Consortium Blockchains — What Insiders Know and You Don’t
Outside of Bitcoin, consortium chains may be the biggest reason for the mass adoption of blockchain technology. Here is what you need to know about this rising technology.
Call it a harbinger of things to come, or at the very least and ominous sign for advocates of decentralization, but the blockchain technology is no longer at the hands of those that believe in a free and open world. No one has been betrayed, but with a potentially revolutionary technology that could upturn established industries, it should come as no surprise that businesses are sensing an opportunity and are looking to take advantage. And with the potentiality to improve auditing, tracking, and transparency, it makes sense for them to want a slice. But for businesses to embrace blockchain, it requires a move away from the type of public chains that power cryptocurrencies. A new type of chain is needed, one that allows businesses to work together and share information. This need has led to the slow rise of consortium chains.
This article is a comprehensive guide, however, not everyone will need everything explained. For ease of use, the article has been split into the following sections.
- Part 1 — What Are Consortium Chains
- Part 2 — Benefits and Examples
- Part 3 — Technology Used By Consortium Chains
- Part 4 — How Governance Is Managed
- Part 5 — How Businesses Are Using Consortium Chains
- Part 6 — Industry-specific Examples
Scroll to the section that interests you.
Part 1 - What Are Consortium Chains
A consortium chain is a new type of chain. To better understand it, it helps to understand the other chains out there.
Public Chains
Without a middle man or a central authority to oversee everything, public blockchains are a distributed and public ledger that allows for true decentralization. As a public chain, anyone can join without permission to help form consensus. As their name suggests, all information stored on the chain is public and can be accessed by anyone. As public chains remove the central authority — which in traditional systems would have established trust or approved actions on the ledger — cryptographic consensus methods are now required.
Much-hyped cryptocurrencies are all on public chains, with the cryptocurrency itself being the incentive to participate in the network. In terms of transparency and openness, public chains are ideal, however, if you are a business or have something confidential, using this type of blockchain might not be the best approach, which is why we have private chains.
Private Chains
Everything else remains the same including the fact that a private chain keeps a shared digital ledger, uses consensus algorithms to validate activity, and that the chain is immutable. The difference is that permission is needed to be part of the network — hence the term permission-based blockchain. Whoever owns and maintains the private chain has the power to allow users access, and to do this, the identity of members needs to be given. This is completely different from public chains that maintain the anonymity of users. Private chains retain a greater degree of control than public chains because they grant access to users to perform actions on the network as well as maintain it.
Consortium Chains
Nestled between public and private chains is consortium chains. Neither as decentralized as public chains, nor as tightly controlled as private, consortium chains offer a sweet middle ground and are becoming prized by businesses looking to adopt blockchain technology. Semi-centralized in nature, this type of blockchain is not operated by a single body, nor by potentially limitless nodes; instead, a small group of pre-selected users (or companies) have access and can work together using the trustworthiness of the ledger without worrying that sensitive or private information will be read by outsiders. What further separates a consortium from a private chain is that all users share in consensus and the decision-making processes, instead of one central authority.
Part 2 - Benefits and Examples
Benefits of a Consortium Chain
There are a number of potential benefits of using a consortium chain. A consortium chain can:
- Help save on costs
- Facilitate openness and collaboration
- Offer better control and management of data
- Share the risk among partners
- Advance the development of industries
- Ensure faster transaction processing speeds (compared to other chains)
Famous Consortium Chains
Coordinating and building a consortium chain amongst different organizations is not exactly the easiest thing. Sharing costs and coordination prove to be roadblocks in getting started. Fortunately, there are a few companies that have created consortium blockchains (or close approximates) that are enterprise solutions for businesses wanting to collaborate and adopt blockchain technology. Here are a few of the biggest.
Hyperledger / Hyperledger Fabric
Perhaps the most well-known consortium chain but also one that is not widely understood. Hyperledger is not a single-technological solution but a series of technologies that include blockchain, framework, libraries, interfaces, and applications. The most widely used and acknowledged amongst them is Hyperledger Fabric — developed by IBM as a blockchain solution for B2B. Not quite a one-size-fits-all solution, Fabric is modular in that it offers different functions depending on what is needed by the business. This gives a huge range of options to develop high-scaling blockchain apps based on a business’s needs. Other usual staples of blockchains are present, such as Chaincodes, Hyperledger’s version of smart contracts. It is worth noting that Hyperledger, like some other consortium chains, lacks a cryptocurrency.
