Private Blockchains

I read another one this morning, another article speaking of a company implementing blockchain tech. This time it was an insurance company. The type of company doesn’t really matter, I’ve read many such articles and the market sector varies between insurance companies, logistics companies, banks, medical companies etc. each making its own chain.

The immediate question which comes to mind is: “How will this affect cryptocurrencies?”, which is what I will answer today.

Private blockchains: Good or Bad?


Next Question please.


Private blockchains have much to offer the corporate world. I like the fact that every bank transaction I’ve ever made can be called up easily and cheaply (my bank currently charges me a fortune to dig out statements of transactions more than a few months old). I like the fact that it will be possible to see who authorised each of those transactions and from where. I like the fact that if my bank is a good one (hmmm, what are the chances?) then I will be able to access such information via internet banking and verify it myself from the comfort of my own home, or even through my phone while I’m out and about.

The applications don’t stop there. Two days back I read about a food industry blockchain which will track food products from source to customer. That sort of information will make it possible to see if, for example, the cold chain has been broken when transporting meat (as my local supermarket does on a regular basis), or which pesticides were sprayed on the grapes I bought (if any) or when the fish I bought was caught. In the insurance industry someone could recall my entire history of claims and perhaps greatly discount my premiums because I seldom claim. Those who claim often could be classed as high risk individuals and would pay accordingly, meaning that the rest of us don’t have to subsidise them. Yes I know this happens now, but only in theory. As there is no blockchain, records can and are lost or altered or befall some other eventuality which renders them no longer accessible.

Used by private industry, private blockchains will create permanent records which have far greater redundancy (provided that they have been implemented correctly). Off-site backups will take place in real time, data manipulation by means of hacking will be much more difficult and will be possible to trace and flag, communication with satellite offices will be instantaneous. Ultimately these advances will render companies far more efficient in many ways (customer service, energy efficient, cost savings in IT and security etc) and will enable cost savings to be passed on to the customers as well as greater profits for shareholders.

The only losers in this scenario are those with dishonest intentions. Thieves, fraudsters and other the other dregs of corporate society who will have their devious lives made far more difficult.

And then Crypto will suffer because it won’t be needed

 No it won’t.

Why not?

Because it will be needed. But wait; I’m getting ahead of myself. First we need to look at another aspect of private blockchains.

Another aspect of private blockchains:

If you had read the article “French government FOMO’s into crypto!! Biggest news all year“ by fellow TIMM blogger pandorasbox a few days ago, you would have seen the French Minister of Economy and Finance speaking very bullishly about blockchains. Not cryptocurrencies, but blockchains, specifically local and private ones. On the surface this seems like a bad thing for crypto: cryptocurrencies are being circumvented; their underlying technology is being stolen and they are being sidelined. Private chains are stealing their thunder.

But there is another aspect to this. The average person on the street still doesn’t know what a blockchain is. He or she knows the term. They’ve heard of Bitcoin and maybe Ethereum, but they don’t know the difference between the two. They’ve never heard of a smart contract, of hashrate, private keys or multi-sig wallets – things which us everyday cryptonauts take for granted. To the public: Bitcoin = Blockchain = Cryptocurrencies, they don’t differentiate between those terms. 

And this is where we score.

Because when private blockchains get used by big industry; when Finance Ministers stand before the world and say that blockchains are the way ahead; when JP Morgan launches its own blockchain based coin; then all the public does is add a few more “=” signs into the equation. So now:

Bitcoin = Blockchain = Cryptocurrencies = Private Blockchain (which ministers, bankers and big industry all agree is the best thing since sliced bread).

Stated in a sentence:

Private blockchains legitimise the use of blockchains in the eyes of the greater public

This is brilliant! Cryptocurrencies have a new PR division, and the name of that PR division is “The Corporate World”.

Back to Public vs Private chains

Before describing how private chains legitimise cryptocurrencies in the eyes of the public (and “public” includes the business world), I was about to tell you why cryptocurrencies will still be needed even when we have private chains.

There is no single underlying reason why cryptocurrencies are more important than private blockchains. Instead there are several underlying reasons!

