Leadership Insights: Blockchain in the Enterprise

Transcript

Mike Vizard: Hello, and welcome to the latest edition of the Digital CXO Leadership Insights series, we’re going to be talking today with the folks from VMware about blockchain and why we need an enterprise-grade platform for building a new class of decentralized applications. Brendon, Alim. Welcome to the show.

Brendon, let’s start with you. I’m not sure a lot of folks know exactly what you guys are up to but why are you building this platform? You’ve been on this for I think two years now. And you’re about to expand it with some more programming languages. What’s the goal?

Brendon Howe: Well, thanks for your time. I appreciate the invitation today. It starts with a very simple couple of statements and probably goes far deeper after that. Let’s start with the simple stuff. There’s been just an explosion of interest and growth in the whole ecosystem of blockchain over recent years, and I think it’s been triggered by a lot of popular consumer initiatives. Certainly, cryptocurrency has been front and center around the use of blockchain technology and some really interesting new capabilities and new offerings.

Our view at VMware has always been that the technology is really interesting, but from an angle oriented towards the traditional enterprise. And I don’t mean traditional enterprise infrastructure. I mean traditional enterprise businesses, such as capital markets, financial services, supply chain companies, healthcare companies, public sector, that have enormous infrastructure of customers, partners, resources and the data to go with it. The principles that are built into the fundamentals of blockchain can be applied to a lot of use cases that enterprise companies use or build to run their businesses. When we look at blockchain, we look at it from a lens of enterprise use cases; very often of which are mission critical. High-scale, must be robust, must be deterministic, must be controlled, must be governed must be certified.

A lot of the public blockchain initiatives. A lot of the public blockchain offerings are not designed to be governed by any particular agency. In fact, just the opposite. They’re really designed to be entirely decentralized and distributed. We started off on a mission to build technology that would allow the fundamentals of a blockchain platform to be usable and leverageable by traditional enterprise for what most would probably consider traditional enterprise use cases like trade settlement, payments, digital currency, supply chain reconciliation. The types of business-critical, mission-critical use cases that run the foundation of the worldwide economy today.

Mike Vizard: Alim, you guys have picked a particular platform for building this. Can you explain why you pick the one that you chose? And how does that maybe lend itself more towards building these decentralized applications? And while you’re at it, we hear a lot about Web3 so what is Web3 as it relates to a decentralized application?

Alim Karim: There’s a lot there’s a lot of questions there so maybe I’ll start on the front part and then please nudge me towards others that I may have not answered. To Brendan’s point when we sort of peel the onion from what blockchain means to the enterprise, it really centers more around the core aspects of blockchain that allow a shared source of truth to exist between multiple untrusting parties. These multiple untrusting parties are able to update this shared source of truth without necessarily trusting each other. That then forms the basis of what we call multi-party interactions. Brendon sort of highlighted a few. These multi-party interactions exist in finance. They exist in healthcare. They exist in government. They exist in supply chains and several other areas where major parts of the world economy today runs on multi party interactions. Today these interactions are actually fairly inefficient because everything is done on in essence, siloed databases that are then reconciled between parties. Blockchain allows us to now present a new type of architecture, a new type of data platform and computing platform, such that those entities can now interact with each other on a common platform without having to basically have these siloed data databases and do reconciliation.

Taking that down to sort of how we built this, we really started from at the heart of it in terms of what does it take to provide this decentralized infrastructure. In sort of very technical terms in computer science terms, when you try to deal with untrusting parties you come into this concept of Byzantine fault tolerance where you’ve got a number of entities that are trying to cooperate, but not necessarily everyone trusts each other. We focus most of our efforts at the heart of that problem and building basically a decentralized, Byzantine fault tolerant generic library that can accommodate any type of smart contract language to accommodate any type of business application that you can write on it.

As part of this journey, we focused on the core part of this infrastructure. We then focused on integrating our first programming language into this platform, which is digital assets modeling language or DAML. That allowed many of the capital markets type use cases to be run on our platform. It is being used with the Australian Securities Exchange. It is used being used by Broadridge Financial and other such customers in the financial services space. And just to emphasize one more point, beyond just providing the core blockchain capabilities, we have a strong emphasis on non-functional capabilities that are needed for these mission-critical workloads: performance, uptime, resilience, recoverability, etc. A lot of what I would say is under the iceberg type, non-functional capabilities to make enterprise use cases work.

As part of sort of the next phase of this journey we’re focusing on adding a new programming language or a new smart contract language into our platform. This is one that is well known in the industry. We’re basically adding support for the Ethereum virtual machine on to our platform that then allows enterprises and developers to write Solidity-based smart contracts on our platform to allow us to participate in the broader Ethereum ecosystem leveraging all the tools and other capabilities that exist there. I talked through a few things about what does multi-party mean; what is the core of blockchain that enables multi-party; how we’ve made a generic infrastructure that supports multiple languages that allow us to get there; what phase one was in terms of DAML and how we’re extending that with Solidity. I’m not sure if I covered all of the things that you asked me, but if I missed something, please let me know.

Mike Vizard: Good enough. We’ll kick it over to Brendan here for a minute. Are these decentralized apps going to replace existing applications or are they mainly going to be used for new use cases or things that we couldn’t have done before and see new classes of applications because there’s certainly a lot of hype where people are talking about Web3 will eliminate and reduce Web2? But those of us who’ve been around the block a little bit are skeptical.

