Blog post

Why Private Permissioned Blockchain may Fail

By Avivah Litan | July 10, 2018 | 0 Comments

Immature and currently limited blockchain technology is a key impediment to enterprise adoption, according to a survey conducted in March 2018 during a Gartner webinar on blockchain.

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The state of blockchain adoption and other aspects of blockchain technology is well-covered in our most recent special report.  See Blockchain-based Transformation; a Gartner Trend Insight Report.  We are also in the midst of drafting research on what will make blockchain scalable, and what scalability means – both in terms of technical scaling components and in terms of business technology components.

But one point stands out loud and clear to me personally (not a formal Gartner position) – permissioned blockchains will never succeed from a business perspective without a clear repeatable business model that is readily found in public blockchains.

Permissioned Blockchain Showstopper?

With permissioned blockchains, there needs to be several technology components that ensure trust and security.  One such component: Reliable Trusted Nodes.

Organizations must ensure that the entities running their validation nodes are reliable and trustworthy and unhindered from political and legal constraints. In public blockchains with cryptocurrencies, there are financial incentives for miners and node validators to not cheat the system.  In private blockchains, there is not always a cryptocurrency attached to the network, eliminating that financial incentive.

Non-public blockchain governance must include the continual vetting of entities running the nodes to ensure they are trustworthy and reliable.  How likely is it that will happen?  Not very likely in my opinion.   Even if the permissioned blockchains issue a token that can be used as an incentive for miners and validators, that token is limited in use to that blockchain unless it can be traded for other more widely used crypto tokens – but at what rate, especially when prices are volatile?  It’s akin to the credit card market. Most consumers would prefer a mainstream brand credit card, e.g. from Visa or MasterCard, that can be used across the globe as opposed to a private brand credit card that can only be used at a single retailer or issuing establishment.

My own take at this point is that once several implementation and security issues are sorted out, permissioned blockchains are better off implemented as sidechains or shards in a more common blockchain platform like Ethereum. We need to research the implications of this more, as these second layer solutions mature.

Does your private permissioned blockchain implementation even make sense?

In the meantime, one thing is inherently obvious to me – that is, it doesn’t make sense to implement blockchain technology unless it enables people and entities that don’t know or trust each other to work together, and the ability to cut out middlemen and overhead processes by using smart contracts. Without these fundamental precepts in place, users may as well rely on legacy distributed database technology. 

A trust-minimized environment depends on miner and validators that have the incentive to validate transactions in a scenarios that also minimizes the chance of a 51% attack.  This requires decentralization and financial incentives for the miners.

Blockchain provides for transaction trust – and not human or entity trust.  Get used to it. It’s par for the course.

 

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