There are, in fact, so many reasons that I’m not even going to get to all of them. I’ll merely mention a few as they come to me, meaning that these are just some of the reasons why crypto will succeed even in a world of private blockchains:

Why Cryptocurrencies will still succeed:

If you are sufficiently ancient then you will remember the Betamax vs VHS format war, fought on the battlefield of video cassette recorders. It wasn’t the only such war, they occur all the time. The very same industry forgot its lesson learnt in the VHS/Betamax days and re-fought the same battle between the armies of Blu-Ray and HD-DVD. Standby to see many more such wars fought between private blockchains. What happens when JP Morgan coin wants to swap money with Bank of America coin? Do they need to change back into USD first? At least they have that option, what does the insurance industry do? How does company A and its proprietary blockchain pass your insurance history to company B on a different proprietary blockchain? They can’t change your insurance history into USD…

They can pass that information, but it will require one of two things:

  1. Either Company A must use exactly the same system/data format as Company B, or
  2. There must be an inter-chain link which can convert the data format seamlessly between the two chains.

Option 2 is tricky because it means that the two chains must share the exact same data fields, otherwise there will be missing and/or surplus data when the chains pass data between one another – not ideal and ultimately a recipe for long-term data bleed (data loss).

Option 1 is even trickier because it means that companies can’t develop their own blockchains. They are literally all committed to the chain which is first used in the industry, either that or they face incompatibility and a future VHS/Betamax war.

There is a workable alternative here; a neutral cryptocurrency which is common to the industry…

Look at the Food Industry example I used earlier: The farmer needs to use the same blockchain as the shipping company and the supermarket, otherwise their blockchain won’t provide a complete record of the journey of their products. An incomplete record is a useless record: you have to know if your fish stood on the side of a highway for five hours because the refrigerated truck broke down and everything it was carrying defrosted. Leaving that little bit of information off the blockchain negates the value of using a blockchain in the first place.

So how does the farmer choose a blockchain? He supplies 5 different supermarket chains… They use a total of 10 different companies to transport his produce from the farm to the supermarkets… How do they all coordinate which software to use?

Easy: they go to and they all join the public blockchain already created to serve them. All they need to do is to pay a few cryptocurrency tokens in order to use the blockchain. It comes with a detailed system of embedded sensor RFID labels and will provide them with a turnkey solution to their problems. Why reinvent the wheel?

Well there is a little snag. You see crypto industry also has competing blockchains. The Farmer and Supermarket may be on VeChain, but their competition may be on Waltonchain – which serves the same industry. But crypto has an advantage here too:

In crypto we can already trade crypto assets for one another through exchanges. Cross-chain transactions are possible my means of things such as atomic swaps – technology which is increasingly being developed and built into the very fabric of the cryptospace. Crypto pioneers have an incentive to work together to succeed, very few projects are unwilling to cooperate with the greater crypto industry. The crypto sense of community embraces the concepts of decentralisation and distribution of power, it is doubtful that you would get competing centralised industries willing to work with each other that way. In a worst case situation you may have a Supermarket (or a farmer) which has to use two blockchains. That’s hardly the end of the world and he will only pay for what he uses on each.

That’s not all, the advantages start to mount in favour of crypto:

Costs can be saved on software development and maintenance by using an already developed blockchain which is maintained by professionals.

There are less language, regulatory, proprietary information etc issues to deal with when using public blockchains across borders.

Companies do not have to trust one another in order to use cryptocurrencies. A public blockchain is unbiased and is fair to all parties. A private one would be made to act in the best interests of the company which creates it.

Information is stored on decentralised nodes and is secured by them. Hacks by angry company employees can’t take place from within the companies of the customers. Yes, a VeChain (for example) employee could still theoretically try to place false information on the system, but it would be far more difficult to do so, would probably be detected and traced much quicker and there would be less inherent incentive for a public blockchain employee to do so in the first place. In many cases the ownership of the blockchain is also decentralised (it’s in the hands of the coin holders) meaning that the blockchain itself is not open to corruption through bribery or threats to public blockchain company employees. If you wanted to take down Bitcoin today, you can’t exactly go and kidnap the CEO of Bitcoin – there isn’t one. Even if you threatened the CEO of a company such as VeChain, the CEO does not control the nodes – the coin holders do. The nodes secure and control the blockchain, the CEO can’t override them. Hashrates of PoW coins will also be greater on successful public chains because people will want to earn mining rewards. The higher your hashrate, the more secure your coin is. Private blockchains may be harder to access, but they will be far easier to override by means of something like a 51% attack because their hashrate will be very limited in order to save on hardware costs. A similar situation exists with PoS or other non-mining coins that are secured by a certain number of nodes. Private companies will run a minimal number of nodes, and like it or not, they will have to leave some sort of access open to the network in order to create off-site backups. This leaves the system open to the risk of possible access by hacker nodes.