R3’s Corda
Like Hyperledger, R3’s is a token-free consortium blockchain that is open-sourced and used to empower enterprise businesses. It is designed to host DApps for use by the financial, insurance, healthcare, and trade industries, and as a result, has become more and more popular. Largely similar to Hyperledger’s Fabric, the differences boil down to the core architecture such as virtualization, permissioning, the programming language (Golang vs. Kotlin), and smart contract implementation. Currently, there are more than 300 partners from the private and public sectors who are working on or have invested in the development of Corda.
J.P. Morgan’s Quorum
Another choice for businesses is J.P. Morgan’s Quorum, a consortium chain that rightly focuses on the financial sector. Launched in 2017 as a solution for banks wanting to dabble with blockchain technology, Quorum’s specialization for the financial industry is designed to support a high throughput while maintaining the privacy of participants thanks to the use of zero-knowledge proofs. Quorum is actually a private, permissioned version of Ethereum which utilizes the platform’s decentralized architecture, customizable consensus mechanisms, and the ability to conduct private transactions (the latter available with Constellation, Quorum’s privacy module).
Part 3 - Technology
The technology involved for a consortium chain is largely the same as other blockchains (aside from technical differences in terms of architecture and so on). However, consortium chains have no need for a cryptocurrency as they are used as an enterprise solution between trusted parties. These trusted parties come together to form the consensus, and it is the technology behind consensus that is worth looking at.
Note: The following are only brief summaries of complicated consensus mechanisms. More research is recommended for a greater understanding.
Consensus Mechanisms
PBFT — Practical Byzantine Fault Tolerance
A popular consensus algorithm that involves three phases in order to reach consensus.
Pre-Prepare: A leader broadcasts a new block/transaction request.
Prepare: Each validator either agrees or disagrees with the proposal.
Commit: Everyone commits. If it passes consensus then a new block is added to the chain. A maximum of ⅓ of all nodes can be considered malicious.
Cosmos’ Tendermint
Similar to PBFT only it addresses a few of its shortcomings. Key differences are that a leader is picked in a round-robin fashion and that a time limit is imposed before more than 2/3s of the vote are needed.
For a detailed look, read how BZT works when applied to Tendermint.
Proof of Elapsed Time (PoET)
Not as common a proof as PoW or PoS, PoET is still something to keep on your radar as it is used by another of Hyperledger’s products Hyperledger Sawtooth. Given that PoW and PoS have a high computational cost, PoET tries to reduce this cost by removing the cryptographic puzzle and replacing it with a system where miners whose waiting time has elapsed get to validate the next block to form the final consensus.
Raft
Popular and respected, Raft is billed as an easily understandable and less complex consensus mechanism. In order to reduce the complexity involved in reaching consensus, Raft is divided into three subproblems — leader election, log replication, and safety. These three subproblems are handled independently of each other in order to reduce the complexity. Raft can tolerate more failures than other consensus mechanisms (up to 50%), which is better suited for larger networks with the potential for malicious nodes.
Part 4 - How Governance Is Managed
A consortium blockchain operates with a number of partners who typically have equal custody and rights over the blockchain. But what if they don’t? Is it still a consortium blockchain? If some users have greater rights over another, is it more like a private chain? They’re interesting questions and ones that will be slowly answered as more businesses start using blockchain tech. For businesses looking to make that start, here are the type of roles in a consortium blockchain (with reference to Hyperledger):
- Auditor: An auditor cannot write to the blockchain, only read. Ideal for potential members to look at your blockchain or to analyze newly added data without modifying it.
- Writer: Unlike the auditor, a writer like its name suggests can write as well as read. A less-restricted role that is suitable for low-level members who still need to write.
- Operator: Can write, read, and can add/change roles of members. Operators have voting rights on the chain. When we think of consortium chains based on equal roles for all members, we are imagining everyone as operators.
Governance Models
Equal Membership
The standard model of consortium chains. Each member has full rights, therefore everyone is equal. This model offers a fair system based on trust as everyone is equal. It is effective when membership is small. As the number of members grows, there is a risk of majority rules and cartels forming to overpower other members.
Unequal Membership
Not quite a private chain as there are several operators here. However, the majority of people on the system are writers and do not have full rights. This is a less common governance model because a small group of operators represents all members and requires members with lesser rights to accept the decisions made by a small group.
