by Lumai Mubanga
The introduction of Emails made post offices redundant. With less and less paper printed mails passing through our post offices, many users resorted to email services to send almost any document and messages. Failure by post offices to innovate led to what we see today. Many of course have diversified but few mails pass through. Could the same happen to banks with the introduction of bitcoin and the blockchain technology?
Lesson from the past
Learning from what happened to post offices, many banks responded rather differently. The completion was rife and rather than look at bitcoin and blockchain as simply buzzwords to boost hype and traffic, banks and financial institutions found a way to respond to the challenge. This is what partly led to the birth and rise of enterprise blockchain.
But what is involved, how will it differ with its rival? How will the system ran and compete with bitcoin? What specific challenges will this system face and how will these be addressed.
As Bitcoin and blockchain grew increasingly popular, banks and large corporations noticed the potential applications of this new technology. While cryptocurrencies created public ledger systems to eliminate banks, banks had to look for a way to remain relevant by making use of the same technology without becoming redundant. Instead, banks introduced what is termed “permissioned blockchain.” This is a private network in which some central authority controls who is able to take part in consensus and validate transactions on the network. Eventually, the rise of enterprise blockchain was visible in the financial sector.
Challenges to be solved
The goal wasn’t to create a parallel public blockchain similar to bitcoin, it was simply to separate blockchain from bitcoin. Such a blockchain of course would lack certain incentives and will not be open and trustless. This was generally driven by curiosity and competition to see how business would apply blockchain and improve their competitive edge. This was acceptable because banks would be more compliant for enterprise of associated technologies in public systems. The goal was rather to solve specific challenges classifies as:
- Coordination failures
- Horizontal integrating systems
- Creation of self-sovereign decentralized networks.
How does blockchain tackle these challenges? Industry has shown that enterprise blockchains are most optimally used to solve coordination failures, horizontally integrate systems, and create self-sovereign distributed and decentralized networks.
Coordination failures often exist due to trust issues between multiple parties seeking to work together. Blockchain best handles this by creating haphazard incentive structures and being able to operate
In the public domain without the coordination of a centralized entity.
Blockchain is also an integration technology – it combines data silos together into a single integrated system that captures greater economies of scale. Blockchains has a way of enforcing common API and data standard, allowing multiple systems to be immediately interoperable.
Lastly, blockchain provides new decentralized models to work with alongside existing centralized ones, thus preventing the possibility of centralized corruption.
These capabilities have ensured enterprise blockchain stay afloat, support financial institution from becoming redundant.