Cryptocurrencies are transparent. I’ll be able to take my box of apples home from the store and scan the QR code on their RFID tag with my phone. I can see when and where and by whom they were picked. I can check when they should be “best before” and see if the supermarket labelled them correctly. If it didn’t then I can take them to task for that. A private chain would probably not let me access such information. An increasingly concerned and informed public will demand such information (as it is already starting to do throughout the world) – information that only cryptocurrency based platforms will be willing to provide. Cryptocurrencies and their blockchains prevent companies from lying to us.

Proprietary data formats won’t be an issue. There will be a common currency, a common dataset and a common (probably customisable) user interface.

Using cryptocurrencies removes unnecessary middlemen who don’t add value. By not transacting through a private entity you can save the cost charged by middlemen when they “add value” (yeah, sure they do). Depending on local tax systems, you may save in tax too by not having as many taxable payment steps.

Is your bank a blockchain specialist? How about your insurance company? Or the supermarket chain? Or the farmer? Sure, some of them have IT departments, but how many of those IT professionals are blockchain specialists? Quite possibly none of them. Cryptocurrency companies are by their very definition blockchain specialists. They are professional blockchain creators and maintainers. But hey, if you believe that Jamie Dimon is better at building blockchains than Sataoshi Nakamoto is, then I wish you the best of luck! (There isa coin for people who prefer their crypto made by bankers and corporate suits – we call it Ripple.)

The biggest reason

The public will probably be fooled by the lure of private blockchains, at least initially. This will be frustrating for the crypto-savvy among us to watch, but is a necessary part of the process of mass learning. Eventually the public will realise that public blockchains are better, cheaper, less restrictive, universally accepted, better at keeping up with technology, more durable, more secure, transparent, trustworthy and all the other things that make cryptocurrencies so great. After that awakening the private “cryptos” will mostly fall into disuse and decentralised chains – the cryptocurrencies which we all know and love – will rule the roost.

I don’t know how long this will take, probably a good few years. The process is not documented, we will be breaking new ground as we go. Some cryptos will be lucky and will get in right from the start. Maybe all the logistics companies turn directly to VeChain from the very beginning and the logistics world will get to skip the teething pains. Maybe everyone turns to Civic for Identity Verification. (That probably won’t happen since I know for a fact that private logistics and identity verification blockchain systems already exist, but in theory it could. )

Some cryptos will be unlucky and won’t survive long enough to see the demise of private blockchains. Maybe VeChain will give up and close its doors. A year later all the private chains die out and suddenly Waltonchain is the most popular cryptocurrency in the world. It could happen, who knows? (This is why I diversify!)


Private blockchains will never be a threat to cryptocurrencies as a whole. They can’t be because they are playing different games with different rulebooks. A private chain can’t compete against a cryptocurrency because the advantages of a decentralised cryptocurrency far outweigh those of a centralised private chain (and I haven’t even gone into wealth creation and money supply in this article!).

Don’t hate private blockchains, they aren’t “wrong” and they aren’t “evil”. They aren’t even useless. You will use private blockchains and in all likelihood they will make your life simpler, faster and cheaper. But those will be blockchains working within organisations. Those will be blockchains without major outside interfaces. That’s okay. Those blockchains will be complimentary to the large external public chains. Such internal private blockchains can happily co-exist with the external public ones which will be the backbone of future commerce and communication. 

When it comes to competing head to head: public beats private hands down. Public may not always win the first round of the fight, but failures of private chains will ensure that the final K.O. will always be in favour of the public chain.

Yours in crypto

Bit Brain

“The secret to success: find out where people are going and get there first” 

~ Mark Twain

“By this means (fractional reserve banking) government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.”

~ John Maynard Keynes

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