Do you remember when I wrote about “Private Blockchains”? You should, it was less than two weeks ago.
Perhaps you remember some of these quotes – all taken from the post linked to above:
“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.”
“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 …… After that awakening the private “cryptos” will mostly fall into disuse and decentralised chains …… will rule the roost.”
“A private chain can’t compete against a cryptocurrency because the advantages of a decentralised cryptocurrency far outweigh those of a centralised private chain”
“failures of private chains will ensure that the final K.O. will always be in favour of the public chain.”
I could go on, but I don’t want to re-quote an entire article, it’s there to read if you need to catch up.
I’m writing this today, because once again the speed that things move in the cryptoverse has been rather astounding. If bitcoinist.com is to be believed, then the private blockchains of public consortia are already failing.
This rather interesting article “Why Consortium Blockchains Are Failing” by Matthew North lays out the reasons why consortia are proving unable to run successful inter-company blockchains. In all honesty I must say that I didn’t expect to see the cracks in their poorly thought-out ideas becoming visible so quickly, though the surprise is not an unpleasant one!
Matthew cites three reasons for their failures, discussed under the headings:
- The Lack of an Economic Model,
- Unstable Relationships, and
- Intranet to Internet as JPMorgan Coin to Bitcoin.
Under “Lack of an Economic Model” he points out that there are no token earnings to incentivise development and adoption. Unlike an ICO on a public chain which generates income, a private chain has to be funded by the company, which is expensive. The article speaks of a $700/day cost to hire a single developer and goes on to say that this is why adoption has been slow.
In “Private Blockchains” I wrote that:
“Costs can be saved on software development and maintenance by using an already developed blockchain which is maintained by professionals.”
Meaning that if corporations use existing cryptocurrencies there will be no such costs. There will be a lot of benefits to using public blockchains, all of which are in my article and which I am also not going to repeat here.
Under “Unstable Relationships” Matthew wrote that business relationships are notoriously unstable and prone to failure. In light of this he questions the ability of such consortia to work together to develop a common blockchain. He lists examples of consortia which are falling apart as partner companies leave them.
This is to be expected, I wrote extensively about the many problems which such joint blockchains would be confronted with, inter alia:
“What happens when JP Morgan coin wants to swap money with Bank of America coin? “
“They can pass that information, but it will require one of two things:
Either Company A must use exactly the same system/data format as Company B, or
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.
And I also described the solution:
There is a workable alternative here; a neutral cryptocurrency which is common to the industry
Proprietary data formats won’t be an issue. There will be a common currency, a common dataset and a common (probably customisable) user interface.
Just imagine the situation where a consortium develops a joint blockchain and then the companies part ways! Who gets to use the blockchain? Who owns it? Who maintains it? What happens to customer data? I don’t believe in laughing at the misfortune of others, unless the others really deserve it – so in this case I find their difficulties to be absolutely hilarious! ?
Intranet to Internet as JPMorgan Coin to Bitcoin is fairly self-explanatory. Below Matthew’s final sub-heading he gives a rather damning summary of the issues which make private blockchains used by consortia far inferior to the public blockchains of cryptocurrencies.
You can either read his article or my (rather longer) post to find out more on that topic if you so wish.
Let’s get the narcissism out of the way first: I was right yet again. My insight and long-term projections are second to none. I’m the best, blah, blah, blah ad infinitum.
In all seriousness I see this as a very good thing for public blockchains. In my Private Blockchains post I said that there was a major plus point to having private blockchains, which is that “Private blockchains legitimise the use of blockchains in the eyes of the greater public”.
Thanks to high profile companies trying to establish inter-company blockchains, the public now knows that banks and other major industries consider blockchain technology to be a good thing, possibly even a “must-have”. They have seen JPMorgan Coin. They have seen Hyperledger and similar platforms. And now they are watching them fail.
That clearly shows that the technology is necessary, but that centralised entities are unable to use it! They can’t use it because blockchain technology is the natural enemy of the centralised technologies which are currently in play – Satoshi Nakamoto specifically designed Bitcoin to counter the centralised entities! This leaves the doors wide open for successful cryptocurrencies to step in and fill the void. The reality is that many such blockchains are already ready and waiting, now it is up to Joe Public to start using them. It will start with Bitcoin adoption (which still has a very long way to go) and will then trickle down into the altcoins as trust builds. It is up to blockchain ambassadors like you and me to lead the public in the right direction. Let’s do our best to keep them away from the BitConnect-like ponzis and MLM schemes out there and from any high market cap centralised coins which are sucking up to bankers…
Yours in crypto
Bit Brain has nothing to do with Bitcoinist.com or Matthew North
“The secret to success: find out where people are going and get there first”
~ Mark Twain
“Crypto does not require institutional investment to succeed; institutions require crypto investments to remain successful”
~ Bit Brain