Making Ethereum a safe place for big companies

Ernst and Young, Microsoft and Ethereum venture studio ConsenSys—big guns in the blockchain consulting business—  have joined together to create “Baseline Protocol,” a middleware solution for large companies to communicate and transact privately on the Ethereum public blockchain.

The project was unveiled in a press release earlier today.  The protocol is “an open source initiative that combines advances in cryptography, messaging, and blockchain to deliver secure and private business processes at low cost via the public Ethereum Mainnet,” per the statement. “The protocol will enable confidential and complex collaboration between enterprises without leaving any sensitive data on-chain.

The enterprise problem with public blockchains

Blockchain has been tossed around in the past as a way to wrangle enterprise data. But one of the big problems with a public blockchain is that any data stored on the network is public. That’s a thorny issue for large corporations, who don’t want to put their private dealings on widely shared blockchain.

The open-source initiative aims to synchronize “internal systems of record,” including ERP data, CRM and other private business processes via the public Ethereum blockchain.

In essence, Baseline offers a set of tools — including zero-knowledge proofs — that allow business transactions, smart contracts and communications to remain private, so that business users can decide what they want to share and with whom.

Zero knowledge proofs, or ZKP, is a complicated form of cryptography that allows two parties to verify things without sharing or revealing underlying data. And it is really the secret sauce for how all of this works. Baseline uses Ernst & Young’s Nightfall ZKP for Ethereum. It also leverages Whisper for secure p2p messaging between partners.

The Github for the protocol says that it’s meant to enable standard ERC-20 and ERC-721 tokens to be transacted on the Ethereum blockchain with complete privacy. It also states the protocol is “experimental solution and still being actively developed,” which would seem to indicate all this isn’t quite ready for primetime yet.

Paul Brody, principal and global blockchain leader at Ernst & Young, told Decrypt that he would not call the technology experimental. Though it’s new, it’s actively being developed and is actually “quite mature.”

“We expect to unveil products for enterprise usage based on this technology shortly,” he said, adding that he expected to see new Baseline-related products unveiled as soon as next month.

How Baseline Protocol works

“Companies use all kinds of sophisticated internal systems to transact internally, but when they communicate with each other, they mostly use email and spreadsheets and EDI [electronic data interchange], which is basically text messaging,” Brody said.

In the case of the Baseline Protocol, Brody said there are two things that go on the blockchain. One is a “notarization”—basically a hash of the document and a timestamp, used to authenticate the document. (Note that you don’t put the actual document on the blockchain.)

The second thing is tokens, which can be created, traded and managed on the blockchain.

The tokens are the key inputs and outputs of business processes. This is one of the main things that that Nightfall ZKP keeps private—the transfer of the actual tokens (assets) between the parties. As Brody explained, Baseline also keeps private via smart contracts, business logic, such as the number and price of items negotiated in a contract or purchase order..

“For complex stuff, we notarize and for stuff that we want to market for decentralized services, we are going to do our best to create a digital token instead,” he said. “Blockchains are much more comfortable and much better designed to support digital tokens.”

Enabling these communications, and the use of tokens on the blockchain, will allow parties to access other tools on the blockchain as well, such as loans via decentralized finance, he said. (MakerDao, incidentally one of the founding members of the project.)

Solving the enterprise problem

As an example, say a large company wants to buy something from a supplier. They send a purchase order for 1,000 widgets worth $1 million via the Ethereum mainnet. The supplier may need working capital. “I can use middleware to send the P.O., but on the blockchain, there are a whole set of decentralized financial services as well. In theory, the digital token that represents my purchase order is something my supplier could as security use to obtain working capital,” Brody said.

He pictures Baseline as a way to enable these complex transactions but under privacy, so other companies can’t see how much you’ve borrowed. He believes it will allow companies to use the blockchain for business transactions much the same way people use the internet.

In a bigger sense, the Ethereum blockchain is no longer used as a settlement layer for recording transactions, but a middle or integration layer that is always available, without downtimes, stays the same, and is accessible for all the partners on your network.

Consensys envisions the technology mitigating all of the “heavy lifting” traditionally involved with connecting different ERP and CRM systems with their internal databases while at the same time, maintaining the integrity of the data.

How Baseline Protocol began

In mid 2019, Ernst & Young, ConsenSys and Microsoft started a supply-chain project codenamed “Radish34,” that uses public Ethereum to enable real-time volume discount calculation across a series of purchase orders. These efforts led to the creation of the Baseline Protocol.

A company called Unibright, which recently joined the effort, will play a “major role” in developing the protocol. 

“Every time a business process changes or state of a business process changes in a private network, the public available Ethereum mainnet is used as middleware to synchronize the states and to build a common frame of reference,” Stefan Schmidt, Unibright’s founder and CTO, explained in a video.

The development for Baseline Protocol is funded by ConsenSys and Ernst & Young. (ConsenSys also funds Decrypt.)  Other companies in the Protocol steering committee include AMD, ChainLink, Core Convergence, Duke University, Envision Blockchain, MakerDAO, Neocova, Splunk, Provide, and W3BCLOUD.