Exploring Public and Private Blockchain Networks
Debates rage on about the merits of public versus private and permissioned blockchains. What if it turns out that we’ve been debating about something that doesn’t really merit an argument?
The promise of distributed ledger technology (DLT) is appealing to most firms. After all, who doesn’t face challenges with the way their market processes and shares data? But business leaders seeking to apply this technology are all too often accosted with conflicting advice and opinions about what kind of DLT they should use to solve their problem.
Should it be public or private? Permissioned or permissionless? Turquoise or mauve? Back the wrong ‘team’ and your career could be over! Faced with such a monumental decision, the result is often no decision, and everybody – customers, service providers, and, of course, vendors – all suffer when expensive problems persist, rather than being solved.
In this short article, I argue that this situation makes no sense. In short: the ‘holy war’ between different blockchain visions just isn’t an important factor in whether your project will succeed. What actually matters is that you choose the appropriate tool for the task, ensuring it can seamlessly and openly integrate with any other tools chosen by others for their respective initiatives. After all, if I pick one tool and you pick another, but they can work perfectly together when they need to, then we both win.
Do I need blockchain at all?
Before diving in, let’s ask the first, most pressing question. Why solve business problems with a blockchain – or DLT – architecture at all?
DLT fundamentally alters how we can manage data and transactions at the level of a whole market. By facilitating transparent, secure, and efficient peer-to-peer interactions through cryptographic techniques, it can help streamline processes, reduce costs, and open up new markets. It can enable the wholesale modernization of entire industries.
But not all blockchains are optimized for the same things.
To see why, consider Bitcoin, the pioneer cryptocurrency, a trustless system for peer-to-peer transactions without the need for intermediaries. Its design is the engineering solution to precisely that problem. The right tool for that job.
Going further, permissionless programmable blockchains, exemplified by the likes of the Ethereum mainnet, operate in an impressively decentralized manner, open to anyone with internet access. They offer transparency, ‘unstoppable computation’, and censorship resistance: nobody can stop you connecting, and nobody can stop you transacting. This has driven much of the platform’s innovation but does, of course, also present difficulties for some firms, especially in regulated industries, for some use-cases.
Public or private – or both?
I’ve yet to meet a company executive who says their biggest business problem is a need for censorship-resistant transactions. But I have met many who wish they could transact with their peers, customers and suppliers far more efficiently and accurately. If only the systems that underpin their market could be as synchronized as the nodes on a blockchain network, in effect.
This is where the vision of permissioned blockchains first came into play, catering to use cases within enterprises and organizations, heavily inspired by, but originally distinct from, the problems being solved in the permissionless realm, and where you did need to know who you were transacting with and did need to control who could participate.
These permissioned distributed ledgers are controlled by designated entities, limiting participation to approved users. While a few may say they sacrifice some decentralization, they provide enhanced privacy, scalability, and control over data. Permissioned blockchains can therefore facilitate secure and efficient collaboration by offering organizations a trusted and shared infrastructure for data exchange.
Looked at through this lens, it might be hard to see what causes all the drama. Isn’t it obvious which sort of tool should be used for which sort of job?
On one level, yes – of course. But, by their very nature, the permissionless networks are the most visible (and often have the most buzz…) and so it is reasonable to first consider whether such a network can be the right basis for one’s own business initiative. And, indeed, sometimes they are. For example, several firms have successfully used a permissionless network to issue a tokenized corporate bond.
But the problem is; they very often are not the right tool. Permissioned networks exist for a reason, after all. But, in recent years a false narrative has taken hold. This narrative says that it’s an either/or. “Either your business has access to the innovation of permissionless networks or you can solve your problem with a permissioned network, but you can’t have both”.
Stated like that, it sounds profoundly scary: if you thought you would be cut off from the future by making the right technical choice, but can’t use a permissionless network because it doesn’t meet your technical needs, the only rational thing to do is nothing!
The good news – and entire point of this post – is: this is a false dichotomy. You can have both.
Financial markets are intentionally regulated for good reason. They require oversight to maintain fairness and order, thereby providing market participants with the necessary level of control needed to operate safely. A permissioned solution is not a closed-off concept. By adopting this technology and collaborating with a company deeply versed in capital markets you gain valuable insight into compliance requirements, which aids in achieving your business objectives through safe and effective innovation.
The key to understanding this is interoperability. Open interoperability: open source, open standards, open innovation.
A permissioned platform that can also talk to other platforms – permissioned or permissionless – solves the fundamental problem: you can use the right tool for the job for your problem today, which in more cases than you’d expect, is a permissioned tool such as Corda. AND you retain the option and ability to connect and interact with other networks, including permissioned ones too. You don’t give up anything by going down this path. Quite the reverse, in fact.
For example, in the context of a post–trade settlement use-case in a regulated system, such as Six Digital Exchange (SDX), the world’s first fully regulated digital exchange and central securities depository, it makes far more sense to use a private, permissioned chain. The SDX infrastructure means members can transact safely and securely in the knowledge that their data and their activities remain completely private and regulatorily compliant.
On the other hand, SDX are also living proof that businesses can harness both permissionless and permissioned networks at the same time – and as already mentioned – for different purposes. Last year, SDX and Aktionariat worked together to demonstrates that shares issued on the Ethereum blockchain can be transformed from ledger-based securities into intermediated, bankable securities on a regulated platform. It’s not about picking and choosing which blockchain ‘team’ you are on – it should only be about liberating assets and safely unlocking value. Deciding on which DLT network comes after.
As digital solutions continue to evolve, a hybrid approach integrating elements from both public and private blockchains may emerge as the most viable solution. This approach could harness the benefits of decentralization while accommodating the needs of regulated entities. But in the meantime, the only two things you need to worry about are 1) pick the right tool for the job, which very often means a permissioned network, but 2) make sure that tool is openly interoperable with the rest of the world!
