Understanding Blockchain: Private, Public & Consortium

The tipping point in the blockchain hype cycle has occurred and we are steadily progressing along the adoption curve. Companies are investing in blockchain strategies and beginning to implement them. The understanding of what blockchain is has moved beyond the buzz of Bitcoin in the headlines and is being focused on the promise of enterprise-class blockchain. Increasingly enterprise organizations are turning to blockchain solutions to enable greater trust in their business processes when collaborating with others in a network.

Barriers to adoption:

Although there can be many reasons for resistance, blockers are commonly categorised into three groups; People, Process & Technology:

• Personal and organizational barriers to blockchain include; low awareness (regarding applications rather than concept) and lack of confidence in using the solution. Urgency to overcome these barriers as the competitive landscape develops – laggards can lose market positioning and competitive edge.
• Processes; governance, compliance, compatibility with existing systems, change management, etc.
• The technology capabilities are market-ready and are only getting better with further features. The key with blockchain technology is driving a transformative strategy beyond just pilot projects and into fully rolled-out implementations.

Getting Started with Blockchain

So just how does one go about building a distributed and growing transactional system, that’s capable of spanning multiple parties, of running in real-time and that’s both open and secure?

The first step to consider is not technical but rather regulatory – the subject of compliance. Within an enterprise, there must be permission, decisions regarding which data is going to be allowed on the ledger and which parties will be able to read it? How will transactions be verified? 

The next issue to consider is which type of blockchain to use. Many flavours of blockchain have evolved over the years but there are essentially two main classes of blockchain: private and public. Although these classes differ in many senses there exist core similarities:

• Both are decentralized peer-to-peer networks, where each participant maintains a replica of a shared append-only ledger of digitally signed transactions.
• Both maintain the replicas in sync through a protocol referred to as consensus.
• Both provide certain guarantees on the immutability of the ledger, even when some participants are faulty or malicious.

So, what’s the difference?

The sole distinction between public and private blockchain is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger. A public blockchain (i.e., Bitcoin or Ethereum) is an Internet protocol managing the distribution of potential unique data with the following characteristics:

• Many, anonymous, or pseudonymous participants
• Open read and write by all participants
• Incentivizing mechanism to encourage more participants to join (ex: crypto-mining)

Public blockchain vs. enterprise blockchain

Too often organizations fail with blockchain because they try to use public blockchain networks, or their rules, for their enterprise solutions. Instead, the organization should consider the use of Enterprise Blockchain.

What do we mean with enterprise blockchain? An enterprise blockchain (i.e., Hyperlegder, Ethereum Enterprise, Corda, Ripple, Quorum, etc.) is a distributed ledger with the following characteristics:

• All the participants, and their digital identities, are known from one or many trusted organizations
• Writes and read permissions are roles-based and usually requires consensus of several participants
• Multiple algorithms are used for consensus

You should know that we have two types of enterprise blockchain:

• Private: Usually managed by a single organization. Typically, the network participants are internal business units or divisions. 
• Consortium: In this case, the blockchain network is managed by multiple trusted organizations. New participants require a consensus of several participants. Often consortiums are built around a certain industry where participating organizations commonly interact. Examples include financial services, food supply chains, automotive manufacturing & assembly, and more.

Blockchain consortia:

Blockchain ecosystems typically involve multiple parties in an industry working together to support and leverage a blockchain platform. To work effectively, consortia need all participants to have clearly defined roles and responsibilities as well as aligned incentives. Without detailed operating and governance models that address liability, participant responsibilities, and the process for joining and leaving the consortium, it can become more difficult to make subsequent group decisions about technology, strategy, and ongoing operations. Usually, potential consortia participants are already engaged with each other and blockchain is an improved evolution of their existing collaboration networks.

Next Steps:

Developing your business case and your supporting architecture (as you will discover) have to factor into who blockchain members are, and what the value of the network is to them. Understanding the various frameworks available and identifying which participants should be included in your chosen framework are the firsts step to further your enterprise adoption journey with blockchain.