Will Private Blockchains Be Relevant in the Decentralized Future?

Enterprises looking to utilize blockchain technology will not touch public-permissionless blockchains today. But will that hold as the technology matures?

By Michael M. Williams: A Futurist and Technologist, Consultant at Accenture, and Hobbyist Developer of Ethereum Dapps.

Photo by Hunters Race on Unsplash

Intro

Understanding enterprise’s approach to blockchain technology is important to painting a more accurate picture of how the blockchain space will look in the future. If you subscribe to the idea that blockchain networks have the potential to provide economic value then you will likely agree that businesses will indirectly or directly be either competing with or leveraging the technology at some point, and when and how they do will have significant impact on the future of the blockchain space. Thus, the intent of this note is to draw on an historical instance of enterprises approach to the adoption of an emerging technology (the Internet) to anticipate their approach to blockchain technology and briefly discuss possible implications the space as a whole.

Analogy

From the perspective of someone who is professionally involved in enterprise implementations of blockchain technology, I see a strong analogy between the emergence of the Intranet from the Internet in the former’s early days and the enterprise-driven divergence of permissioned blockchains from public ones. To my understanding, when Internet entered the world stage as the newest disruptive technology it was perceived by businesses as a highly-risky pursuit owing to the technology not being mature enough to justify its use similar to how enterprises perceive public blockchains today. Enterprise’s response to each has been to develop and implement sandboxed versions of the immature technology, which makes sense from their perspective because by doing so they are enabled to utilize the technology in a form that adheres to the strict standards to which businesses are accountable. In comparing the success between the two implementations of global communication technology, I don’t have to provide much of a defense in saying that the Internet was massively more successful (although the intranet is actually still used today, most often it is used to host a company’s internal proprietary information), and I believe businesses will undergo a similar change in posture towards public decentralized networks in the near future.

The primary reasons why enterprises are avoiding blockchain technology today arise from the current technical and functional limitations public blockchains face; public blockchain platforms are largely unregulated, the transaction data and smart contract logic are public, transaction throughput is insufficient, and participation in the network is unrestricted. However, we are already seeing significant progress on all those fronts, and once they are solved for there will be no legitimate reason for enterprises to avoid public chains — not to mention the added benefits of better security and interconnectedness. While I can say from experience that public blockchains are generally a ‘no-fly zone’ for enterprises today, we can see evidence mounting for this transition in Ernst & Young’s release of its Nightfall codebase written for the public Ethereum blockchain.

Implications

If enterprises do ultimately transition to public blockchains for their distributed systems needs, first and foremost the private blockchains will largely die off or be relegated to niche use cases. Not sure that many tears will be shed there. Anther consequence would be the enterprise’s capital investment in the underlying protocol. Businesses have a responsibility to the shareholders and clients to provide services securely and reliably and they cannot do so without some degree of control over the platform on which their service is built. This means that businesses largely reliant on or have significant capital secured by a blockchain protocol would be irresponsible to not have a voice in its governance, and in the case that a protocol distributes governing power to token holders proportional to the quantity of tokens they have businesses will have to invest in the protocol’s token. This behavior is visible among businesses that are publicly traded today; companies that are partnered or are otherwise reliant on one another will often procure stock shareholder rights or be on the corporate governing board of the sister company to ensure their interests are heard. Similarly, Warren Buffett would never make a large invest in a company over which he had no influence whatsoever — it is in his best interest to see to it that the company is headed in the right direction. While blockchain protocols are not as dynamic as businesses and thus have less of a need for constant oversight, it would still make sense for companies reliant on a public blockchain network to invest in its governance.

Since a primary focus of businesses is to de-risk in every capacity they can, they will likely resort to the blockchain with the longest track record of reliability, which puts Ethereum as the heavy favorite. In the words of Paul Brody, one of the blockchain leads at EY, “…that makes me believe that, imperfect or not, unless they really screw up, ethereum is the choice”.

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Will Private Blockchains Be Relevant in the Decentralized Future? was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.