The Private/Consortium/Permissioned Blockchain Fallacy

Gilles Cadignan
Aug 31, 2018 · 8 min read

The actual situation

Today, especially when it comes to large companies, the blockchain hype has gone crazy. Blockchain projects, the immense majority of them being proof of concepts, are made on top of permissioned distributed ledgers. There are many reasons for this reality, but as I will explain here, there is some misconception about what a blockchain is useful for. In this article I will make a distinction between permissioned blockchains ran by single entities and consortium blockchains where nodes are ran by different entities.

Permissioned blockchains ran by a single entity

Let’s start with permissioned blockchains. I will take a concrete example deployed by the french retail giant: Carrefour. Carrefour deployed this solution this year for chicken/eggs traceability with a loud communication. I was not able to find any technical details of this implementation (which is strange for a project about transparency), so I will make some assumptions based on their communication.

« Carrefour deploys the first alimentary blockchain in Europe and will extend this technology to 8 other food chains in 2018 »

The goal of this « alimentary blockchain » is to track provenance of the chicken meat sold in Carrefour outlets. Consumer can scan QR code and have all the information related to this specific piece of chicken.

As far as I can tell, the solution is based on some private blockchain with nodes run by Carrefour, at Carrefour, for Carrefour. It could be some Hyperledger solution (in that case nodes would be ran by IBM) or some private version of Ethereum like Quorum. So what is the real value of using blockchain technology here instead of a completely centralized system gathering information about food traceability from the different chain actors (producers, manufacturers, distributors) in a plain old database ?

« Before, if you wanted to know how the chicken was raised, which was its diet, or how it arrived to the shop, you could only ask the vendor. It was a little bit complicated to track the origins of the products. Now, with blockchain technology, this task is much easier. »

This sentence does not tell anything about why on earth you need a blockchain for that, and why it is so different than « ask the vendor ». Gathering information, link it to some unique identifiers, scanning some QR codes, many people already do that without any blockchain technology.

As long as the customer cannot verify by himself the validity of the information, this is not very different from a traditional tracking system.

Edit : Carrefour claims that this blockchain is ran by a consortium, but provides no information about who the members of that consortium are. I suspect that those members are only a couple of Carrefour’s own business units.

How could Carrefour deliver the promise of transparent traceability ?

If we make the exercise of imagining how you could effectively use blockchain to improve traceability, we can actually add some value by having a completely different approach. Simply by using an existing tracking system, that is way more efficient than any smart contracts-based architecture. This system could stay centralized but could use a public immutable blockchain like Bitcoin to anchor the tracking data gathered at every step of the chain. Many advantages of doing so :

  • Ease of implementation : no need to re-build from scratch a whole tracking system with “smart” contracts. Just secure the relevant information with some trivial integration with the existing tracking systems
  • Ease of on-boarding / Inter-operability : It’s quite impossible for every participant of the food chain to have exactly the same information system. But all of them deal with tracking data at some point. Anchoring this data is easy for any system and data could be sent in any format to anyone who ask for it.
  • True disintermediation of trust : every participant, including the end-users (the chicken consumers here), can verify information without having to ask to anyone,
  • Cost efficiency : by using the existing public blockchain infrastructure, costs are drastically lower, as there is no need to maintain a specific blockchain that will be in any case less secure than Bitcoin.
  • Benefits would be global : not only for Carrefour but for every actor in the chain, assuming producers for example, do not sell only to Carrefour, the transparency could be provided at once to all their customers. Another good example is food control authorities.

This solution would be, in my opinion far better to achieve real transparency on traceability, and would lower drastically the amount of fraudulent tracking information. It would not be perfect though, as any actor in the chain could anchor wrong information, but at least with this system, if the provided information is proven wrong at some point, we have the proof of an official declaration from the source declaring it right.

Consortium blockchains

Consortium blockchains are a little bit different. The principle is to instantiate a blockchain among several participants, all of them participating to a specific consortium. Consortia are made of members of the same industry or a group of entities of a specific ecosystem.

Many initiatives were tried and the most known project is R3 (Corda4). The goal of this project is to create a blockchain between majors banks so it can be used for settlement. This project has raised a lot of money from banks, hired hundreds of architects but seems stuck for some reason after more than 3 years. Worst, many banks left the consortium several months after joining it. My guess is that there are many reasons why consortium blockchains just cannot work :

  • It is very hard to gather competitors around the same IT project, as each of them has different agenda, processes and strategies
  • the cost of maintaining the necessary infrastructure is high and needs to be federated (centralized) at some point. That’s already how it works.
  • Migrating actual critical processes to a brand new, untested, blockchain-based system is painful and risky, to say the least.

An argument FOR private/permissioned blockchains

DLT are for me a huge waste of time and money, if the goal is to provide real innovation. In my humble opinion, the novelty they provide is very limited compared to legacy systems. They nevertheless can solve some issues in terms of deployment of transactional applications. I’ve been desperately searching for arguments to balance my take on DLTs, and I finally found one provided by the example of an American Express project based on Hyperledger. In this example the use of this kind of infrastructure drastically accelerated the development process of a loyalty program; the fact that the smart contract platform is suitable for this particular use case plus the fact that it simplifies the deployment and the maintenance of the application makes it a clear winner.