It is important to note that a balance of governance is essential. It is possible that one or a few organizations in the chain form a group or court the influence of other members in order to get their way. This would result in the consortium becoming more like a centrally-controlled private blockchain.
Part 5 - Businesses and Consortium Chains
Attitudes Towards Blockchains and Consortia
An enterprise blockchain is used for businesses, and as we know, companies are using consortium blockchains for trustworthiness between partners and for the privacy afforded by only allowing pre-approved members to be part of the chain. With the benefits of working together on a consortium, businesses are taking note and wanting in. Comparing surveys from DeLoitte from 2018 and 2019, 74% of respondents out of 1000 profiled companies in the 2018 survey thought there is a “compelling business case” for blockchain technology; furthermore, 34% had already initiated some sort of blockchain deployment at their respective organizations. Contrast that with the 2019 survey where 83% of respondents saw the same compelling case for blockchain. Of note was that in 2019 only 23% of respondents worked in companies that initiated some type of blockchain development.
Adoption Rates
According to an industry report by Deep Analysis, the worldwide market for enterprise blockchain technology and related services in 2019 is estimated at $2.9 billion USD. In the next five years, it will grow to more than $13.2 billion USD. Several factors are driving growth including the maturity of blockchain technology, the commodification of blockchain infrastructure, the increasing use of blockchain-based applications, and lower costs of service.
How Businesses and Industries Can Use Consortium Chains
In the rush to embrace new technology (and get an advantage over the competition) businesses are rushing to implement a blockchain solution. However, it’s not always necessary. After all, for a single entity, a centralized database is sufficient enough. It’s only when collaborations within a specific industry are needed, then something like a consortium chain would work best. Ideally, industries looking to work on a closer level and share data in a trustworthy environment; businesses looking to understand the market better; and businesses, contractors, or even customers seeking greater visibility, can fulfill all those needs by using a consortium chain.
A business might even consider using a consortium chain to cut on costs — the security of a blockchain allows all participants to safely work together. This means that intermediaries and the administration involved in traditional bookkeeping is no longer needed, which in turn will greatly reduce costs.
Part 6 - Industry-specific Examples
Finance, Banking, and Payments
Without a doubt this industry which is embracing blockchain the most is also the same industry that will benefit the most. The finance industry will see its biggest benefit for cross-border payments and trade finance as blockchain’s distributed ledger technology will eliminate intermediaries and geographic problems that are inherent to the current finance system.
The finance, or fintech world, is well onboard with a consortium chain that is already a household name. Yes, that’s Libra, though the details can be skipped for now as several partners have already pulled out of the consortia, not to mention regulatory troubles. Libra plans to launch its currency and network in 2020. Another big name on the financial scene is Ripple. Not yet a household names, Ripple is a digital payment network for cross-border transactions with over 200 banks and payment-providers currently using or experimenting with the Ripple network.
Shipping Supply Chain
One of the biggest industry-specific consortium chains is TradeLens, which is described as an “open and neutral industry platform underpinned by Blockchain technology”. Built on Hyperledger Fabric and led jointly by IBM and Maersk, there has been a rapid adoption by the biggest players in the global shipping supply chain industry to embrace and use TradeLens. The success of this consortium chain is attributed to the very real need to digitize the shipping process and to establish better data management as goods move across the supply chain. As of 2018, 154 million shipping events have been captured on-chain.
Healthcare and Medical
Still in the pipeline, consortium chains and blockchain as a whole has a great potential to disrupt healthcare and medical industries. Healthcare records on the blockchain enable a secure method to exchange confidential patient information with doctors, insurers, medical providers, and even researchers. In terms of research, a large selection of patient data, that is confidentiality shared, could be used for medical research, or at the very least commercialized by patients themselves by selling directly to drug companies for research.
Closing Thoughts
For cross-department communication, and of course, to work between different companies within the same industry, the use of a consortium chain is unparalleled thanks to the ability to limit access to data to trusted parties and then have that data validated. It might not be the best solution for all businesses, however, it is the best we have right now for those after security and privacy across industries. At PPIO, we’re a decentralized storage & delivery platform for developers but we see the potential that a consortium chain would bring us by helping us work internally across departments, and also to safely work with developers looking to collaborate on our network.
