It’s 2019, and with Facebook’s announcement of Libra and J.P. Morgan’s introduction of JPM Coin, it has become clear that the future of business involves blockchain technology. What this means in practice, however, is harder to pinpoint. There is currently a philosophical divide when it comes to blockchain. The enterprise mindset, as represented by JP Morgan, IBM and the like, sees blockchain as only being useful if the participants are tightly controlled. This is what we call a “private” or “permissioned” blockchain.
On the other side, the champions of decentralization, as exemplified by the Bitcoin and Ethereum networks, see public blockchains where anyone can participate as the only game in town.
The concept of the “hybrid blockchain” has only recently taken root, and it presents a solution where the decentralization advocates can work alongside enterprise technologists to deliver meaningful impact on multiple levels. By bridging the divide between traditional workflows and emerging business models, hybrid blockchain allows all participants to work together to solve problems and enjoy the best of both worlds.
Public blockchains like Bitcoin are completely free and open. Anyone can participate. To use it, all you need is a wallet and a few fractions of the associated crypto asset. Anyone can join the Bitcoin economy as a user or as a miner. There is no administrator with more control than even the newest user.
This egalitarian decentralization is both a gift and a drawback. Because public blockchains are so open, their transaction speeds are far slower than businesses require. This slowness arises from the methods these systems use to ensure security, like Bitcoin’s battle-tested Proof of Work protocol. Recent innovations like Proof of Stake attempt to address the speed-security tradeoff but are too new to prove that they are as secure as Proof of Work.
The best example of a public blockchain, Bitcoin, has entered its second decade and is on the cusp of vast improvements. Even at its height, Bitcoin performs like the decade-old technology it is: slowly. That said, Bitcoin remains vital to the entire blockchain ecosystem.
Private blockchains are similar to public blockchains in that they are distributed and immutable. However, these permissioned blockchains offer businesses many benefits: faster speeds, greater privacy, and increased peace of mind.
A private blockchain is similar to a series of replicated databases. However, this class of blockchain can have owners who can selectively share information with trusted participants while simultaneously allowing for rapid iteration of blockchain-based products. This allows key enterprise stakeholders to collaborate in ways never before possible.
Private Blockchain Use Case:
- A great example of a private blockchain use case can be found in healthcare, which struggles to solve what should be a simple problem: accurate provider data. Simply finding out if a doctor is in your network and taking new patients is an error-prone cost center the industry spends millions on. With a private blockchain, these companies could collaborate to share information like doctors’ office addresses, accepted insurances, and office hours, all while maintaining their own secure ledgers. Blockchain has the potential to save millions of dollars, savings which could get passed on to consumers, by making possibilities like this a reality.
Hybrid is the Way Forward
As Head of Product at Kadena, I see a true interconnection of public and private blockchains within the next year. A real hybrid blockchain connects public and private blockchains seamlessly without singling out any specific set of users or leaking confidential information.
You can’t disrupt the future without understanding the past, which is where my 20+ years of experience in the banking and financial services industry comes into play. The many opportunities I see to reduce operational costs through a streamlined blockchain platform are grounded in first-hand experience. For example, some of the blockchain use cases already being explored include Anti-Money Laundering (AML), Know Your Client (KYC), and cross-border payments, where a lot of time and effort is spent on verifying information. Performing these functions on a hybrid blockchain will provide privacy and a level of transparency that could be very useful to parties involved on both the private and public side of transactions.
An era of previously impossible products is fast approaching. In this product era, hybrid blockchain’s unique ability to combine the capabilities of a traditional bank’s back office with automated contract enforcement manifests in the creation of a “sharing economy” among businesses.
Hybrid Blockchain Use Case:
- An example of a hybrid blockchain use case can be found in fintech, specifically in Exchange Traded Funds (ETFs) that have seen phenomenal growth over the last ten years. The growth has led to crowding and competition with thin margins for fund managers. To differentiate, a firm can put a regulated fund onto the blockchain. This provides investors the ability to tap a larger pool of investor liquidity and supports cryptocurrency owners seeking to move their assets into traditional securities without a tax event. A hybrid blockchain platform enables the firm to create, trade, and monitor securities in a manner uniformly compliant with current business operations. Kadena’s Pact language assists with effectively maintaining authorization, data management, and workflow across both the public and private blockchain. Additionally, the use of Proof of Work consensus on Kadena’s public blockchain supplements security needs.
Hybrid blockchain works because it eliminates the unnecessary public-private ideological divide on blockchain. Businesses can reap the benefits of private blockchain without the tradeoffs, and individual users can participate & control their personal data in more secure and faster transactions. The ability for both groups to securely participate on a blockchain helps to realize a modern shared economy, one where a hybrid blockchain can drive security and efficiency across all industries.