After many years of investment, experimentation and infrastructural improvements, the intersection of three market trends is paving the way for the initiatives of publicly distributed networks: tokenization, decentralized finance (DFI) and business logic.
In 2020, it became even clearer that trends, in addition to the hard lessons learned from trying to deploy private networks, have opened up access to distribution sector technology (DLT) to enterprises in a way that was not the case in 2017.
This post is part of Coindesk 2020 review year – A compilation of op-aids, articles and interviews related to crypto and beyond. Manus Harmon Hidera is the CEO and co-founder of Hashgraph.
Tokenization enables economic activity, DFI emerges for more efficient financing
In 2017, tokens were used almost exclusively as a way to raise capital for startups. The value proposition of tokenization was only then understood, with very little appreciation in terms of usage and the full range of types of tokens.
2020 is fast approaching and there are groups like the Interwork Alliance Framework created To understand the definition and scope of token concepts, including usage cases, manpower and terminology. Initial use of DLT focused on the ability to synchronize an account between multiple parties, ensuring that all parties receive the same information at the same time and that participants in each network have confidence that all parties receive the same information.
A prominent field of use, for example, is the tracks and traces of supply chain activities, specifically recording when and where a product was made and its flow through the supply chain. Finding out when and where the product was made helps provide transparency and reduce fraud, which is somewhat valuable.
Creating a token that represents the item being generated not only makes it possible to track and record the same information used for search, but also enables the purchase and sale of the same widget by removing the token between accounts. Digital tokens are designed for economic activity and this trend is accelerating. Worldwide products and services will be tokenized soon.
An example of this is the Coca-Cola supply chain, which has been adapted by 70 franchised bottled companies in North America – Coke One North America (CONA) as part of its largest technology provider. In 2019, Kona has used HyperLearder Fabric in a combination of SAP’s blockchain-a-a service for node hosting to further facilitate relationships between the 12 largest bottled companies.
In 2020, Kona decided to go one step further in accelerating the use of blockchain companies across its supply chain. Integrate their hyperlder fabric solution with the baseline protocol. (One of the primary goals of the Baseline Protocol is to enable the use of connected DFIs and resource tokenization.)
The rise of DFIs in 2020 laid the foundation for enterprises to embed financing directly linked to their business processes.
The DFI bubble of 2020 shows in some ways similar to the craze of the initial currency proposal of 2017, the fundamentals of the DFI movement will change the face of money in the future. The combination of tokenization, fiat-backed stablecoins, and DFI protocols will make traditional therapeutic financing operations faster and less expensive.
This may be repeated in existing processes for purchase order financing, borrowing for working capital, shipping and product insurance purchases, inventory financing and invoice factoring protection.
Business logic continues at level 2
Bitcoin first showed the value of decentralization in the form of tokens and improved technology by adding Ethereum programmables, making it possible for competitors to manage the terms of their transactions with peer-to-peer agreements.
Now in 2020, as DLT accelerates the adoption of enterprises, smart contract execution – or business logic that can be effectively implemented without disclosing the data to the world – requires confidentiality.
Public networks disclose business logic and smart contract data on the network, revealing potentially sensitive business intelligence or the confidentiality information of smart contract users.
In addition to privacy concerns, the scalability and cost associated with public networks resulted in the HyperLeader R2016 splitting the DLT market later in 2016 with the R3 cord.
Then, in the face of the performance, cost, and regulatory hurdles that existed in the then public networks, the enterprises chose to create shielded, purpose-specific, private DLT networks instead. Over the past five years, the private DLT industry has learned that creating a consortium of individual teams to manage the required DLT network is time consuming, expensive and complex.
At the same time, public networks realized that business logic needs to be moved from Level 1 (core net) to Level 2 (peripheral networks) in order to achieve scale and reduce costs. Public networks may differ in their architectural design and in deciding where to draw the line between Level 1 and Level 2, making different choices about where degree smart contracts and where file storage should be included.
Thus, a large industry trend in 2020 has seen enterprise applications move to run their business logic on Level 2 networks and use only Level 1 for con judgment and arbitration. This approach combines the advantages of public networks – distributed trust – with the advantages of private networks, such as low cost, scalability, privacy and regulatory compliance.
The enterprise is now done to capture these advances
In his speech in Davos in 2018, Canadian Prime Minister Justin Trudeau noted that “the pace of change has never been faster, but it will never be slower.” His words were rightly felt by the blockchain industry in 2020. What became clear to those working in the DLT space this epidemic year was the combination of tokenization, DFI and Layer 2 networks that are rapidly building a foundation for enterprises. Use a distribution leader in routine business transactions
This combination of technology with existing enterprise systems will make a significant contribution to enterprise adoption in the years to come. These technological advances in 2020 have laid the foundation for the adoption of DLT Enterprise. Now is the time for industry captains to sail and capitalize on these breakthroughs.