Public and private blockchain networks are trying to work together

Public and private blockchains may be different architectures, but they can still work together

While development of public blockchain has been faster than that of private blockchains, it still hasn't converted to real utility yet

Tanaya Macheel | February 08, 2018

A convergence of public and enterprise blockchains is on the horizon, according to the CEOs of two of the most high-profile companies in the space, Chain and Blockchain. 

While similar in name, they’re entirely different.  Chain is a blockchain startup; it builds databases, effectively, for big companies to move money or other assets and its customers include Citi, Visa and Nasdaq, all of whom actually use the blockchain technology in their businesses today.  Blockchain is a definitely more of a crypto company, a consumer crypto-wallet and exchange whose CEO, Peter Smith, does more p-to-p payment volume than PayPal. 

“The dichotomy between public and private blockchains is a false one,” said Adam Ludwin, CEO of Chain, at the Yahoo Finance All Markets Summit in New York Wednesday. “ Over time there will be more of a convergence of what’s happening in the enterprise and what’s happening on the open Internet to create this future of value over IP.” 

Think of it as similar to the way private companies operate on private networks that are also able to connect to the public Internet; some files that sit behind a wall, and sometimes they get sent out to an external party or organization.  The important thing to keep in mind is the asset moving across those networks, not the architecture on which it moves, Ludwin said.  They may be different architectures, but they can still work together. 

In the original bitcoin blockchain, transactions are recorded on a public ledger for the whole world to see but users are pseudonymous, identified only by alphanumeric addresses that look like gibberish.  That doesn’t mesh well with the need for privacy in high-stakes transactions between massive companies, which is why banks have sought “permissioned” blockchain-like solutions developed for the industry in which only known, trusted entities can participate.  Financial institutions have long insisted they’re uninterested in bitcoin and cryptocurrencies but wild about the blockchain technology that underpins them, even with the growing interest digital currencies and public blockchain networks over the past six months. 

“One thing I’m really excited about is people like Chain working to bring the legacy financial system digital, because one of our biggest challenges as a business is anytime we interact with those nondigital assets,” Smith said. 

Smith said Blockchain has done some projects with legacy financial firms, though the company hasn’t spoken publicly about them and he didn’t detail those experiences Wednesday.  At the end of those trials, however, Smith and his team concluded that innovation would be slow in enterprise environments and fast in the public space — and with limited resources and a successful consumer platform, they chose to focus on the latter. 

While development on the public side has been much faster — despite the fact that the majority of the world doesn’t spend, trade or even buy and hold bitcoin, the startups developing consumer-facing solutions are much further along than banks building databases — it still hasn’t converted to real utility yet. 

“All the activity is in investing.  What is it all for and amounting to?  That’s still an open question, we still haven’t seen actual progress,” Ludwin said. 

That convergence of the two sides won’t happen in 2018 though, said Javier Paz, an analyst at Aite Group.  There’s still a lot of disagreement among public chain camps about how to address issues of scalability or security, among others. 

“This does not mean that some public and private networks will not attempt to forge that connection, perhaps to differentiate or tout the connection,” he said. “ I’m not sure this goal of interoperable networks is as easy as ‘build it and they’ll come’” since each major use case would be absent of a governance component. 

Brian Behlendorf, CEO of The Hyperledger Project, an initiative to advance blockchain technology for recording and verifying transactions across multiple industries, said there will be a “winnowing down” in 2018 on the private blockchain side — away from single-vendor solutions and toward multi-vendor platforms. 

“If you’re trying to talk an entire industry sector at a time to join a common ledger, it’s nearly impossible to do if that means everyone must pay a license fee to a single particular vendor, putting that vendor into a market-controlling position,” he said. “ If there is really only one vendor at the heart of that ecosystem calling the shots, you’re not providing real options or resiliency… That need for resiliency and choice, combined with the move from proofs of concept or pilot into production, will drive enterprises towards a smaller set of software choices.” 

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