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Hybrid public-private blockchains in the real world – Part 2

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

  • Read part 1: This is the second part of a two-part series. Read part 1 to explore how design considerations and industry feedback led a team of developers from private to public to hybrid blockchain solutions.

There are two different kinds of blockchain – public and private.

Bitcoin and Ethereum are both examples of public blockchains. Anyone can use them and see the data on them.

Private, or permissioned, blockchains more closely resemble traditional shared databases where access is controlled by a central owner. For example, the IBM Food Trust blockchain lets a range of participants share supply-chain data, but IBM is still the system's primary owner and gatekeeper.

But there are also hybrid solutions, where a business might have one private blockchain layer that can interface with a public layer. For example, a business might have its own permissioned database (or "private blockchain") for itself and its clients to share data among each other, which then interfaces with a public blockchain to get benefits such as directly tapping into the liquidity of global markets or applying a higher degree of trustlessness and transparency to specific functions without putting everything on the blockchain.

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Pressures to go hybrid

The needs of the real world naturally bring developers towards hybrid blockchains, and similar lines of thought tend to emerge wherever you look at the closest intersections between the blockchain and the real-world side of things.

For example, Power Ledger is one of the few blockchain projects to ever make it as far as commercial deployment, and it uses a hybrid model featuring a private layer for handling sensitive data and running the numbers, which connects to the public Ethereum blockchain for its marketplace.

Wherever you find the pragmatic visions of a sensible, well-regulated and highly productive blockchain future, you often find the exploration of hybrid models. This was also exactly the vision on show at the release of the Blockchain 2030 report by CSIRO and Data61, which highlighted several reasons why hybrid blockchains are a promising next step for real-world blockchain adoption.

1. You can't just start using a public blockchain for anything important

The ability to opt for hybrid models was also key to the ASX deciding blockchain was a suitable framework for its outdated CHESS system. As ASX CIO Dan Chesterman noted at the launch of the Blockchain 2030 report, he couldn't simply go to the reserve bank and announce his intention to run the Australian Stock Exchange on a system with variable performance, unpredictable costs, unclear data security and a high likelihood of experiencing sudden and unpredictable changes up to and including sudden death.

Even if someone was crazy enough to try, it would simply not be allowed to proceed.

But with a hybrid network, on the other hand, you can keep the important nuts and bolts inside a controlled environment while still allowing for practical data sharing, the running of external programs and interfacing with other networks. This lets you get a jump on using blockchain, and exploring its opportunities and downsides, without waiting for the perfect public blockchain that might never arrive.

This is significant because it also lets you unpack blockchain applications and start thinking about how to best develop the industry, observed Dr Alexandra Bratanova, research scientist at CSIRO's Data61 and lead author of the Blockchain 2030 report.

Some of the advantages and downsides of blockchain will be crystallised over time by simply looking at a problem, trying to solve it with blockchain, and then seeing how it went, she suggests. This real-world use can in turn start informing all kinds of related developments to help you maximise the pros and minimise the cons.

Once you have some solid real-world use, it's much easier to make headway on peripheral developments such as new training programs, regulatory shifts and much more. Hybrid models present a relatively safe way of just getting a blockchain out the door and in operation.

2. Practical blockchain solutions still need a strong degree of interoperability in the face of an unpredictable future

Interoperability is important because as the world gets smaller, a business needs to think about the needs of a more diverse range of customers in more locations.

"Most of our customers will need to operate across multiple countries," Chesterman pointed out.

Dr Bratanova also mentioned that the still-uncertain future of blockchain means regulators and decision-makers need to stay on their toes and plan for a range of different eventualities.

Effective decision-making, she said, involves planning for both fair feather and rainy days. As such, highly interoperable blockchain systems, as exemplified by hybrid blockchains, might find more use in all kinds of weather than the more monolithic private- or public-only blockchains.

So, for decision-makers who want to encourage the technology to grow quickly, but don't want to risk committing resources to the wrong path, modular hybrid blockchains are a very promising avenue. This might translate into an extra measure of government support for hybrid blockchain solutions over purely private or public ones.

And it's still extremely easy to go down the wrong path. There are a lot of avenues for blockchain to develop, and a lot of them are mutually exclusive. For example, consider the direction Kadena went with Chainweb (see part 1) because it anticipated problems with proof of stake of the kind that Ethereum is pursuing.

3. There are no one-size-fits-all solutions

It's also worth noting that no two industries are alike. Consider, for example, how different industries respond to different gradients of decentralisation.

In the shipping world, IBM getting the biggest player on board with its TradeLens blockchain ended up deterring the smaller companies because they didn't want to risk giving the biggest player even more of an edge. But off in the world of grocery store supply chains, Walmart's oversized presence may have had the opposite effect because it meant its suppliers had to get down with the blockchain if they wanted to keep their biggest customer. Meanwhile, the importance of network effects in the world of correspondent banking means no one can afford to run on ahead, so the banks tend to lag collectively.

There are no one-size-fits-all solutions at this stage, so hybrid blockchains present the most viable way for businesses to get their own tailored blockchain while still getting at least some of the benefits of being able to hook into a public blockchain.

It doesn't help that there's not even any clear consensus on whether there will ever be a dominant blockchain. Chesterman suggested that a dominant design might not emerge at all, while Dr Bratanova theorised a gradual tightening around an increasingly small set of standards. It's like mobile phone chargers, she suggested. A decade ago, you'd have to tangle (sometimes literally) with a dozen different types of phone charger, but now it's shrunk to just a couple of different types.

The problem is you don't know which charger types will hang around and which will be discontinued.

4. Using blockchain well is a learning process, and stepping stones are helpful

And beyond business applications, there's also the question of how individuals will interact with blockchain in their own lives. Consider, for example, how to eventually solve the problem of the frankly horrendous current stage of private-key management.

You can't just immediately shove the responsibility of private-key management on an unsuspecting general public, but Dr Bratanova is optimistic that the idea of private-key management can be normalised with an appropriate learning curve.

If you ask someone whether they want to worry about private keys, they'll say no, but if you ask whether they want more control over their own data, that's a different story.

"The technology of blockchain is a new mindset," she emphasised. "It is about those responsibilities. This is a real mindshift."

Hybrid blockchains in this sense can work as a stepping stone to help accommodate everyone's learning curve. It also provides a path for blockchain-ifying the whole world, while accommodating a range of different levels of understanding.

Blockchain in the real world

You can't just go full public blockchain, and private blockchains by themselves aren't especially inspiring. This might be one of the reasons why blockchain is so controversial. On the one hand, you have people raving about its world-changing potential, and on the other, you have people wondering what's so exciting about a glorified database.

In the long run, appreciating the potential of blockchain might still require looking quite a long way down the road. A machine that can convert energy to trust is enormously valuable, but it's still pretty esoteric. And blockchain adoption still isn't a done deal, CSIRO and Data61 said in the Blockchain 2030 report. There are still several ways it can burn out in the near future.

But this is also why it's so exciting to see hybrid blockchain solutions starting to bridge the gap between theory and real-world use.

Disclosure: The author holds BTC 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.

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