Reflecting on the Future of Hyperledger Fabric

A year after my previous reflections on the monotony of Hyperledger Fabric, I find myself revisiting the prospects of private blockchains in creating new business frameworks. So, what is the outlook for Hyperledger Fabric and the private blockchain model? Am I still unenthused?

The answer remains a resounding YES.

Why? In my view, significant changes have yet to materialize. Although new proofs of concept and projects aimed at digitizing processes continue to surface, none have emerged that could truly be considered groundbreaking.

The Draw of Permissioned Blockchains

The fascination with permissioned blockchains, especially within the Hyperledger Fabric framework, persists, evolving slowly over time. The advantages of secure, private ecosystems for designated participants remain compelling. The ongoing discussions around interoperability among cooperating entities, minimized data reconciliation, and enhanced security within confined networks continue to resonate. This narrative revolves around trust, efficiency, and improved business operations—topics I have passionately articulated in previous writings.

One standout example I often refer to—one I am particularly proud of as the project manager—involves a blockchain-based system designed for managing General Meetings for publicly listed companies in Poland. This system incorporates eVoting functionality, making remote participation and secure voting seamless for investors. By integrating with the Polish Capital Market, the blockchain solution ensures the participation, validation, and accuracy of votes, alleviating uncertainties associated with traditional methods. Notably, all General Meetings are currently recorded on the blockchain (specifically, Hyperledger Fabric), marking a significant milestone in fostering trust within the Capital Market.

This concept promotes collaboration among various market entities, including banks, brokerage houses, market regulators, and issuers, ultimately enhancing shareholder engagement in corporate decision-making. This illustrates the potential of a blockchain-based economy based on trust. Nonetheless, even in this case, the implementation has not succeeded in creating a comprehensive ecosystem. Various factors contribute to this shortfall, including a lack of vision for revenue growth and hesitance to develop competencies around distributed ledger technology (DLT) and Hyperledger Fabric.

Barriers to Collaborative Efforts

However, the journey of blockchain is not without its challenges. My previous experiences with permissioned blockchains revealed a significant barrier—the lack of collaboration and a unified vision. The private blockchain environment often struggles with competing interests and entities hesitant to share the spotlight. The essence of cooperation, crucial for consortial models, is frequently overshadowed by a desire for individual recognition.

As I delved into private blockchains, it became evident that establishing a distributed ecosystem requires not only technical skills but also a cultural shift. The prevailing mindset of independent creation within many organizations often hinders the cooperative spirit necessary for genuine transformation.

The Potential of Supply Chain Innovation

In recent years, numerous use cases have emerged that highlight blockchain's capabilities in supply chain management. From tracking product origins to automating documentation, blockchain has proven effective in improving efficiency and traceability. A notable advantage is the transition from paper-based processes to immutable digital records stored on a blockchain.

This transformation modernizes traditional supply chain models, promoting a more efficient, transparent, and secure business approach. Yet, upon deeper examination, the disruptive potential of blockchain in supply chains may not stem from decentralization alone.

While blockchain undeniably enhances data integrity and mitigates fraud risks, its application in supply chains may not always be driven by the revolutionary potential of decentralization. When companies within a supply chain have already established digital processes and trust, the incentive to transition to a private blockchain may be minimal. Why would they need blockchain-based trust when they have developed it over years of collaboration and shared interests? Additionally, in many cases, the ledger operates behind conventional applications, with the Hyperledger Fabric infrastructure managed by only one or a few chain participants. Is there added value beyond mere digitization, or is that the extent of its contribution?

The Letdown of the DLT Pilot Regime

Turning back to the financial and capital markets, the promise of a DLT Pilot Regime emerged as a glimmer of hope. The European Commission and ESMA (European Securities and Markets Authority) envisioned a framework where DLT technologies could integrate into regulated markets, allowing participants to test blockchain against trading and settlement systems. This initial enthusiasm highlighted the potential to connect traditional markets with innovative technologies.

However, this promise has been met with disappointment. The DLT Pilot Regime, initially seen as a bold step toward embracing blockchain's potential in regulated markets, is encumbered by a complex array of limitations and restrictions. The reality of establishing and operating a DLT market infrastructure under the Pilot Regime significantly diverges from the simplified vision of technological advancement.

The initial excitement surrounding a "pilot" quickly transitioned to the challenging realities of navigating stringent compliance requirements. Crafting detailed business plans that align with the time-limited pilot posed considerable challenges. How can a prospective network operator plan for the future when the pilot's duration remains uncertain? The need for a comprehensive plan clashes with the fluid nature of technological innovation.

Aiming to open the doors for individual participation in the network faced obstacles due to rigorous qualification criteria. The vision of inclusive participation encountered barriers, preventing access for those with sufficient skills, experience, and knowledge.

A Shift Towards Public Blockchains

In this context, a promising development emerged from an unexpected source. Siemens, the global technology leader, made headlines with its groundbreaking announcement—the issuance of a digital bond on a public blockchain, valued at 60 million euros under the German Electronic Securities Act (eWpG). Utilizing a public blockchain allowed for direct access to individual investors, addressing challenges arising from the lack of cooperation among financial institutions and market participants.

This news reverberated throughout the financial sector, resonating with many who have long envisioned a transformative shift in the industry. Further investigation revealed that this endeavor was one of several initiatives organized by Cashlink on the Polygon network.

However, while the Cashlink initiative represents a significant step into the future, it is not without limitations. The issuance of digital bonds, although conducted on a public blockchain, still faced restrictions, including the absence of secondary trading and investor portfolio management. Nevertheless, it marks progress toward blockchain adoption in capital markets, providing direct access to information regarding assets held by investors. A critical question remains: do the investors truly own the address where their bonds are registered? Can they view their bonds in a wallet like Metamask? Are they capable of executing redemption operations independently, or is everything managed by the system operator?

While we may not be there yet, this venture shows promise. It may be as close as current regulations permit Cashlink to fully unleash the potential of blockchain.

Charting a New Path Forward

Despite my ongoing disinterest in Hyperledger Fabric and private blockchains, the Siemens bond issuance has inspired a new perspective on the possibilities of DLT systems. Instead of succumbing to the monotony of private blockchain endeavors, I am shifting my focus. This new direction aims to reach individual investors and dismantle barriers between financial institutions and the general populace.

My journey has led me to contemplate a new paradigm that merges the strengths of both public and private blockchains, along with elements of centrally managed applications. I envision a hybrid ecosystem that combines the transparency and accessibility of public blockchains with the security and control offered by regulated institutions in specific roles across the ecosystem. Such an approach could redefine our engagement with financial markets, enabling a diverse range of participants to access information, assets, and opportunities.

However, the reality is that the immediate future may not favor private blockchains, at least not at first glance.

So, what lies ahead for me?

It is time to carve out a new path that liberates me from the constraints of monotony. While the world may not be fully prepared for this change, I am convinced that uncovering the synergy between public blockchain infrastructure and traditional centralized systems holds immense potential. The possibility of directly engaging investors and reducing network connection costs through public blockchains is an enticing opportunity. Yet, in the current landscape of financial market regulations, the role of privileged institutions remains essential. My upcoming endeavors, which I look forward to sharing in future articles, will focus on weaving these elements into a cohesive framework. It’s a quest for the elusive goal of blockchain adoption, aiming to transform our interactions with financial markets by leveraging the strengths of both realms.

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