- Private blockchains are typically more efficient than public, however, private blockchains usually substitute speed for decentralization.
- Public blockchain are widely adopted due to the network effect and the ability to instantly provide goods or services to anyone connected to the public infrastructure
- Hybrid blockchains are advantageous as they allow users to control the privacy policies of data while reducing the impact on scalability.
- A a well-designed multichain privacy framework will allow developers to keep most of their existing codebases intact and with a little elbow grease and modifications, identify the privacy components and then bridge these via Liminal
Blockchain has become a bit of a buzzword in the last few years and for a good reason. This technology has notable ramifications for how a wide variety of industries conduct business. Already there are dozens of examples of companies utilizing blockchain in industries ranging from financial services to supply chain management and energy distribution. However, not all blockchains are created equal; there are some important differences between public blockchains that anyone can use and private ones controlled internally by an organization. For most businesses, there are pros and cons for going either route, but it’s increasingly looking like needing to choose may soon be a thing of the past.
In this article, we’ll explore the benefits of using blockchain for business solutions, describing the differences between public and private versions of this technology in practice. We’ll also talk about a new type of chain — a hybrid of private and public chains which takes the benefits of both to create a truly versatile platform with no compromises. Lastly, we’ll take a look at the actual use cases for hybrid blockchains and how they could be deployed in real-world situations.
The case for blockchain
Over the last decade, more and more businesses have begun to explore the opportunities afforded by blockchain technology. Thanks to the overall speed and low transaction costs, not to mention the security and immutability, these networks provide multiple benefits in the areas of data management, financial tracking, value transfers, and much more. This is why companies like BMW are already implementing blockchain for a variety of business solutions, including digital car passports and supply chain management.
However, not all blockchains are created equal. Businesses have always required a reasonable degree of privacy as well as control over their networks. Since the popularisation of the internet, and the advance of eCommerce, it’s been essential that companies protect their systems from outside attackers, both to preserve their workflow but also any sensitive information they might be storing. Hence, as blockchain technology becomes integrated into the modern digital workplace, it is only logical that private networks are often seen as preferable for many organizations.
This is no big surprise — especially given that some of the main selling points of blockchain include a completely transparent ledger containing all data as well as the ability to move value around. And it’s clear why a business wouldn’t want just anyone to be able to access their internal network. This way, the company gets many of the benefits of the novel tech but can remain opaque to most of the world.
It’s also quite valid that private blockchains are typically much more efficient than public ones. By only needing a handful of nodes built for the specifications of the company, these chains are inherently small, fast, and have relatively low overhead in terms of energy use and setup.
However, private blockchains typically substitute privacy for security. A few centralized nodes can open up several potential attack vectors wherein the authorities controlling the nodes collude among themselves for financial benefits. Compare this to a public chain like Ethereum — where the notion of thousands of validators colluding en masse is highly improbable — it’s understandable why some companies shy away from these private networks.
Lastly, bespoke private networks create problems when it comes to interoperability between different chains, which can cause roadblocks to collaboration. In a similar vein, while private chains are internally transparent, they don’t help companies demonstrate external transparency. Information from them can still be curated before being released, which keeps them on par with the traditional networks businesses have been using. Unless multiple companies are sharing data to the same blockchain, private iterations are no different from internal company databases.
The case for public blockchains
Public blockchains, like Ethereum, allow for anyone and everyone to see everything. This is, of course, a major selling point for many distributed ledger enthusiasts. Possibly the most advantageous reason to use a public blockchain is the network effect and the ability to instantly provide goods or services to anyone connected to the public infrastructure. It is important to point out that companies who do use public chains for their business must understand that anything put on-chain is completely visible. This can be a boon for some businesses where transparency is essential, but sometimes company data needs to remain permissioned, leading to the possible need for multiple types of networks and eroding the main benefits of a blockchain. Leveraging a public blockchain also removes the need to build or commission bespoke blockchain networks — saving substantial resources.
However, one prominent downside for public chains is that they are difficult to scale. While Bitcoin is working well enough today, it has had multiple issues with slowdown and high fees at times of congestion. This means that it is completely unsuitable, at least in its current form, as a realistic solution for major businesses worldwide. If even a single major company, much less multiple, made Bitcoin or Ethereum the backbone of their payment network, it would likely slow the underlying network to a crawl. There are various scaling solutions in the works, like the layer-2 lightning network and Ethereum 2.0, but so far, these aren’t ready for mass implementation.
