Finder makes money from featured partners, but editorial opinions are our own.

Hybrid public-private blockchains in the real world – Part 1


Picture not described: blockchain-large.jpg Image: Getty

What do you get when you cross blockchain with real world use?

This is part one of a two part series on hybrid blockchains.

You can read part 2 here.

There are, broadly speaking, two different kinds of blockchain.

One is the public and open blockchain, like Bitcoin or Ethereum, which anyone can jump in and start using. The other is the private or permissioned blockchain, which is more like a conventional shared database and which by some reckonings isn't even a blockchain at all.

This distinction is also one of the reasons a lot of people say blockchain is kind of useless.

If a business wants to use a blockchain today they'll often find that public blockchains are not feasible for what they have in mind, so they look at private blockchains instead. And as they follow that train of thought they just drift all the way back to conventional non-blockchain solutions.

However, in the end, it's all about horses for courses. Every business has a range of needs, and some of them are best done with a public blockchain, some with a private blockchain and some with no blockchain at all.

Consequently, whenever you look at the blockchain business solutions actually emerging in the real world, you tend to find a remarkably similar model across many of them: the hybrid blockchain.

One of the best ways to appreciate why this is emerging as a new standard of sorts might be to take a ride along with a blockchain firm that's run the full spectrum of possibilities before ending up at hybrid solutions.

The other end of the blockchain

JP Morgan is widely regarded as being on the forefront of fintech. It describes itself as having some 50,000 "technologists" around the world, and according to its 2017 annual report spends north of US$10 billion on technology per year.

Creations such as JP Morgan's JPM Coin cryptocurrency are one of the fruits of that investment. Organisations such as Kadena, founded by JP Morgan alumni, are another. And according to one of them, the other isn't especially useful.

"JPM Coin is an interesting example because as of now there's not been any application for the JPM coin. It exists but there's no way to use it, at least yet," explains Monica Quaintance, engineering lead at Kadena.

"Right now it represents, like, a coupon for your deposits in the JPM ecosystem. Put some money in there and it's like cool, a token. It's like you've gone to a casino and they take your money and they give you a bag of chips."

"It will be interesting to see what they do with it. But at the moment to me it's them just rattling their sabers and being like 'we do blockchain'. I'd like to see people that are actually working on real use cases that actually provide value, that move us forward into a place where we can do things we couldn't do before."

"It makes me frustrated because it gets so much press," Quaintance says. "They just wrote some code and ran it for press."

That kind of frustration is probably familiar on some level to anyone who's trying to actually build something with blockchain. The most important developments are also the hardest to translate into tidy, accessible press releases.

"It's very hard to get attention when we make real products that we're really excited about," Quaintance notes. "Like our testnet launch for example. Nobody really cares because no one is that excited about it."

She's referring to the Chainweb test, launched on 27 March. It's a curious development, as a theoretically infinitely scalable proof of work blockchain.

Kadena's work in the lead up to the testnet launch has also been speckled with these kinds of uneventful events.

"We've basically created an ERC20 spec that it checks itself," Quaintance recalls. "That was totally mind blowing and incredible for us, but we can't have a press cycle around that. We make breakthroughs all the time but it’s hard to communicate them. I think that's happening a lot all over the industry."

"There's a lot of innovation happening at once and it can be difficult to figure out what's just people speculating about the price of bitcoin, and people just committing security fraud, versus people making actually really cool things."

On the plus side, Kadena is expecting to have some nice, digestible and media-friendly news in the near future, courtesy of its actual real world use. Precise details are still under wraps, but it's publicly known that Kadena blockchain solutions have been deployed in at least two Fortune 100 companies for over a year.

"We're getting very close to being able to talk about another one of our clients," Quaintance added. "When we can talk about it, it's going to be very new and exciting, and I think something people can actually care about."

Working out what's important

It's difficult to communicate important developments in the blockchain space, but a large part of this is because there's still a lot of uncertainty around what actually constitutes an important development rather than a walk down a technological dead-end.

Even some of the most popular visions for the future of blockchain, such as a mass shift towards proof of stake, are of debatable viability from some angles.

A world where proof of stake is doomed to fail

A lot of super smart people are super keen on proof of stake, and are hanging their hats on it as a successor to proof of work. But there's also a worldview where it's at risk of being smacked down by regulatory obstacles. This worldview is based on the fact that proof of work mining is probabilistic whereas proof of stake mining is deterministic.

This matters because in one vision of the future, stakers would fall afoul of existing money transmitter laws.

"One of our theories is that because of the way money transmitter laws are currently written, if the government really wanted to target miners specifically they would have to target new legislation to do so," Quaintance explains. "It doesn't fall under the existing scope of money transmitters."

