Decentralized computing is coming. The killer app for the enterprise is still missing.

While early efforts to bring blockchain technology to business tech have been comedy gold, enterprise startups are refining those ideas in hopes of moving beyond the cloud.

The blockchain hasn't quite connected with the needs of the enterprise yet.

The blockchain hasn't quite connected with the needs of the enterprise yet.

The blockchain has been one of the most reliable running jokes in enterprise tech over the last few years. Aging tech vendors and thirsty entrepreneurs alike have struggled to justify their enthusiasm for the technology behind the cryptocurrency explosion and why it makes sense for boring back-office applications, often to amusing effect.

"2017 is the year that will make or break the case for viable enterprise adoption of blockchain, one of the newest and potentially groundbreaking transformative technologies," IDC wrote in a white paper that year describing IBM's ambitions in this area. If that were true, then this space is truly broken; very few companies in 2021 are using blockchain applications anywhere near the scale at which they've adopted other recent advances in enterprise tech like containers or robotic process automation.

"Sometimes the hype gets ahead of reality," said Ben Golub, CEO of Storj, a startup working on distributed storage technology. "I think that's especially true when people conflate enterprise and blockchain with Bitcoin."

Still, a small but growing number of enterprise tech companies think a more decentralized internet is inevitable. Microsoft CEO Satya Nadella recently predicted that our current cloud-computing system is at a moment of "peak centralization." Some argue that blockchain technology should be the vehicle for that shift.

A radical decentralization movement known as Web3, or the next evolution of the social-media apps and dynamic web pages that arrived with Web 2.0 15 years ago, calls for the internet to reduce its reliance on central points of failure. Such a distributed system, advocates say, promises to improve reliability at prices that big cloud providers — who invest billions each quarter to maintain their networks — can't match.

Some are thinking smaller. There are a lot of companies that are still sharing sensitive data with customers on spreadsheets and even paper. Large companies with lots of smaller suppliers often struggle to keep track of accounting and inventory information, and blockchain-based projects like Hyperledger think they could be a better alternative.

But it's clear that backers of enterprise blockchain projects are still looking for their killer application, the breakthrough that turns heads and really illustrates why developers should try something new.

"I think what we're starting to see is that people are beginning to realize that decentralization is a lot bigger than blockchain, and blockchain itself is a lot bigger than just cryptocurrency," Golub said. "A lot of the same rules that we see with any kind of disruptive technology apply here too; if you want to replace existing technologies you have to be radically better in a few key areas, but certainly be at least on par in areas like security and performance, and economics and ease of use."

A lot of energy for an unclear gain

Blockchain technologies work by creating a shared record of an interaction that none of the parties involved manage or store. In cryptocurrency, powerful, energy-guzzling servers around the world compete to solve cryptographic equations that verify the integrity of a transaction between buyers and sellers, with a token awarded to the victors. A permanent, public record of that transaction is then added to a "block," which is part of a "chain" of similar transactions.

Most experiments with enterprise blockchains won't involve public blockchains like Bitcoin or other cryptocurrencies. Public blockchains were designed to create a trusted transactional system between two anonymous parties that have no reason to trust each other, whereas in most enterprise business relationships you know exactly who you're dealing with.

But enterprise business relationships do struggle with finding consensus on everything from inventory levels to sustainability goals to regulatory compliance. One of the newer buzzwords in enterprise tech is the quest for "a single source of truth" across business systems, which is harder than it might sound in a world of siloed databases and business software applications.

"I think the trouble is that it's just very hard to get people to switch off of the way they've been doing things, even if they acknowledge that they're really suboptimal," said Kieran James-Lubin, president and CEO of BlockApps, which helps companies interested in blockchain apps get started. "And so where you have to look is where the pain is quite large."

BlockApps is seeing demand from companies that want to set up decentralized record-keeping systems for environmental sustainability goals. It also just signed a partnership with AWS where cloud customers can use its Strato blockchain record-keeping system to track agricultural products from seeds in the ground to grocery store shelves, looping in farmers and distributors.

