Which blockchain is more suitable to the competitive positioning of the business model?

Demystifing the public versus private blockchain debate.

This article was originally published by MIT Sloan Management Review Brazil, in Portuguese.

We have seen in previous articles the relationship between blockchain and networked business models, off-line interface and blockchain registry, the role of blockchain in NFTS, the use of dApps in business, and finally how smart contracts can optimize businesses.

Today, we will explore some use cases with the goal of clarifying which blockchain is best for your company’s business model. Our focus will be on the type of blockchain. Permission models will be covered in another article.

The public versus private blockchain debate

For companies that are launching new blockchain projects, one of the most concerning considerations is the choice of a public or private blockchain, and which permission models.

The type of blockchain to be adopted is a crucial decision in the project, as it affects functionality, security, compatibility with other stakeholders’ systems, and most importantly, the companies’ competitive positioning.

Here it is important to note that the blockchain space is generally full of controversies arising from the initial maturity of the technology itself, and the consequent misalignment of definitions, including the term blockchain itself meaning different things to different people.

To get an idea, some experts say that a vital criterion for classifying a blockchain as public or private is whether it is actually decentralized. Others argue that there should be a more finely tuned decentralization spectrum.

However, when looking in depth at the use cases over the past few years, it can be seen that public and private blockchains are useful for achieving different goals and meeting the specific requirements of each project.

Many see that in the short term, private blockchains are the most likely way for a certain sector or industry to start using blockchain technology. And indeed private networks help acclimate organizational cultures, compliance, among other factors.

However, as a particular industry becomes more comfortable with blockchain, the technology is no longer an unknown to the players. Thus, one realizes that the search for public chains or private chains occurs according to the needs of each project.

To better understand, let’s look at some use cases, starting with an example in the port area.

What factors did the Port of Genoa consider when introducing Blockchain technology into port processes ?

The Port of Genoa, a business community that in 2018, launched a project aimed at introducing blockchain technology into port processes.

The project included the creation of a private blockchain and the instrumentation of the Port Community System for recording in the blockchain transactions corresponding to port operations between port entities in real time.

In this step, the choice of the private blockchain by the Port of Genoa was justified by the need for the rapid creation of a blockchain, to focus on the applications rather than the technology itself.

Over time, however, it was realized the need to create a parallel line of research to the project in order to investigate the migration to a public blockchain, as well as the possibility of integration and interoperability with other blockchains. I commented in detail about the stages of interoperability in the evolution of blockchains, here.

In this case, the technological choice of the type of blockchain, with the subsequent finding of possible migration to a public blockchain, took into consideration: governance, protection of personal data, system performance, interoperability, and cybersecurity.

Another example, important to demystify the premise “is the best blockchain for enterprises always a private blockchain?”, is a solution that uses Bitcoin’s public blockchain in the logistics sector.

Why is it a misconception that only private Blockchains are suitable for enterprises?

DexFreight, a Florida-based logistics company, has pursued a blockchain solution built on RSK technology, which adds more sophisticated smart contract functionality to Bitcoin’s public blockchain.

DexFreight handles payments between different cryptocurrency parties and uses smart contracts to help verify identity and create an objective reputation system between shippers, brokers and carriers.

To do this, DexFreight stores hashes of sensitive attributes such as bills of lading, fee confirmations, proof of pickup, delivery, and payment on the public bitcoin blockchain. All the original information, by the way, is stored in the corporate cloud.

In the case of DexFreight, the technological choice of blockchain type took into consideration:

(1) data access;

(2) data integrity and security; and performance.

The solution is resistant to censorship, and the public nature of the blockchain means that stakeholders have no power to tamper with records once entered into the blockchain (immutability is more robust in a public blockchain).

In this discussion, what is important is that the industry moves from the public versus private debate to a more robust clash that focuses deeply on deploying solutions where specific business requirements can be met. A specific blockchain solution for a given use case should fulfill requirements such as:

1 – Operational integrity;

2 – Compliance (such as KYC/ AML, crucial regulatory issues for payment providers and financial services);

3 – Interoperability (interaction with other existing processes and systems);

4 – Security requirements (data segregation, privacy, etc.)

5 – Scalability.

Final considerations

In this step, decision makers should look at the context of their specific use case and consider the above requirements with a proactive approach, considering that blockchain technology is not static.

Within heavily regulated industries, in the short term, private networks tend to be more prevalent as data can be protected in a more controlled and centralized manner for compliance purposes.

However, as the technology develops, innovative solutions such as Zero Knowledge Proof and Homomorphic Encryption will make it possible to protect critical data on public blockchains as well.

Also, if the ideal for your use case is to exploit both the immutability and global dissemination of data (provided by public blockchains) and the high transaction speed and tighter control of logging (provided by private blockchains), why not use a hybrid blockchain?

There is no such thing as the best blockchain. There is the most suitable blockchain solution for your company’s competitive positioning.

And you, have you ever wondered how Blockchain technology could optimize your industry or company?

Which activities in your area of expertise could benefit from the choice of a private Blockchain ? Or would a public Blockchain be better in your use case? What costs could be reduced?

Think about it until our next meeting. See you soon.