Public blockchains: the foundation of the global middleware

Denis Avrilionis
Jul 30, 2017 · 6 min read

On August 1st, Bitcoin Cash is breaking off from the “main” Bitcoin blockchain. Bitcoin owners will have an equal amount of Bitcoin Cash — if and when users and miners split off. Bitcoin cash has the ambition to become a new cryptocurrency competing with Bitcoin. Cryptocurrencies seem to be affected by such change.

However, the underlying blockchain infrastructure is continuously growing stronger. The adoption of SegWit2x and the increase of block size are examples of scalability improvements. As it can be seen below, numbers are showing that miners would support the SegWit software upgrade.

In today’s madness about ICOs and cryptocurrencies, one should distinguish the underlying blockchain technology from the cryptocurrency hype. Major public blockchains include Ethereum, Ethereum classic, and Bitcoin. These blockchains were created as infrastructure components aiming at supporting cryptocurrency transactions. Beyond their original purpose and intent, they grew into global public infrastructures offering connectivity among parties, able to support general purpose peer-to-peer transactions, even without any link to cryptocurrencies.

Public — private blockchains: similarities

Aside public blockchains, private blockchain initiatives are flourishing. Although there is no blockchain standard yet, some industries have created consortia to build standards like, for example, R3, a blockchain technology consortium of financial companies in research and development of blockchain usage in the financial system. Hyperledger is an open source initiative addressing important features for a cross-industry open standard for distributed ledgers. Adopters of these technologies will have to set up and run their own blockchain infrastructure. Other examples are commercial blockchains as a service created by major software companies like the IBM blockchain leveraging the Hyperledger project, or Microsoft Azure’s blockchain as a service.

When it comes to using public and private blockchains for transactions other than cryptocurrency exchanges, both approaches bear similarities:

  • Data that are part of blockchain transactions come from and need to be integrated with non-blockchain applications. Core business applications and databases will not be replaced by blockchain applications. Such core applications would need to correlate, transform and visualize data exchanged via blockchain transactions / smart contracts.
  • Due to its peer-to-peer structure in order to exchange data on a blockchain, each party has to be part of it. All current initiatives and companies offering private blockchain solutions would create a situation where, inevitably, parties would have to integrate into several blockchains. Each of these blockchains would have its own way to deal with trust, security and governance requirements. A company wishing to connect to a blockchain would have to pay the integration price each time, and this not only in terms of software complexity but also in terms of development cost.

At a first glance, one can think private/consortia blockchains is the natural path of a technology that is slowly reaching maturity. After all, the cloud is now a largely adopted concept, therefore extending the concept of the cloud and apply it to blockchain might seem straightforward. However, this analogy can only hold on the surface and breaks quite quickly, as developed below.

Public — private blockchains: differences

There are a number of notable differences when comparing public with private blockchains:

  • Immutability of transactions in private blockchains does not exist. If a majority of the nodes of the private blockchain decide to reverse transactions there is no way you can stop them. Saying this, perfect immutability cannot be achieved on public blockchains either. The devastating experience of the Ethereum DAO proves that public blockchains must deal with situations where compensating actions are needed. The main difference is that immutability issues on public blockchains are open and visible to the world. They may lead to a lot of discussions, fights, soft, or hard forks but things can never be swept under the rug. On the contrary, private blockchains, should they decide to do so, can modify the transaction history in an opaque way.
  • The cost for connecting to public blockchains is dropping and will soon become a commodity. Connectivity to public blockchains can be achieved presently via standard REST APIs with the ability to scale infinitely, also overcoming several limitations. Regarding confirmation time, even in the worst case of the bitcoin blockchain with 10 minutes confirmation lag, there is no comparison with traditional settlement mechanisms that may require days to complete.
  • Companies, instead of paying the high price for connecting to several private blockchains would be able to connect to a single, or a few public blockchains once. This is also important in terms of development costs: commoditized APIs would allow traditional software engineers to leverage blockchain features to implement business added-value solutions by minimizing the need for expensive blockchain experts.
  • Public blockchains introduce a new computational paradigm where contracts and transactions can refer to both private and public data. Companies and organizations can maintain sensitive data inside the perimeter of traditional IT systems while sharing some data via public blockchain transactions to coordinate with any other party participating in common/joint transactions. Data protection regulations like the EU rule stating the right to be forgotten can be preserved as part of industry-specific protocols running on public blockchains.
  • Public blockchains provide instant, global, and unforgeable audit trail for business transactions and this, without any additional spending on software infrastructure. Regulatory compliance can be implemented instantly by providing the trace of any type of transaction to regulatory authorities globally.
  • Private blockchains running as standalone infrastructures are exposed to attacks as they are identifiable targets, much like traditional cloud infrastructure providers. Securing properly such infrastructures can become very expensive. Alternatively, public blockchains offer the possibility to execute transactions with protocols and contracts that are diluted in the global peer-to-peer network, much like what is happening with regular transactions over the internet.
  • The pricing model of companies or consortia running private blockchains as a service would require additional operating fees that do not exist in public blockchains. It is likely that companies offering business services over public blockchains would charge fees, but companies willing to benefit from the advantages of blockchains could adopt public blockchain solutions and immediately slash all costs related to the maintenance of / connectivity to private blockchains.
  • Use of public blockchain transaction as legal evidence is still under discussion. One sensitive element in that context is the consensus algorithm used to ‘commit’ the transactions. For public blockchains, information about the consensus algorithm is publically available and widely commented. On the contrary, private blockchains have no obligation to publish their consensus algorithm. Moreover, as immutability of private blockchains cannot be guaranteed, even if the consensus algorithm of private blockchains is documented and audited, transaction evidence from private blockchains will always be weaker than public blockchains. Under these circumstances, it is more likely for national courts to accept data from public blockchains as legal evidence rather than data from private blockchains in the future.

Conclusion

Public blockchains are a reliable alternative to private blockchains. They are able to offer better guarantees of immutability, global audit trail, as well as lower cost of entry and clear evidence/compliance advantages; and all this with minimal investment in technical infrastructure. Regulators, financial institutions, legal firms, governmental agencies or public institutions can adopt public blockchains for part of their transactional processing.

While cryptocurrencies are creating an eldorado for people who are seeking short term financial returns, the underlying public blockchain infrastructure is the foundation of a global middleware, able to create long term benefits for many industries.

Denis Avrilionis

Written by

Entrepreneur, Founder of Compellio

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