After many years of investment, experimentation and infrastructure improvements, the intersection of three market trends is paving the way for enterprise adoption of distributed public networks: tokenization, decentralized finance (DeFi) and the shift of business logic at level 2.
In 2020, it became increasingly evident that these trends have made companies open to using Distributed Ledger Technology (DLT) in ways that simply did not exist in 2017.
Tokenization that enables economic activity, DeFi stimulates more efficient financing
The first use cases of DLT focused on its ability to synchronize a distributed ledger across multiple parties, ensuring that all parties received the same information simultaneously and that each participant in the network had confidence in the process.
In 2020, the concept and scope of tokens became more understood and exploited. For example, an important use case is supply chain traceability, specifically recording when and where a product was made and its path in the supply chain.
Digital tokens are designed for economic activity and this trend is accelerating. Products and services will soon be tokenized throughout the world economy. An example of this is Coca-Cola's supply chain (stocks Coca-Cola - ticker: KO). Although the DeFi bubble of 2020 looks somewhat similar to the ICO-mania of 2017, the fundamentals of the DeFi movement will change the face of finance in the future.
Passing the business logic to level 2
With the acceleration of enterprise adoption of DLT, a strong need for privacy has been created in the execution of smart contracts. Public networks expose business logic and smart contract data, potentially revealing sensitive business intelligence or user privacy information.
In addition to privacy concerns, the scalability and costs associated with public networks caused the DLT market to split in 2015 with the launch of Hyperledger and later with R3 Corda in 2016.
So, faced with the performance, cost and regulatory hurdles present in public networks of the time, companies chose to create private, compartmentalized, purpose-specific DLT networks.
Over the past five years, the private DLT industry has learned that the need to have several independent parties to manage the DLT network is a time-consuming, expensive and complex operation. At the same time, public networks have realized that to achieve scalability and reduce costs, it is necessary to move the execution of business logic from layer 1 (the main network) to layer 2 (peripheral networks).
As a result, one of the major industry trends observed in 2020 saw business applications shift the execution of business logic to layer 2 networks and simply use layer 1 for consent and arbitration.
This approach combines the benefits of public networks - distributed trust - with the benefits of private networks - low cost, scalability, privacy, and regulatory compliance. Technological advances in 2020 have laid the foundation for enterprise adoption of DLT. Now is the time for businesses to take advantage of these discoveries.
