Hybrid Blockchain: The Best of Both Chains

by David Freuden for Crypto Canucks | 5 June 2018

This article will provide an introduction to hybrid blockchain and highlight why it may become the blockchain of choice for governments, financial institutions, and larger multinational organizations.

As a starting point, it is important to acknowledge that one of the core elements that make up blockchain actually came from a hybrid solution for digital time stamping of documents — decentralized hash verification.

Public Blockchains Decentralised Verification + Timestamping — The Genesis

I recently attended the Blockchain Economy World Tour in Sydney where Dr. W. Scott Stornetta, presented his ‘aha’ moment in developing digital timestamping, one of the core components of bitcoin.

For those of you not familiar with Digital Time-Stamping, it was developed back in 1991 by Stuart Haber and W.Scott Stornetta, who is the Chief Scientist for First Digital Capital. Their work on digital time stamping was referenced three times in Satoshi Nakamoto’s white paper on Bitcoin:

In Scott’s presentation, he referred to his ‘aha’ moment as “letting the world become your witness”. He went on to explain that if you are not sure who to trust in a centralized controlled environment then the best protection would be to invite the public at large to verify that this transaction took place.

This decentralized public verification and time-stamping of a generated hash are one of the core components of bitcoin and blockchain.

Another key observation regarding Dr. Stornetta’s work is that public verification was used to openly verify a hash that was generated on a private network. It was 1991, and his work pre-dated the development of blockchain.

Satoshi Nakamoto incorporated decentralized public verification into a decentralized currency, Bitcoin. Subsequently, most of the blockchains that have followed Bitcoin have also focused on building on top of a public blockchain. This raises an intriguing question:

Does a hash need to be generated on the public blockchain, or can it be generated on a private blockchain while using a public counterpart exclusively for verification?

Enter Hybrid Blockchain

Hybrid blockchain offers the benefits of both public blockchain and private blockchain. This is much better suited to highly regulated enterprises and governments as it enables them to have the flexibility and control over what data is kept private, versus data being shared on a public ledger.

This private network generates the record (hash) of transactions, which is stored and verified on the public blockchain. Benefits of connecting a private and public blockchain include:

• Faster transaction speeds
• Privacy of data/content
• Providing access to certain content to the public blockchain
• Robust Security

Large establishments, especially in the supply chain and finance industry, want the benefits that blockchain can deliver without the associated risks of a public blockchain. This enterprise-need for a suitable blockchain solution has resulted in the creation of several private-public blockchain focused projects including R3 Consortium, IBM’s Hyperledger and the Enterprise Ethereum Alliance.

In a Fortune article published in February 2017, the benefits of embracing a hybrid blockchain are undeniable by Bank of New York Mellon.

“That interconnection of public and private chains actually creates a very strong network,” Batlin said on a call with Fortune.

“Each chain strengthens the other at an exponential level.” Alex Batlin, Blockchain Lead at Bank of New York Mellon

Current Hybrid Blockchain

Launched in 2017, XinFin completed their ICO in March 2018 after successfully launching their first dApp, TradeFinex — a global trade and finance platform.

XinFin is the first hybrid blockchain and currently the only hybrid blockchain. It is built on both Ethereum, a public blockchain, and Quorum, a private blockchain. Quorum is an enterprise-focused version of Ethereum developed by J.P. Morgan of the Enterprise Ethereum Alliance.

Their hybrid network runs on a delegated proof-of-stake consensus (DPoS) between trusted master nodes with both smart contracts and IoT atop of the protocol. This allows real-time data to be uploaded on the blockchain.

It is still early days for XinFin. Never the less, they have completed over a dozen pilots across supply chain logistics, aviation, HR, payroll, international trade, and financial settlements.

Ramco Systems, a global $1 billion enterprise software company, partnered with XinFin to provide their hybrid blockchain solutions for their clients to implement a supply chain logistic blockchain.

Possible Implementation of Hybrid Blockchain

Launched in 2012, Ripple is currently ranked 3rd by market cap on Coinmarketcap website with $27B valuation.

Ripple’s focus is to connect banks, payment providers and digital asset exchanges to process and provide liquidity for payments via RippleNet, a private blockchain variant.

Stefan Thomas, CTO Ripple & co-creator of Interledger payment protocol, published an article on Dec 26th, 2017 in “The Death of The ICO” (and 4 other predictions). One of his five predictions was ‘The Birth of Hybrid Blockchains’.

“Until now we’ve seen a proliferation of both public blockchains like bitcoin and private blockchains like Hyperledger Fabric. Going forward, I think we’ll start to see the rise of hybrid blockchains, which combine the best of both worlds.” Stefan Thomas

In July the same year, Shivdeep Dhaliwal published an article in from his email communications with Marcus Treacher, Ripples Global Head of Strategic Accounts.

“Banks Need a Hybrid Approach to Blockchain Technology” Marcus Treacher

Amongst other things, Hybrid Blockchain does ensure trusted cross-border payments for trade and financing. Having said that, are Stefan Thomas’ and Marcus Treacher’s predictions of hybrid blockchains a hint that Ripple may offer a hybrid blockchain solution to their clients in the near future?

David Freuden is blockchain advisor to IIB Council of Blockchain Professionals and XinFin

Disclaimer: CryptoCanucks.com is not intended to provide tax, legal or investment advice, and nothing on CryptoCanucks.com should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any asset by CryptoCanucks.com or any third party. You alone are solely responsible for determining whether any investment, asset or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.

Originally published at cryptocanucks.com on June 5, 2018.