Private Blockchains for Bitcoin Maximalists

Martin Hagelstrom is a bitcoin enthusiast, project executive and consultant working on IT projects at IBM.

In this opinion piece, Hagelstrom takes on the private vs public blockchain debate, arguing that, while bitcoin may be a more interesting technology, private blockchains offer real business utility. 

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I’m sure reading the comments on this piece won’t be pretty…

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There are countless blog posts describing what a blockchain is, and particularly what private blockchains are, but you may notice the funny fact that none of them agree with each other.

I won’t try to give another definition. Instead, I will try to add some more fuel to the fire. Private blockchains make sense, and yes, I intend to argue that point even though I consider myself a bitcoin maximalist.

Now, let me address some of what I expect will be your key arguments:

‘Private blockchains are not as secure as the bitcoin blockchain’

Sure, so what?

Have you ever thought that the level of security needed for an open and anonymous network is not the same needed for one where all the participants are known and have some level of trust between each other?

‘You need a token to incentivize miners to secure the network’

Of course, but only if you want to use proof of work. When transactions are not anonymous, you might want to use a simpler consensus mechanism.

After all, you only want to keep the data consistent between nodes and be able to detect if someone doesn’t follow the rules.

In bitcoin, miners need an incentive to invest resources independent of the transactions they will be validating and securing. After all they don’t even know who is transacting and what those transactions are for.

On the other hand, in a private blockchain, participants are incentivized by the goal established on that particular business network. If they think that by achieving multi-organization integration on a particular process will bring them cost reduction, that is incentive enough to play their role on the network.

‘There isn’t real immutability without proof of work’

We agree again. But, we need to distinguish between tamper-proof and tamper-evident systems.

If grouping data in blocks and chaining them through hashes makes it possible to detect that someone changed history, it might be enough if I am able to identify the one who did.

Remember, we are not talking about anonymous members, so things might be easier when there are contracts in place that govern what happens when someone cheats.

‘Those use cases can be solved by traditional databases’

Technologically speaking, probably.

But, governance is usually the hardest issue to tackle on intra-organizational integration projects. Implementing a traditional database, even a distributed one, means that the organizations need to agree on:

  1. Who will own the data
  2. Who will be the central authority to change or delete that data
  3. Who will own the application layer that runs the business logic that validates the transactions when recorded.

Good luck with that.

But, if we can have a decentralized system where everybody can have a copy and only append new data validated by the rest of the members of the network, a very big obstacle is removed.

‘That technology is not really interesting’

OK, but big companies don’t implement new tech because it is ‘cool’ or ‘interesting’. The whole point of investing in technology is to achieve some kind of efficiency in their business.

If running a multi-company business process can help them to reduce manual steps or validations, costs and risks, or even create new revenue streams, it might be enough to go for it.

In fact, their duty to their shareholders is to improve their bottom line, not having the coolest technology on the block.

‘Do you think that private blockchains are as revolutionary and world-changing as bitcoin?’

Definitely no.

But, as I said before, as long as we can achieve efficiencies or an interesting return of investment, it is still a very attractive technology for enterprises.

In the meantime, we can all keep learning about the technology, test new functionalities and grow the ecosystem with human and monetary resources.

You never know, some of that, directly or indirectly, might even end up benefitting bitcoin.

Bitcoin image via Shutterstock

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

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