The Public vs. Private Blockchain Debate: Likely Answers Already Exist in the Telecom Historical Record

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While public data is fairly sparse on the development, adoption, and future roadmap of the private blockchains as compared to the large public projects, I believe history already contains a great case study in how the underlying physical infrastructure of the modern / mobile internet has seen an inexorable shift towards sharing (instead of walling off) assets for the network scaling and investment cost benefits which ultimately outweigh the competitive “advantage” of closed-door development and any initial early first-to-market beachhead advantages gained. Please note, I’m not saying that the B2B consortium-affiliated distributed ledger technology investments will bear no fruit, but rather, I believe that as this ecosystem matures, they will capture less of the incremental value-add when compared against whichever public blockchains ultimately competes successfully in the likely pareto-governed marketplace of ideas.

Cell Towers and Datacenters: Then vs. Now

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Looking at another segment of the communications infrastructure ecosystem that’s evolved over the last 20 years, we can take a look at how typical enterprise deployments have changed from on-site colocation of mission-critical hardware running their applications (often within the physical footprint of their main corporate campus) to today, where most companies have diversified their architecture to incorporate some element of the public and private cloud solutions, including using third party retail and wholesale colocation providers like Equinix or Digital Realty. These equal opportunity providers today (along with the major hyperscale cloud providers like Amazon AWS, Microsoft Azure to name a few) have enabled far more competition in the mobile and desktop software landscape for early-stage firms to test product-market fit without requiring the large and upfront fixed investment that was needed in the past, which is ultimately a good thing as these software solutions ultimately improve our lives as consumers either directly (if B2C) or indirectly, if it allows other companies to operate more efficiently.

The two above paragraphs are just two examples, but overall, we have seen a greater movement to open-source as opposed to closed-source software within any given tech stack (e.g. the current popularity of heavily open-source components of popular web development stacks like LAMP), and even the large corporate behemoths have given away some of their previously proprietary code (Google’s TensorFlow library, Facebook’s image recognition algorithm, etc.) to as part of marketing or retention for the rest of their service suite. So why does this happen, and how might this continued force favoring public assets over time impact the development of the digital asset ecosystem?

Sources of Friction in Private Ledger Solutions

However, I think there are other negative factors associated with private blockchains that offset some of the positives, such as onboarding cost, comparative inefficiency versus existing enterprise database systems, and different coordination challenges (as compared to public blockchains) that are nevertheless impediments to adoption speed. Onboarding costs vary greatly for the permissioned platforms, but one example from IBM Blockchain showed a $2,000/month membership + peering fee cost, compared to free for developers utilizing most public blockchain platforms. From a data resiliency / efficiency of storage perspective, I am similarly unsure what benefits these still-permissioned systems offer versus traditional database-based accounting ledgers that are in use today, beyond perhaps better visibility into providence (balance over time / tracing of asset origination). Any incremental efficiency gain seems to me to be more than offset by the heavy development and maintenance costs and ultimately, subscription-fee price hikes as those early-stage investors will need to recoup the R&D dollars spent on developers and infrastructure.

The coordination problem of permissioned blockchains deserves its own paragraph. There are already signs of trouble within or between the permissioned blockchain coalitions which highlight some tendencies to slow down, instead of speeding up, innovation. A great example of this was the series of lawsuits between Ripple and R3 that spanned from 2017 through September 2018’s closed-doors settlement, which clearly took some amount of management focus, legal expense, and other resources at both parties to reach a resolution. In general, disagreements between these types of permissioned platforms, or even with respect to the stakeholders associated with a given private protocol, distracts or delays focus on their missions, while public blockchains have fewer ways to get snagged up on intractable disagreements (and ultimately, can fork off if there’s a critical mass of dissent). To be fair, one of the bigger challenges that public, permission-less chains often face is balancing renumeration / incentives for the developers of clients/implementations of the associated software, as compared to the permissioned projects who tend to have bigger fiat war chests / funding and can afford to a much larger payroll. While some projects have set aside money upfront (a “founder’s reward”-style pool from which to pay developers) or specifically allocating future inflation to fund developers, most solutions are probably still sub-optimal from the perspective of incentivizing consistent development effort– although thus far, this type of decentralized, voluntary development has worked well-enough (nobody paid Satoshi to write the white paper, the original code, or paid for electricity during the period of solo-mining, as far as we know).

Scaling Private Ledgers vs. Public Blockchains

Simultaneously, the universe of public blockchains are competing against each other for capital and attention, comprising myriad variations on technical parameters, governance solutions (on and off-chain), consensus mechanisms, tokenomics, consumer adoption pathways, and methods for incentivizing dApp developers, just to name a few factors. In contrast, your typical permissioned private ledger, while having the benefit of capital, likely has a set roadmap that’s inflexible and limited in degrees of technical freedom and is further restricted by more layers of corporate hierarchy (e.g. the CEO/CTO’s product vision having to be followed at all times and re-visited only ever so often).

Conclusion: Public Solutions Better Positioned in the Long-Term

Written by

NYC-based digital asset L/S investor @ Traditional finance background (IB and HF x2), now seeking to understand and price the future of $.

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