"Because of the way mining works, its probabilistic. People come on and off the network all the time and you don't know who they are. There's this cloudy, fuzzy area that doesn't really fit under existing regulation."

"As opposed to staking, where you have to put up tokens and they have to sit there. We know you are, and then you have to stake your name to transactions... If you didn't check to make sure you weren't sending money to terrorists – as defined by the US government – you can be taken to court for allowing the payment to happen."

Does this mean proof of stake is doomed to fall afoul of regulators?

No one's entirely sure, but how you feel about the future of proof of stake might depend on whether you think regulation will change to accommodate the gray areas of cryptocurrency, or whether cryptocurrency has to change to accommodate existing regulations.

But the Kadena team was always more likely to account for this element than most. In addition to being JP Morgan alumni, both Monica Quaintance and Kadena founder Will Martino used to be quantitative analysts with the SEC.

Visions of the future

Kadena's founders were part of the blockchain research group at JP Morgan, Quaintance explains.

"They developed this blockchain tech that they pitched to become part of HyperLedger, but IBM didn't want technology they couldn't control so they said no. So they decided to leave."

"They made a permissioned blockchain called ScalableBFT and a smart contract language to go along with it. At that point they were trying to sell a private blockchain, but no one really cared about private blockchain at the time. So they came up with the idea of the public blockchain."

"Will [Martino] called me and said 'we're gonna make a public blockchain!' And I said 'I don't know what that means but I'm in!'"

Also watch

Chainweb evolved from there over the course of engaging with stakeholders to find out what businesses actually want to get out of blockchain, and what kind of network design would be needed to bring their plans to life.

This is how Kadena found itself exploring the path of hybrid public-private blockchain models.

"There are some very specific scenarios where a permissioned blockchain really makes sense on its own," Quaintance says, "but most of what we focus on these days are projects or applications that are hybrids – a combination of permissioned and private... if you want to, say, access the liquidity of a public blockchain but don't want to expose all your data all the time. Because we have both connected by the same smart contract language, you don't have to leave the system."

"We're talking to a company right now about creating some kind of tokenised ETF on a blockchain. They want to have their information stored on a permissioned blockchain... people will go through their AML/KYC for the company, and trading of assets will be done on the public blockchain and those transactions will be effected immediately."

"Two clients that we are working with on permissioned blockchain, one of them, the eventual use case will be something that's also similar to a hybrid model. Different companies in their industry will often work on projects together and end up having to pay each other repeatedly, and tracking those payments would be fairly frustrating. They want a permissioned record that maintains all their records and data, and settlement can be done on the blockchain, which can be done quickly."

"We've been pushing these hybrid applications for quite some time now," she adds.

"It's hard because there hasn't really been a public blockchain yet that could really support this kind of volume of transactions, and could be done in a safe manner and could do the kinds of things people were suggesting they could do. We're talking to one company that wants to do a consumer credit profile, where people can own their own data. They looked at Ethereum and it cost them $10 per transaction."

Benefits for builders

Private blockchains can also carry some benefits for builders because they're often designed for specific purposes, while most public blockchains are all about letting anyone do anything.

Kadena has also found a hybrid model of sorts here, with its Pact programming language striking a best of both worlds approach. It's designed to let developers do anything they want, unless they want the wrong thing, intentionally or otherwise.

"We have a particularly good product in the Pact smart contract language," Quaintance says. "People will come because of Chainweb, but they'll stay because of Pact, because Pact is a language that was crafted specifically for blockchain."

"All that 'you shouldn't be doing this on a blockchain' - Pact does that. It doesn't let you infinitely recurse inside a smart contract. It doesn't let you recurse at all. There are protections around what a user can do. We've thought very critically about what a smart contract needs. Don't allow the things that are messy and cause problems. Things like the DAO hack could never happen inside the Pact smart contract."

And like many people who have written smart contracts with Ethereum's Solidity language, Quaintance has formed some opinions on the subject.

"Pact is just really easy to write – a pleasure to write," she adds, "unlike Solidity which is awful."

"I think you'd have to try really, really hard to find something you want to do on blockchain that Pact doesn't do. It does limit some of the more exotic functions, but we're of the opinion you shouldn't be doing them on a blockchain anyway. That's what a hybrid application is for."

Kadena's designs have been shaped by genuine customer feedback to a much greater extent than some of the more hypothetical projects out there, and after aligning their designs based on this feedback, they reached the conclusion that public-private hybrids were the way forwards.

Real world blockchain uptake is shaped by very tangible factors such as ease of use, how future-proofed it is, how much it will cost to integrate and whether it's an improvement over other options.

Where blockchain meets the real world, you're probably most likely to find hybrids.

Disclosure: The author does not hold any cryptocurrencies at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Ask a Question

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms Of Service and Finder Group Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Go to site