R3 and Vertical Blockchains

A few days ago, I wrote about a pilot solution conducted by the R3 banking consortium using Ripple’s digital currency. R3 is a consortium of some of the most important financial institutions in the world that have been promoting scenarios for the adoption of blockchain technologies within the financial industry. R3's has made consistent progress in blockchain solutions and, a few weeks ago, two of its member achieved a major milestone by successfully delivering the first cross-border transaction between banks powered by the blockchain.

Wells Fargo(WFC) and the Commonwealth Bank of Australia(CBA) engaged in a trade that resulted on shipment of cotton to China from The United States. The transaction totaled $35,000.00 and was enabled by Autralia’s Brigham Cotton Marketing through one of its subsidiaries in Texas. The whole process was enabled by a blockchain solution.

The WFC-CBA transaction is another example of how blockchain technologies can simplify cross-border financial transactions. Many experts catalog this event as the first cross-border blockchain transaction between banks. Even though R3 wasn’t part of the implementation, the solution was based on some of the ideas that the banking consortium has been evaluating to apply blockchain technologies to financial services. Additionally, the WFC-CBA is an example of another emergent trend: the vertical blockchain.

The Vertical Blockchain

One of the most powerful thesis about the future of the blockchain is that the market will have a handful of general-purpose blockchain platforms and many industry-specific blockchain infrastructures. From that perspective, we should expect to see the raise of blockchain frameworks in industries such as finance, manufacturing, legal, etc. That theory has been particularly popular with the emergence of consortium blockchain architectures and industry groups such as R3.

In this context, vertical blockchain won’t look as blockchain but rather as a group of industry specific business processes powered by decentralized architectures. While consortiums such as R3 are making a lot of progress envisioning a blockchain focused on financial services, we should soon expect to see similar efforts on other industries.

As blockchain technologies evolve, we can envision the emergence of dozen of consortium blockchains that enable common B2B processes on specific industries. Those processes will be implemented as Smart-Contracts and will be extended with off-chain, industry-specific regulatory and compliance processes.

Organizations in vertical blockchains will own a series of smart-contracts as well as digital assets that sometimes will be translated into physical assets [ex: Cotton]. Also, vertical blockchains sometimes will need to interoperate with each other in order accomplish specific task. For instance, a manufacturing blockchain will interact with an entity in a financial services blockchain in order to place an order for a specific equipment.

The emergence of vertical-focused blockchains is a natural step for the mainstream adoption of those technologies. from the platforms in the market, Ethereum is in a unique position to enable the first-generation of vertical blockchains.

CEO of IntoTheBlock, Chief Scientist at Invector Labs, I write The Sequence Newsletter, Guest lecturer at Columbia University, Angel Investor, Author, Speaker.

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