The Ethereum merge hype is all about energy. But still waters run deep and in the still world of enterprise blockchains, Ethereum has been building a base of support.
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The merge to proof-of-stake will likely result in deep buy ins from businesses that are already using blockchains and from those who have yet to. These changes may not be visible right away.
Ethereum’s Decentralization And Private Blockchains
Ethereum is not just a distribution ledger.
Ethereum’s first block in 2015 came with a promise to develop a decentralized, general purpose computer network that would support decentralized finance, or DeFi, applications.
Because it was decentralized, no one would own it and it would run on a network by itself. It went beyond Bitcoin’s purpose of using a digital tamper-proof ledger to record activities.
Bitcoin introduced us to ledger technology that does not require a third party such as banks or brokers.
Decentralization on Ethereum was a way of allowing individuals to interact directly with each other through a self-executing smart contract.
However, businesses were concerned about its performance and scalability. They have been addressing these issues through private blockchains while also tapping into the public Ethereum’s decentralization feature.
Established enterprise blockchains like IBM’s Hyperledger Fabric offer scale, performance and leading businesses such as intel (INTC), SAP (SAP) Cisco Systems (CSCO), Daimler and American Express (AXP) use it. Quorum is an enterprise version of Ethereum for the financial services industry.
These private blockchains that businesses use are compatible and can connect with Ethereum’s mainnet.
Ethereum also has several side chains that offer links to its mainnet. Side chains are public or private blockchains that can connect to public networks like Ethereum. For businesses, side chains will likely improve performance and scale at lower cost since they can avoid Ethereum’s prohibitive fees when traffic goes up.
Think of using an intranet that allows you to connect to specific internet sites. That is the way side chains work. In addition, because these are ways of transacting, side chains make Ethereum mainnet more interoperable. That is, it can operate across different blockchains.
The DeFi Boom
These developments are possible due to decentralized finance.
DeFi took a while to take off but exploded in 2020 when total value locked hit $16 billion. Users or wallets using DeFi have risen from 2 million in 2021 to 4.5 million. Ethereum settled over $11.6 trillion worth of transactions in 2021, more than Visa, which settled $10.4 trillion, and Bitcoin’s $4.6 trillion.
Enterprise blockchains and other enterprise offerings are part of this story. Amazon‘s (AMZN) Amazon Web Services (AWS) made Ethereum available on the Amazon Managed Blockchain, bringing DeFi and smart contract capability to AWS customers. Private enterprise blockchains such as Hyperledger Fabric and Quorum have used Ethereum’s success with decentralization by offering decentralized apps and smart contracts that work with Ethereum.
Smart contracts are already in use in industries such as insurance, infrastructure, retail, e-commerce, energy tech, supply chains and logistics.
Ernst & Young’s global blockchain leader, Paul Brody, observes that a successful merge will not immediately bring new solutions to enterprises. But its success will make more businesses see the “institutional maturity” of Ethereum.
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