Brendon Howe: I think it’s a good question. I think it’s both. It also depends on the timeframe and the level of pain of the existing applications. It’s a priority call of what’s the biggest problem to go solve in a particular enterprise. I think a lot of the foundational existing applications are always challenged by efficiency, cost of operations scale. Traditional themes have been around for a long, long time. In some of the heavy transactional business workflows that Alim mentioned, there are a lot of expensive manually intensive, time-intensive, extensive steps involved with settlement and reconciliation and data validity steps that can be automated in much more efficient ways. One could think of replacing existing apps with a lens toward how could data be shared more efficiently? How could parties have transactions that are settled faster, without so much auditing and reconciliation and proofs and things that are usually done out of band? We’re all familiar with them because we’re all consumers of large institutions for financial services and other things. You’re aware of the fact that it takes some cases days for things to settle? It’s because there’s a pre-established, existing, highly regulated workflow behind the scenes that does all that and a lot of these workflows really stem back many decades.

I think the opportunity to reinvent to re-engineer an application to be much more efficient is one of the use cases and one of the opportunities for our technology. That is precisely, for example, in the case of the Australian Securities Exchange with the CHESS replacement initiative. Their clearing house and settlement application that dates back to the 1980s. Their goal is to drive a lot more efficiency into the new workflow by taking a lot of cost and a lot of delays out of the new workflow. At the same time, a platform that can enable new parties to transact in a decentralized way opens up the door to all kinds of new business opportunities. There’s plenty there if you just watch what’s happening in the world of Web3 and NF T’s and things like that. All kinds of companies are getting in the business of offering digitized assets or tokenized assets in marketplace offerings and transactions that didn’t exist before. To go back to our example, the Australian Securities Exchange actually offers a service, they call it a DLT. As a service, it’s essentially the blockchain infrastructure they built for CHESS replacement being offered to other customers to develop applications and run it in a much easier way as a service. That particular line of business for them is up and running and has use cases that have nothing to do with the settlement of trades in the country of Australia. That is an example where they have both sides of it. They have modernization of their core application. That’s the foundation of their business, while they’re also offering new capabilities for new customers who were doing things unrelated to the traditional business at ASX. We expect that we’ll see a lot more of that, over time, where enterprise customers will rethink how they can run their current environments, their current workflows more efficiently and then also do what they can to take advantage of this capability by how it could offer increased reach to their customers, broader reach to a new set of customers, they wouldn’t have otherwise alongside a lot of other advantages.

Mike Vizard: A lot of people are concerned about whether or not these applications will scale. There’s a lot of focus on performance. Where are we? I mean, what does enterprise grade mean these days?

Alim Karim: That’s a good point, and, maybe just to broaden that question a bit, this is primarily what our focus is in this blockchain ecosystem. It’s to bring an enterprise lens to this. When we look at these enterprise workflows, clearly performance and scalability is one aspect. The broader blockchain ecosystem is also working on that problem in the decentralized space. But even some of the things that are happening in the decentralized space, let’s just say the scale that is being talked about is still, I would say, not quite what enterprises need for these mission-critical workloads.  Performance and scalability is one key, I would say, underserved need from an enterprise perspective.

There are also elements around privacy where when we talk about multiple untrusting parties interacting with each other, not all of these parties want to reveal information about the transactions that they’re running on such a network because it would, in essence, defeat the purpose if privacy was not preserved. Privacy is another big area that we are focused on. Third is around governance. Brendon touched on having certain levels of authority and sort of mechanisms to allow certain entities to finalize transactions because they’re required to do so from a legal or regulatory perspective. And then fourth, I think, is the element of providing enterprise-class support for these mission-critical applications on these infrastructures because software, as we know it, is going to fail or is going to have issues. When these mission critical applications are running on such infrastructures, enterprises want support so that they can actually continue these mission-critical operations. In essence, these are the dimensions that we are actually focusing on from our platform: performance and scalability, privacy, governance, and support.

I can get into some details about where we are on each of these things in terms of what techniques we’re using or what are some of the metrics we are using. But since you did touch on performance, I’ll take the liberty of answering that question. When we talk about these use cases, like the Australian Securities Exchange, this is sort of the one of the most, I would say, high performance and high throughput applications that is actually being put onto a blockchain for the first time ever, where you’re talking about 1000s of complex business transactions happening per second, where each transaction is 10 to 15 Different smart contracts being updated. This hasn’t really been seen in the enterprise world, with that level of use case actually being run on a platform. We’ve worked really hard with the Australian Securities Exchange to make that kind of performance possible on our platform.

Mike Vizard: Brendan, I think you touched on this briefly, but maybe go in a little more detail. Do you think people appreciate the economic impact that these applications are about to have? Because to your earlier point, there is a lot of latency in these transactions. There’s a lot of people charging fees along the way for various transactions, and they don’t necessarily add value to the transaction. They’re just kind of overhead. What do you think will be the economic impact of this kind of application?

Brendon Howe:  For the existing applications, the ROI (return on investment) is driven on cost savings. There’s no question about it. A lot of them are intangible costs. It’s not a more efficient way to run networking and storage and compute in your environment. It’s actually expediting the flow of data in having a more efficient handling of reconciliation of data. That ends up being the key component. I think the ROI models for all of our customers thus far are driven by cost savings when you net out the entire business workflow end to end. It’s too naïve, too simplistic to think about the raw cost of compute one versus the other or the raw cost of storage one versus the other. It really has to be a much, much more holistic view of the business workflow in its entirety. What those cost savings look like, in the early signs are pretty encouraging. I won’t disclose them because I don’t know that they’re public. But I can assure you that the early customers using the platforms and the technology are able to achieve very tangible cost savings that justify the ROI that goes into these projects.

All right, folks, you heard it here first, the world is changing yet again. We don’t know exactly what the impact of all this is going to be. But the time to very least start experimenting is now. Gentlemen, thanks for being on the show and thank you all for watching the latest episode of digital CxO leadership insights. You can find this and other episodes on the Digital CXO website. Until next time, thanks for watching.