Then there’s the issue that public blockchains, specifically Proof-of-Work (PoW), use a lot more energy than private ones. PoW systems validate blocks of transactions through a large global network of powerful computers that compete to solve complex math problems. The one that does it first creates the next block on the network and receives newly created Bitcoin as a reward.
While this is effective for having a secure and decentralized network, it has also led to the recent concern over Bitcoin’s carbon footprint. Any organization working to be environmentally friendly would be hard-pressed to defend using such an inefficient system as the basis of their network. Admittedly, these concerns are being addressed. Switching to renewable energy is one way some bitcoin miners are adapting. However, there are also blockchains available that are powered by Proof-of-Stake (PoS), an energy-efficient solution for securing a public network.
PoS blockchains don’t require powerful computers to validate blocks, but instead have validators stake their assets to vie for a chance to validate, with the rewards for doing so as an incentive and loss of staked assets as a deterrent to foul play. This comes with massively lower overhead for energy consumption as well as faster speeds, lower transaction costs, and the ability to scale for larger adoption.
The power of hybrid blockchains
Ultimately, both public and private chains have their pros and cons, so why not combine the best of both? Instead of being merely internal or completely global, what may be needed is a network that has both public and private components. Imagine a primary chain, or ecosystem of chains, that are all completely transparent and interoperable with each other, as well as communicate with individual private chains that companies can create themselves. These private chains are all built from the ground up to be unique for their purpose, but still act as extensions of the public chain.
The advantages here are vast. Businesses would be able to maintain exclusivity and privacy over their own data, but the information they do release is still cryptographically verifiable — not to mention immutable, providing a level of transparency seldom seen in traditional businesses. Furthermore, these internal networks can still be fast and efficient thanks to decentralization via multiple public nodes, but will also benefit from the added security provided by the larger blockchain ecosystem. This would mean that in order to attack one of these private chains, the attacker would have to attack a vast network of nodes, an expensive and laborious task.
Then there’s scalability. Now, because the system is made up of multiple chains, there is a lot more room to scale. Individual private chains can easily scale due to their internal centralization, and the larger chain can more easily scale because it doesn’t have to account for every single transaction on a single ledger. This of course also means higher transaction speeds in the public areas of the chain. Still, thanks to the underlying cryptography, the validity of any transaction can still be completely verified, even if the details of it are permissioned.
Lastly, there’s cost-saving. All the reasons that make this network faster and scalable will also keep fees to a minimum. Even better, it could allow businesses to benefit from the robustness of this global network with just a modest upfront cost for equipment, pretty much in line with technology costs for network setup currently.
Putting hybrid blockchains to work
One of the benefits of implementing a hybrid blockchain is that the costs and complexity of onboarding the technology should be comparable to that of setting up a private blockchain currently. In many cases, a company should be able to adapt the network they already have in place, and at worst, the cost of upgrading would be the same as any other modern server upgrade. The steps would include installing the client software onto all devices intended to be connected to the network, and once the internal system is working, linking the private chain to the public one. The dedicated nodes would need to be running 24/7, but most companies have always-on systems in place anyway, and the energy usage should be comparable.
Aleph Zero’s approach to enabling anyone to use our hybrid blockchain is via so-called privacy bridges. These bridges allow developers to keep most of their existing codebases intact and with a little elbow grease and modifications, identify the privacy components and then bridge to our multichain privacy framework called Liminal where all of the magic happens.
Liminal’s security measures are underpinned by a unique combination of “zero-knowledge” proofs (ZK-SNARKs) and Secure Multiparty Computation (sMPC). In combination, these data protection tools work to cancel out the other’s pitfalls. ZK-SNARKs allow for basic transfers but do not allow multi-user interactions. Whereas sMPC can be prohibitively slow on its own. Coupled together they create the basis for Liminal — a fast, secure, and highly private framework from which to stage web 3.0 projects.
