Ethereum Consolidates in the Corporate Sector: Latest FSS Findings

• The EEA reduces caveats about Ethereum in enterprises, highlighting security, decentralization and a strong ecosystem for corporate uses.

• Ethereum addresses environmental challenges with “The Merge” and improves on privacy and scalability, attracting global financial firms.

The Ethereum Enterprise Alliance’s (EEA) latest assessment of Ethereum’s public core network readiness for enterprise use is an exciting topic for those of us immersed in the world of cryptocurrencies and blockchain technology. Have you ever wondered how Ethereum, one of the most prominent blockchain networks, fits the needs of large enterprises? Well, this assessment sheds light on this crucial aspect.

The EEA, in its initial assessment in the middle of last year, concluded that Ethereum was ready for enterprise uses, albeit with some reservations. Now, in its latest report, it has scaled back these caveats, painting a more optimistic picture. But what does this really mean for the business and financial world?

First, the report acknowledges Ethereum’s advantages

Strong ecosystem, security and decentralization. However, it seems to underestimate the importance of the consumer reach that the public blockchain offers, especially for financial services firms seeking global distribution. While private blockchains work well for institutional uses, Ethereum’s magnetism for global financial services is undeniable.

Institutions such as SWIFT, Standard Chartered, HSBC, Citi, UBS and JP Morgan are exploring the public blockchain, and asset managers are leading the way. For example, Franklin Templeton’s blockchain money market fund, although mostly done on Stellar, is a high-profile case in point.

A massive achievement for Ethereum since the previous evaluation has been “The Merge,” the switch to Proof of Stake (PoS), which addressed environmental concerns. But, like everything in life, PoS has its downsides. For businesses, the potential for further centralization could be a concern, and the potential to exclude or reorder transactions to achieve Maximum Extractable Value (MEV) is recognized as a challenge.

Privacy and scalability in Ethereum

Now, let’s talk about privacy and scalability, two of Ethereum‘s biggest issues . The use of Layer 2 solutions has grown tremendously in the last 18 months, addressing scalability and costs, but it also comes with tradeoffs. Fragmentation, a common criticism of private blockchains, is occurring due to the numerous Layer 2 solutions, which also adds complexity but, at the same time, provides more options.

One positive aspect is the bridges that enable interoperability for Layer 2 solutions, which can be more secure than cross-chain bridges, although they are still a risk. In 2022, the value lost in hacks was $3.8 billion, according to Chainalysis, with the majority being through bridges.

Beyond Layer 2 solutions, scalability will be addressed at the mainnet level with Ethereum’s plans for sharding. Privacy remains a primary concern, especially in the context of Ethereum’s application in enterprise and financial systems. While many enterprises opt for private chains, which present their own challenges, increasingly privacy is being addressed with zero-knowledge proofs and other privacy-enhancing technologies.

Paul Brody of EY did a good job of managing expectations. He noted that what is consistently missing from every analysis is a reasonable sense of timing. According to Brody, the blockchain industry is too big to return to the days of 100-200% annual growth.

“This is a multi-decade project,” he concluded, “and if we are to maintain our enthusiasm and our energy to complete this transformative and valuable task, we need to calibrate our expectations accordingly.”

Although it faces challenges in terms of privacy, scalability and centralization, recent and planned developments demonstrate its commitment to continuous improvement and its potential to transform the way businesses interact with blockchain technology.

Calibrating expectations is key, as is the understanding that we are facing a long-term technological and financial shift that will evolve and adapt to market and societal needs.