So yes, sometimes, private blockchains can do the trick. But in those cases, you need to:

  • trust IBM (or the blockchain-as-a-service provider) for the infrastructure and the availability
  • accept the inherent lower level of security of this infrastructure (and the possibility of censorship)
  • use it for a centralized project.

This use of private blockchains is equivalent to a new way of rapid development and deployment of web application, nothing more.

Arguments often used against public blockchains

« Blockchain as the underlying technology » is a big lie but for some reasons people bought it. This subject has been heavily discussed, there are many things to say about it but let’s talk about the most used arguments coming from the DLT world against public blockchain :

  • Public blockchain don’t scale : this is very true, and this is by design. Immutability and censorship resistance come with compromises. If you scale a blockchain (more data in the blocks) you get a database as the replication rate will go lower. Scalability on blockchains can only be achieved by using layer 2 tech, and if promising payment Layer 2 technologies (Lightning Network) are still in beta for now, layer 2 timestamping technologies are already used in production by many.
  • Public blockchains are controlled by evil Chinese miners : that one is a pure lie. Mining centralization is indeed a problem (we may have a solution with Matt Corallo’s new BIP for mining protocol) but overall, the consensus mechanism is a protection against miners bad behaviors.
  • Public blockchains rely on volatile and unregulated currencies : true. And that’s why it works. The token act as the financial incentive to secure the network. Without those tokens miners or validators don’t have any incentive not to cheat on the consensus.
  • Public blockchains are not confidential : partly true. The confidentiality of an application based on public blockchain rely on its implementation choices. Even if bitcoin transactions are public, it’s very easy to use them in a completely confidential way by using cryptography; hashes, zero knowledge proofs etc. exist for a reason. Blockchain has to be public so it can be verified by anybody from the genesis to the most recent block.

Why only Bitcoin can deliver the real “blockchain” promises ?

The only way for a blockchain to be reliable and deliver real trustlessness is to be neutral and impossible for any actor to control. The real power of Bitcoin relies on the fact that it is truly decentralized and very hard to change even by the most powerful actors. The « Segwit2X » episode of 2017 illustrates the real power of Bitcoin. When the most powerful economical actors and miners tried to modify the Bitcoin consensus to protect their own interests, they failed. The reason why they failed is due to the initial design of the Nakamoto Consensus which is defined by all the users of the protocol. That’s why Bitcoin is neutral by definition and needs absolute consensus to be changed (good luck with that). This leads to a very conservative approach to consensus systems but it also gives the opportunity to build on top of a very solid basis.

Disclaimer : I’m a rude Bitcoin Maximalist

I’ve been consistently skeptical about « Blockchain » related projects since the very beginning. Being myself often categorized as a « blockchain entrepreneur », I first embraced it because categories can serve some simplification purposes sometimes. I even tried to leverage that hype for my company when I chose the « blockchain everything » baseline for Woleet in 2016. Today I simply don’t want to hear about it anymore. Our old t-shirt with that shameful slogan is becoming more and more difficult to wear, even at home. I made my choice, and this choice is also shared within my company. The real revolution is Bitcoin, not Blockchain. Please don’t take me wrong I’m not talking about altcoins (shitcoins), I’m talking about all that false belief that « Blockchain » is a thing. Blockchain is nothing but a data structure for some distributed ledger. Bitcoin has one, Hyperledger has many, Dogecoin has one, XRP by Ripple has one, even if 32K blocks are missing from the genesis for some reasons (lol). So yes, for many reasons, I’m a Bitcoin Maximalist/Minimalist, but in this article I really tried to present things without any bias. I would welcome any comment, especially from people thinking those blockchain projects have any use except from PR stunt.

Footnotes

1 — Carrefour lance la premiere blockchain alimentaire http://www.carrefour.com/fr/actualites/carrefour-lance-la-premiere-blockchain-alimentaire-deurope-et-etendra-cette-technologie-a

2 — If the Carrefour initiative is the first in Europe, JD.com and also Walmart already had the same kind of projects elsewhere before.

3 — The truth about smart contracts https://medium.com/@jimmysong/the-truth-about-smart-contracts-ae825271811f

4 — Corda https://www.corda.net/

5 — Corda running out of money http://fortune.com/2018/06/07/blockchain-firm-r3-is-running-out-of-money-sources-say/

6 — Blockchain without bitcoin article https://medium.com/woleet/bitcoin-without-blockchain-1539ba7dae52

7 — https://www.the-blockchain.com/2018/05/29/am-ex-brings-blockchain-to-membership-rewards/

9 — Matt corallo BIP on BetterHash https://github.com/TheBlueMatt/bips/blob/betterhash/bip-XXXX.mediawiki

10 —”Rude Bitcoin Maximalist” is a reference to a recent Arthur Breitman’s quote stating that bitcoin maximalists are « rude » people.

CEO of @Woleet, Opinions are my own. Mostly interested in Bitcoin and entrepreneurship.

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