Wednesday, December 28, 2016

Public versus Permissioned Blockchain: All of the above?

Earlier this year, I attended the American Banker's conference on Blockchain.

One of the sessions that attracted me to the conference was the session, "The Debate: Permissioned vs. Permissionless Blockchains".

This is one of those good old tech "religious" debates on whether the future is open or closed - similar to open source versus proprietary software debates of old.

As for public blockchain this is referring to Bitcoin or Ethereum.

As for permissioned or closed blockchains, I had written an earlier post where I explored Goldman's take on the "permissioned blockchain" where the participants are known to each other.  I had noted in the post that the "consensus mechanism in the permissioned blockchain is quite different than it's public counterpart, which relies on the proof of work (POW)... This is not the case for permissioned system which require the consortium who set-up the blockchain to determine how they will work with each other". Some main examples of permissioned are R3Hyperledger, and NASDAQ's Linq. The following video gives a quick breakdown of Hyperledger and the key features of a permissioned ledger:

Before seeing the debate (more of a spirited discussion), was that permissioned was going to win out.

To be honest, what I see as the main obstacle of the public blockchain is the amount of energy it needs to sustain itself.  Linked to that is how much more energy it would require to hit the level of Visa or other credit card transaction processing to become mainstream.

It's not to say there aren't other issues, such as confidentiality and regulatory opposition to the technology, but I see this as one of the key challenges. So I thought we would at least see permissioned ledgers dominate at the outset.

However, what I realized after seeing the debate was that I wasn't approaching this from the right perspective.

What Siddharth Kalla (Chief Technology Officer, Acupay) noted in the debate was that you need to think what's the equivalent of Google and the blockchain. What he was saying was to think of blockchain as the equivalent of the Internet: how could we have predicted that TCP/IP would have ushered in the technology-giant we now know as Google? 

That concept hit my mind like a bolt of lightning: think about all the things that Google has brought about, search, gmail, Android, and cloud-based office productivity

That's the power of open.

And that's what I realized is that I needed to think of bitcoin or Ethereum as the Internet of Value's first proof-of-concept (POC). There will be someway to overcome the limitations I noted above and make it viable. It's only matter of time before the equivalent of Sergey Brin and Larry Page will unleash the power of open on the public blockchain. 

So what about the permissioned blockchain? Will it die out?

Where I am is that this not about one or the other. Rather, each solves for different problems. The public blockchain is about exchanging value with strangers. The permissioned blockchain is about exchanging value with private parties that an entity regularly deals with. In a gross oversimplification of the latter, it is a "secured-shared-spreadsheet" that replaces the routine exchange of spreadsheets by email. I like the term distributed ledger ledger technology, as used by the World Economic Forum, to describe the latter. 

Although the two are closely linked now in terms of community and development, eventually the two communities will separate based on what societal or business challenge they address. 

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