Where Have All the Private Blockchains Gone?

Gideon Greenspan
Dec 18, 2017 at 05:00 UTC
OPINION

Dr. Gideon Greenspan is the founder and CEO of Coin Sciences, the company behind the MultiChain platform for private blockchains.

The following article is an exclusive contribution to CoinDesk's 2017 in Review.


The past six months have seen a great deal of excitement in the crypto space – bitcoin passed $10,000, billions were raised in ICOs and mainstream financial institutions like CME Group and CBOE launched cryptocurrency-based derivatives.

This is all a far cry from this time last year when bitcoin was still below $1,000 and the total market cap of the entire space was $15 billion, less than 5% of today’s figure.

So, what were we talking about in December 2016 then? The answer, for those who don't remember, is private or permissioned blockchains, also known as "distributed ledgers."

These systems share many technical similarities with the open blockchains underlying cryptocurrencies, but are designed to be used by a closed group of known parties. As you may have noticed, these days we hear a lot less about them.

So, has this notion, which claimed to embrace the blockchain revolution, while emptying it of its true meaning, been consigned to the dustbin of history? With no promise of censorship-free money and no native token for speculation, were permissioned blockchains nothing more than a fleeting sideshow?

It seems that more than a few people have reached that conclusion.

Indeed, when CoinDesk Editor-in-Chief Pete Rizzo approached me to write a piece for the series, his prompt was the suggestion that "we're probably about due for a private blockchain return in 2018."

However well-intentioned, this came across as a generous conciliatory expression of optimism for a technology that has lost its place in the limelight.

In reality, however, the state of play for permissioned blockchains is rather more nuanced, demonstrating both advances and setbacks during 2017.

Steady growth

First, let’s look at the tech itself.

During 2017, several prominent open-source blockchain platforms released a production-ready version 1.0, including MultiChain (our product), R3's Corda and Hyperledger Fabric – not to forget Chain Core which reached 1.0 in late 2016.

While it's certainly still early in the development cycle for permissioned blockchains, programmers now have several credible choices of infrastructure on which to build their applications.

Second, let me share some of our numbers, which point to a nascent but rapidly growing niche.

In the 12 months to November 2016, MultiChain received around 23,000 downloads. For the subsequent 12 months, the comparable figure is 55,000. During the past year, organic traffic to the MultiChain website doubled from 21,000 to 41,000 monthly visitors.

In the same period, our partner program expanded from 13 to 62 member companies. While we’re not privy to others’ figures, they no doubt show similar rapid growth in developer engagement.

Narrowing niche

So if the numbers are up across the board, why the negative sentiment?

The answer is that permissioned blockchains are unlikely to be deployed in the way and on the scale originally anticipated. The great dream of moving mainstream financial assets en masse from centralized to distributed ledgers has been undermined by a key characteristic of blockchains – their radical transparency.

Put simply, for many use cases the participants in a blockchain see too much of what each other are doing. This so-called "problem of confidentiality," originally seen as a minor setback, has proven itself to be the central factor in determining the feasibility of many blockchain applications.

It's true that several advanced techniques, such as ring signatures, confidential assets and zero-knowledge proofs, are available or being developed to mitigate the problem. But it remains to be seen whether these can truly allay fears of data leakage, and if the resulting systems provide a sufficient advantage over traditional centralized intermediaries.

But if permissioned blockchains aren’t being used in the way first envisaged, then why is interest still growing in this technology? Why are more and more people working with our platform and others?

The answer is that developers have been finding many applications for permissioned blockchains which are different from those first imagined.

In case this surprises you, remember that bubble wrap was intended as a new type of wallpaper and the internet was designed for military use. As is so often the case with new technologies, permissioned blockchains are being used in surprising and unexpected ways.

What's being built

We recently published a blog post describing some ways in which
MultiChain is being used in production. If we look at these uses and other
projects launching soon, they can be separated into two main categories.

First, permissioned blockchains can serve as the backbone for alternative or niche financial systems, in which the cost of setting up a trusted intermediary to manage a centralized ledger is not justified by the assets being transacted. In these cases, the blockchain allows a safe financial system to be set up quickly and easily, at the cost of reduced confidentiality between its participants.

Second, permissioned blockchains are being used to create secure multiparty timestamped records of important pieces of information.

These shared records are an alternative to (a) having a single trusted party maintaining a centralized record or (b) multiple parties maintaining their own records independently. A blockchain enables a group to maintain a provably single view of the truth, updated in real-time, without ceding control of this truth to any individual participant.

In a broader context, permissioned blockchains can be viewed as a new approach to integrating the IT systems of multiple organizations or enterprises. These types of integration entail a three-way trade-off between confidentiality, reconciliation and disintermediation. Blockchains sit at a particular point in the space defined by that trade-off, when confidentiality is less important. Other points in the space are occupied by centralized databases and point-to-point messaging.

To summarize, despite their technical similarities to cryptocurrency blockchains, permissioned blockchains are being used for entirely different things. They don’t represent a speculative investment opportunity or the possibility of financial or social transformation. Rather, they are a new and useful addition to the toolkit for enterprise IT.

Disagree? CoinDesk is looking for submissions to its 2017 in Review series. Email news@coindesk.com to pitch your idea and make your views heard.

Crumbs image via Shutterstock 

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