Once in place, there’s a myriad of ways that a hybrid blockchain can be used to enhance everything from business, to entertainment — and most notably, perhaps, finance. If a user wishes to hold Bitcoin, Ethereum, and Ripple, for example, they need a unique application for each, and many investors have notably more than just three digital assets to manage. True, there are some multi-chain wallet options available, such as Atomic Wallet and Exodus, but it’s difficult to support everything at once.
Hybrid chains have the potential to host a variety of assets on a single network, not just as tokens, as per Ethereum where the underlying asset is effectively coded to act as a new one. Instead, different chains could all be part of a larger ecosystem, with parachains — individual project-based blockchains that run on the Polkadot network — acting as bridges allowing for the transfer of information and value between them. This means that a single wallet interface could natively handle any and all assets, and even act as a simple, fast, and trustless exchange. All of this would be handled using the underlying protocol, and hence would remain safe and trustless.
Another ideal for this technology would be to aid in finance by leveraging smart contracts to make automatic payments for everything from consumer goods to taxes simpler as well. The goal would be for the terms of the payment agreement to be solidified on-chain, meaning transfers can occur at regular intervals, or upon fulfillment of certain conditions, without further human oversight. This, if properly implemented, has the ability to streamline how businesses operate, and hopefully lower overhead.
Then, there’s the way that this technology stands to revolutionize the Internet of Things. As more and more smart devices become a part of our everyday lives, the concerns surrounding privacy and data security become all the more immediate. More devices mean more possible entry points for attack and the increase in personal data being accessed by these devices means there’s even more that needs to be protected.
Fortunately, hybrid blockchains allow for there to be secure data sharing between IoT devices and the larger network in such a way that only permissioned entities can decrypt the information. Nobody on the public chain would have access to the private chains used for managing IoT systems. For example, an organization could have its offices all over the world equipped with IoT sensors and other information gathering devices that monitor a variety of metrics concerning how the company is operating. These devices would need to talk to each other, as well as a governing blockchain that records and organizes all of this data.
This could all be handled with a private chain, to keep the information secure. However, if this private chain was part of a larger hybrid system, it could then easily and securely share information with other companies or organizations, at its own disclosure. Meanwhile, no outside actor would be able to see anything from within the company itself. This creates an effective barrier around the network that nonetheless allows for cryptographically verifiable information to be communicated.
In a somewhat similar vein, hybrid blockchains offer unique opportunities when it comes to Supply Chain Management. Here again, the mixture of public and private offers the ability for every step in the supply process to be tracked and authenticated, while the individual businesses involved can control what data other areas can see. Moreover, shareholders and regulators can rest easy knowing that reporting is undertaken with cryptographic integrity.
Moving into the world of entertainment, this technology stands to be huge for the deployment of a new breed of virtual assets in video games. Thanks to smart contracts and NFTs, items in virtual worlds don’t have to be “stuck” in the game the way they traditionally have been. Now, gamers will be able to really own the things they earn, craft, or buy, which means they can be resold on secondary markets or even transferred between different platforms.
Some games are already embracing this technology, such as Axie Infinity, The Sandbox, and even whole virtual worlds like Decentraland. It is likely only a matter of time before the whole “metaverse” of interoperable game worlds becomes a thing of reality. Each product could run on its own side-chain with its own assets and parameters, but all are able to transfer profiles, value, items, or other data between them on the main chain. This stands to change the way users engage with video game platforms forever.
With hybrid blockchains, businesses won’t have to make tough choices about which is best for them, but instead will be able to develop their workflow utilizing the strengths of both. In the coming years, hybrid solutions will likely move to the forefront when it comes to enterprise solutions, but companies today shouldn’t wait. The benefits of being ahead of the curve here are many and may be the difference between the companies that lead and the ones that follow over the next decade.
About The Author
Matthew Niemerg, Ph.D. is the founder and president of Aleph Zero — a Swiss non-profit, offering a scalable privacy-enhancing smart contract infrastructure suitable for enterprise-grade applications. Mathew earned a Ph.D in Mathematics from Colorado State University in the area of numerical algebraic geometry. He is a Simons-Berkeley Fellow and an IBM Center of Excellence Fellow in High-Performance Computing and has held numerous visiting and postdoctoral positions around the globe. Active in the blockchain space since 2014, in 2017 Matthew began working in the space full-time.