Banks want blockchains. Blockchain enthusiasts built their ideals around decentralized systems that don't need banks. The disconnect explains something about the billions flowing into blockchain devel
Banks want blockchains. Blockchain enthusiasts built their ideals around decentralized systems that don't need banks. The disconnect explains something about the billions flowing into blockchain development: most of it funds solutions designed for Wall Street.
At a blockchain conference in Toronto, Ethereum founder Vitalik Buterin addressed the terminology surrounding private blockchains. He argued the label misleads. "Consortium chains" better describes what banks are building, he said.
The difference between them matters. A private blockchain controlled by a single entity is not much more interesting than a database. A consortium chain spreads control among multiple parties. Buterin pushed for recognizing this distinction at the event, which also featured Bitcoin Core contributor Peter Todd. "First of all, the thing I've been kind of pushing is the distinction of private consortium versus public rather than private and public because, in-between blockchain controlled by one guy, which to be fair isn't that more interesting than a database, and a public chain, you have this sort of consortium chain thing — where you have a chain and, let's say, ten nodes (all of them run by a fairly major banks)."
Critics call consortium blockchains centralized. Buterin disagreed. "The fact is: I think it is incorrect to say that [a consortium blockchain] is centralized because, even though it's not sort of theoretically in some sort of philosophical sense fair because you have ten explicitly selected banks who own the protocol, the fact is those ten banks are probably less likely to collude than, you know, three to five mining pools," he said. "Realistically, it is secure enough; it is decentralized enough. And it does provide fairly strong security assurances by itself."
Public blockchains work on a different model. Participants can join and validate the chain. Everyone accepts the same authority. A bank-controlled system, no matter how many banks, creates barriers for outsiders. "If you have one particular set of banks, then just that by itself makes it harder for everyone else in the world to go on top of the same system, whereas public blockchains don't have that issue," Buterin said.
Regulators add another complication. Financial institutions already face rules, and those same rules will apply to consortium blockchains. The immutable ledger concept clashes with the oversight frameworks already in place.
Buterin then discussed two scaling methods: state channels and private chains. State channels specify transactions that could settle on the blockchain later. The Lightning Network represents the most advanced payment channel implementation in development. Payment channels provide the best-known example.
Both methods involve trade-offs. Consortium chains require two-thirds of nodes to sign each block, and those two-thirds could betray the system. State channels on public blockchains work differently, with smart contracts serving as arbiters. "Between state channels and private chains — I do think those two things are actually quite, subtly different because, with a consortium chain, the property is: In general, two-thirds of the participants have to sign every block, and theoretically, those two-thirds could still cheat you," Buterin said. Public blockchains rely on the base layer for dispute resolution. "With a public chain, the idea is — think of it as a consortium network where it's kind of an ad-hoc consortium network for one application where absolutely every participant has to sign every block. If one of them doesn't, then you have to go 'cry for mommy', which, in this case, mommy is the public chain. And mommy is going to run a smart contract and figure out who's right."
Buterin closed by noting opportunities in merging the approaches. "I think there are lots of opportunities to kind of create services which combine the two in different ways," he said.