The natural question at this point almost asks itself: What exactly does using blockchain technology offer these industries that they can't get from a shared database? James-Lubin compared it to the problems faced by banks back in the day when the only record of a financial transaction was a paper stock certificate, which did not scale along with an increase in trading volume.

Those banks created semi-independent clearinghouses to keep track of those transactions. The banks own that clearinghouse, but it serves as the single source of truth for the banking system and is not managed by any one for-profit bank.

"You have a situation where it's not quite a public network; there's permissioning, and you want to know who everyone is. But once that that bar has been achieved, there still is a trust issue that they could only solve either by setting up a company that breaks a tie — a clearinghouse — or with a blockchain," James-Lubin said.

Fewer points of failure

Companies like Storj and Filebase are borrowing the decentralized ideas popularized by the blockchain in hopes of changing how one of the most fundamental tasks in computing — storage — is used, managed and secured.

Think of Storj as a version of the SETI@home project, where space enthusiasts agreed to lend researchers a small portion of their computer's processing resources to search for extraterrestrial life. Files uploaded to Storj are encrypted, broken down into 80 different pieces and then scattered across portions of hard drives that home users or data center operators can rent to Storj.

When a Storj user needs their file, the company's software reassembles the file from those different pieces. And it only needs 29 of those pieces to reassemble the full file, which means almost two-thirds of the system can fail before the file is lost. Very few conventional storage services can tolerate that degree of failure.

Filebase allows its customers to work with decentralized storage networks like Storj, Sia and Skynet in their apps through an API that is compatible with AWS's S3 object-storage service. Customers who have already written applications for S3 can store data with Filebase without having to rewrite that part of their application.

The blockchain serves as an incentive layer for those who want to lend out storage capacity to these decentralized networks; Storj rewards data hosts with its own tokens based on the Ethereum blockchain. Businesses looking for storage capacity pay in U.S. dollars for these services, which promise redundancy levels similar to big cloud providers at a fraction of the cost and effort required to enable that resiliency across cloud regions.

An often overlooked component of cloud pricing is the fees customers pay to transfer data between cloud regions or out to the public internet. It's certainly possible to set up redundant storage across cloud regions, but you'll pay your cloud provider to transfer that data between regions, whereas that's the whole point of decentralized storage networks.

"Web3 is essentially a world where distributed users, and really machines, are able to interact and host data without relying on a centralized entity," said Joshua Noble, co-founder and CEO of Filebase, which just raised a $2 million seed round.

Not ready for web time

It's safe to say that the average enterprise is not ready for Web3. There are still loads of businesses that are just getting started with cloud computing, and the people in charge of information technology for the world's largest companies tend to move conservatively when it comes to new technologies.

And there's a bigger problem with the enterprise blockchain, beyond the usual fear of change. Many of these enterprise blockchains rely on the "proof of work" mining standard that cryptocurrencies use to guarantee the integrity of the record, where servers around the world run flat-out using often-dirty energy sources to settle transactions, at a heavy environmental cost.

But that unsustainable system is about to change.

Ethereum is moving to a "proof of stake" standard, which discourages computing battle royales in favor of a system where only existing Ethereum holders can be chosen to create new blocks or verify blocks others have created. This means having the biggest network or the most powerful computers doesn't guarantee you any sort of reward for the work required to verify a transaction, and that the verification algorithms can run on simpler hardware.

Proof of stake isn't nearly as "battle-tested" as proof of work, according to the Ethereum Foundation, but that might be just fine for a private blockchain system that enterprise apps are likely to use.

"Proof of work is super expensive and environmentally unfriendly," said James-Lubin. "For us, we're often marketing sustainability, so we can't be telling people 'Oh yeah, and you've got to throw 70 computers at this.'"

It's far too early to predict whether efforts like Web3 and enterprise blockchain will evolve into the next big architectural breakthrough in the history of the internet. But as we've seen with the rise of edge computing, industrial IoT and ever-more powerful mobile devices, we appear to be in the early days of a pivot toward decentralization.

"Web3 is either going to be very successful, wildly successful, and have an ultimate long-standing impact on the data center, or it's not," said Zac Cohen, Filebase's co-founder and chief operating officer. "From our perspective, it really is an all-or-nothing thing."


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