brand new blockchain or DLT platform and whether backing them makes sense. I have also been spending equal amount of time working with or following some of the larger consortia formed in the FS space ( B3i, CLS-NET, R3 to name a few). What is interesting is that these two threads are in total contradiction to each other. Where the consortia are trying to bring as many financial institutions together onto the same blockchain platform ( which by the way is the right way to progress and adopt blockchain to gain maximum business benefits), start-ups continue to innovate in small niche specific areas or use cases and build their own new platform. There are no prizes for guessing who will get to succeed in the larger scheme of things. As far as Financial services are concerned, 5 major blockchain platforms emerge – Corda, Hyperledger fabric, Quorum, Ethereum and Ripple (in no particular order). I would still argue that 5 is a very big number for a technology that is reliant on bringing together the ecosystem for its very existence. In this blog, I argue that we have reached the point where a lot more focus to solving interoperability is key to provide blockchain adoption that next big leap forward. While many argue that we are not there yet with the technology, I believe that this is actually one of the key issues that is pulling back the speed of blockchain leverage today (beyond POC and Pilots) and needs more focus from all the major blockchain platform providers. 

What is Interoperability in the context of blockchain?

Let me start by clarifying that when I say interoperability, I do not mean integration with existing legacy infrastructure which is a much smaller problem to solve and there have been many implementations well under way that has gone past this issue. Interoperability in the context of this blog is integration and communication between various blockchain platforms and networks. Now unlike other technologies, the biggest benefit of blockchain comes from being able to have a shared ledger and a consensus based agreement on the principles that govern that ledger and its changes. Blockchain as such is made of several layers – Infrastructure Layer, Data Layer, Communication Later, Consensus Layer and Application Layer. Each layer has different options depending on the platform you choose – consensus could be Proof Of Stake, Proof of Work, Byzantine Fault Tolerance, RAFT and others. Similarly data store could be merkel trees, hash functions, UTXO and the like. Application layer has its own choices as well, from dApps to smart contracts and all coded in different programming languages.

 

The real value of Blockchain however is only realized when more and more parties join the same network / consortium and share data / information. Now if every consortia build the same use-case for e.g. Syndicated Loans Or Reinsurance contracts but on different blockchain platforms, the value of the benefits drop immediately. This also means that moving anything beyond POC/ Pilot becomes questionable because no one is sure which platform will really take off.

 

What efforts are already underway in the space?

Several forums and discussions have already started on the need for interoperability but many of these efforts are slow or stalled because there is still a pattern of wait and watch on blockchain adoption in itself. Dockers have helped bring interoperability at the container or infrastructure level. Similarly, at the application level, REST APIs allow communication between different blockchain applications. Consensus mechanisms are also ‘plug-n-play’ across some blockchain platforms but not all of them. The biggest benefit of blockchain however lies in the ability to share and exchange information, be able to look at the same data at the same time across all participants. And this requires interoperability at the data layer and this is the one that’s hardest to crack. All consortiums formed today are on a single blockchain platform and have the ability to create well established permissioned blockchains to service several business use cases across their participating members.

The most advanced work in the field of blockchain interoperability ( Polkadot, OneLedger, Cosmos )has been in the Ethereum community and rightly so as this is a platform that has launched the maximum number of cryptocurrencies (or ICOs) and it makes perfect sense that it all started here. After all, the real value of ICOs would come with its ability to transfer ‘value’ from one currency to another. The Ethereum community has created a very interoperable public blockchain but still struggles with issues of privacy and scalability that is required for enterprise adoption. R3 have identified the need for this interoperability between their various permissioned networks on CORDA and have recently talked about CordaCon. While I would argue that this is the step in the right direction, this is still not what it will take to make blockchain truly beneficial to all parties. What I am talking about is the standards and protocols required for all sorts of blockchain networks to communicate and share information with each other just like how the internet protocol was standardized many years ago.

 

What more needs to be done?

What I am suggesting is I would agree completely contrary to the fundamentals of competition. Why would the large blockchain platform vendors want to be able to connect to the other platform (say Corda with Hyperledger Fabric or with Ethereum) and lose their competitive edge to acquire those additional clients as well which are trailing their competitors platform. But blockchain is unlike traditional technologies and the power comes from collaboration and not competition. Differentiation could still come with their ability to handle a particular business problem better than others. Here is my advice to the large blockchain platform vendors – R3, IBM and Ethereum – to come together and define standards at the data and consensus layer to enable future interoperability – to create common standards to store and exchange data, to on-board and offload members and permissions, to perform consensus and to relay information privately. Only these large players can do this and it would be impractical for another start-up or external body to attempt to do this from the outside. And my advice to all new start-ups in the blockchain space is to NOT create another new platform or protocol but to leverage one of these platforms that are clearly emerging to become leaders in the space. Start-ups should instead focus on specific business use cases for specific industry using one of Ethereum, Hyperledger Fabric or R3 Corda and pitch them to existing consortia.

In conclusion, as Richard Brown from R3 points out, we are already there to think seriously about interoperability but we should not limit that thinking to creating network of networks within just one platform but need to think across blockchain platforms. This will be key to move the adoption beyond POC/Pilots because I am aware of atleast a handful of financial institutions that are very serious about the technology and its benefits but are not moving forward for concerns of who / which platform will emerge as majority and which one should they place their bet on so they are not stuck with one.

 

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Established business development leader with overall 18 years experience with over 10 years in the Banking and financial sector managing business development, strategy and relationships

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