I have to say, the first two days of Consensus 2017, were very surprising for me. I was a bit sceptical about the event due to the trading focused agenda. This was spurious. The day was very balanced between trading, technology and business relevant topics all covered in a mass of interesting sessions. My next surprise was about the very clear separation between the use of blockchain technology for enterprises and for public scenarios. At day one there were a lot of talks and panels about that and there were mostly clear pros for using permissioned blockchain within the enterprise business. The only one, who has clearly supported the use of public blockchains for enterprises, was David Sønstebø, founder of the blockchain startup IOTA. But is this really such a obvious decision? I think it’s a bit more difficult because the use of permissioned blockchains could have been some disadvantages regarding the expected benefits of using blockchains. That’s why I will try to give some advice (from my point of view)

The difference between public and permissioned blockchains

The best analogy to understand the difference between public and permissioned blockchain is the comparison with Internet and Intranets. The public blockchain is like the Internet. Everybody knows it and everybody has access to it. The bitcoin blockchain as the wellknown one and Ethereum which gets more and more famous because of the rising Ether price. Ethereum is not only a blockchain, it is a comprehensive development platform for decentralized computing, consisting of the ledger, smart contracts, distributed apps and much more. That’s why it’s currently the first choice for running apps on it. The vision of Ethereum is to become the foundation of the new internet or web 3.0. All transactions, apps and smart contracts are kept within the public network, accessible for everyone without a special permission (that’s why it’s called permissonless or public). In contrast to that, a permissioned blockchain is like an company intranet and only accessible by a dedicated group of users which has the eligibility to join the closed network.

I’m the same opinion as David and we at contractus put on the public chain but more on this later. Public chains are well established and ready to use by everyone so why do enterprises prefer using permissioned chains?

Permissioned chains have a better transaction performance

Due to block size limit of an block and the time it takes to mine the next one (Bitcoin 10 minutes, Ethereum 14 seconds) there us a transaction limit in all public chains. It could (or may) take a while until a transaction is commited to the blockchain. This impact on transaction throughput and speed is one core reasons to choose permissiond blockchains and of course, there are mass problems on Bitcoin chain. Because of the higher block generation speed, Ethereum is not so hardly confronted with such transaction problems but has a limitation too. In booth blockchains is currently much work done to handle that issue. The Raiden Network for Ethereum and the Lightning Network for Bitcoin aim the target to allow secure off-chain transactions and allows to increase the transaction speed. The principle behind this approaches is comparable by ordering drinks in a bar. Within a predefined corridor, each new drink is written on a beermat and at the end of the evening, the the total is billed. This principles saves a lot of transaction costs and execution time by using public blockchain.

Permissioned block chains are more secure

In opposite to a widespread opinion, public blockchain are not anonymous. Every transaction resists permanently on the chain and is discoverable by everybody. That’s why it’s absolutely critical to decide which data to write into the blockchain itself (and which into encrypted payload, referenced from the transactions in the chain). Within a permissioned chain there is often a differentiation between public transactions which are accessible by all members of the permissioned network and private transactions, send directly from one participant to another.

Speed of innovation

Established chains can only be changed in it’s core behavior by doing a fork. This depends on the majority of miners which is hard to achieve as the current bitcoin forking discussions show. As far as an innovation, helpful for doing enterprise business, requires a core change, it would be really hard and time-consuming to do this change. In permissioned blockchains, changes can be implemented quite faster since it only requires the “vote” of the attendees or owners of the permissioned blockchain.

A clear decision, of course not! Also the public blockchain has some mission critical advantages.

Public blockchains are accessible by every user

Every user with an internet connection can access the blockchain and use the services on the chain. This is very helpful if enterprises want to think outside the box and want to do business with unknown or unfamilar business partners. One of the main causes of inefficient cross-enterprise communication is that the effort of integrating partners is much to high so the integration is done manually by sending excel files or pdf (or even worse faxes). By using public chains, this effort will be dramatically reduced and this is more than a nice to have benefit. Beside the significantly lower integration effort the boundless cooperation possibility is a further important pro for public chains. It’s possible for the first time to find new business partners with whom the enterprise wasn’t in business before.

Public blockchains allows decentralized cooperation on eye level

One of the main advantages of public blockchains is the missing of an central authority. Especially for cooperation between independent business partners on an equal footing, a classic centralized infrastructure is often inadequate and prevents the use of digital processes within the cooperation. If companies want to cooperate with unknown or unfamiliar partners and don’t want to use one’s platform, public blockchain is a very good possibility. Permissioned chains work also decentralized, due to their operation by a central provider or business partner, the claim of decentralization is not really fullfilled.

Whats the recommendation for enterprises?

As you can see the differences are on the infrastructure level (security, performance,…) and the level of business model (who is able to participate, think outside the box,…). So start thinking from the business and not the technology point of view. Are there requirements to share information or processes with business partners which are not digitally integrated today? Do you want to get in cooperation with new partners? Do you have the requirement to give third parties access to a subset of the transaction data to verify them? In that cases, the public blockchain is an interesting opportunity for you. If you have very hard regulatory or special data security and data protection requirements and are you working in a predefined, stable partner network? Then a permissioned chain may be a good option for you.

Which blockchain shall I use?

There are a lot of permissioned chains out there, Hyperledger, Chain or Quorum are only examples of it. As for each IT system, IT departments will run evaluations to find the right one (which may take a while) before the business project is able to start. Maybe my recommendation can help to fasten this process. Even Ethereum is not the most innovative chain (due to the reason of unchangeability I mentioned before) but it’s a public blockchain there’s foundation technology also runs in a permissioned mode. So a deployment scenario could be to start with Ethereum as a permissioned chain and in the moment the public chain meets the requirements (and there is a great chance it will do in short time) you can switch to the public one. The great benefit in such a scenario is that all the contract code has to be written only one time. As only Ethereum comes along with this advantages it is the Blockchain of our choise and should be yours also. If you have any further questions on this topic or want to discuss blockchain architecture with one of our experts lets get in contact.