A man is typing on a laptop. There are holographic images representing the blockchain above the keyboard.

On-Chain Walled Gardens: The Case for Private Blockchains

There are a few ideological clashes between what’s baked into the ethos of blockchain tech and the requirements of a shrewd, competitive free market. It shouldn’t be a surprise, considering that the very first cryptocurrency, Bitcoin, was born as a reaction to the free market’s single biggest failure of this century, the 2008 financial crisis. 

What’s perhaps most striking in this regard is the fact that some of the core features and technical structures behind consensus mechanisms and shared computational responsibility are inherently collectivist, egalitarian and open – as most of the internet’s innovations. 

Whilst those are all commendable features and their moral progressiveness is what attracts many to the space, this technology still relies on becoming a valuable business and income generation tool in order to gain widespread recognition and adoption beyond the commercial or niche spaces it currently inhabits.

There’s no denying it: for most businesses, features like secrecy, full control and efficiency will always remain essential to core operations. And for this reason, blockchain technology needs to adapt and evolve to offer an ad-hoc solution.

It is based on the above reasoning that private blockchains were designed and continue to evolve. But what does that mean, in practical terms? 

Building The Wall 

A man in a business suit is holding a ball of interconnected nodes to represent the blockchain and digital data.

It’s immediately obvious: a private blockchain needs a screening process to ensure the organisation that owns it can hand-pick participants in the network. This in itself represents a nullification of the core tenet of blockchain philosophy: it stops being a collectively verified ledger, requiring trust in its controllers to retain value. 

In this sense, private blockchains can’t truly call themselves decentralised, or verifiable: their owners have enough agency and control over network users that they could even override transactions or network rules. But after all, this is a tool they built and maintain at their own expense, and tampering with it in this way would defeat the point of its creation. 

This centralised entity is however much more easily regulated, since the number of participants is controlled and their specific identity selected individually – this in turn reduces the chances of any kind of malicious activity that could damage the chain. 

And here can be identified another core advantage of this type of ledger: stability. 

Private blockchains have, by design, a small and controller number of users: whilst that makes them less valuable as a universal tool it doesn’t defeat their business purpose while delivering a massive shift in efficiency. 

A small number of transactions ensures that fees remain small and predictable, transactions run smoothly and with punctuality and the entire structure of the network is much easier to troubleshoot and maintain operational due to the lower usage. 

Most importantly, walled chains provide privacy and remove the degree of transparency guaranteed by public ledgers – ironically, one of the main futures blockchain enthusiasts cite as why this technology can represent a step forward not just for business productivity but for a fairer and more accountable society. 

On the other hand, privacy isn’t just needed to hide illicit activity or questionable investment decisions – it can be a human right when it comes to personal data treatment, can represent the tenet of democracy when governmental and political procedures are involved and in general it can serve as an egalitarian tool as well. After all, privacy and secrecy are some of the best ways to avoid segregation, classism and prejudice. 

In some parts of the world, for example the European Union, which have very stringent laws on data protection, making a chain private can even be the only way to implement blockchain technologies.

A Game of Compromises 

There are, however, other things that get lost with the transition from a public, free-access blockchain (such as all the most popular cryptocurrencies like Ethereum or Bitcoin) towards a privately-owned closed circuit one such as Quorum (used by Twitter, MasterCard and the US Air Force among many high profile clients). 

The first one is anonymity: there is no possibility for such a key feature or cryptocurrency in the world of pre-authorised access to ledgers – every network participant needs to be identified and monitored outside of the blockchain and tied to real-life credentials. 

The second one is just as key, and it’s the loss of security. This comes naturally with the reduction in network size and transaction volume, just like the increase in transaction speed and fee predictability. 

If one is key to maintaining these two features, there is a third way: that of hybrid of ‘permissioned’ chains such as Dragonchain

The way these work is quite simple: they are essentially public ledgers, not dedicated to specific businesses or controlled by a central private entity – but they still pre-screen network participants to ensure they stick to a set of characteristics or behaviour patterns. 

The verification process remains, of course, decentralised – but it still provides a much more accessible and scalable solution than a fully open chain. 

These types of ledgers open up the world of Blockchain as a Service (BaaS), where central blockchain tech companies open up access to their purpose-designed permissioned chains when that chain’s services are needed by another business, without relinquishing control and thus connecting their clients through their network. 

This promises to be a very exciting new dimension for blockchain evolution, in that it would essentially create ‘federated’ chains which allow business users to create on-chain industry links or new collaborations – creating a snowball effect likely to have massively positive repercussions for the adoption of this tech beyond the financial sector. 

Blockchain’s Happy Place?

The debate has been raging since the very first block of Bitcoin was mined: will cryptocurrencies and digital, decentralised accountability systems take over mainstream society in the future? Will blockchains regulate our society and economy in the world of tomorrow? 

This is a big ask, and one which undergoes cycles of positivity and optimism and disillusion in-step with the wild fluctuations of the crypto market. And just like with anything universal, there are many regulatory and socio-economical variables at play. 

That said, private blockchains provide a great glimmer of hope for maximalists: regardless of universal adoption, there is no denying that applying the principles of the blockchain in a more controlled, private way will never stop being a useful innovation for businesses across the world.

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