The Future Of Blockchain Is Hybrid

News | January 10, 2020 By:

Welcome to 2020. With Facebook’s announcement of Libra and J.P. Morgan’s introduction of JPM Coin last year, it has become clear that the future of business involves blockchain technology. What this means in practice, however, is harder to pinpoint. There has historically been a philosophical divide when it comes to blockchain. The enterprise mindset, as represented by JP Morgan, IBM and the like, sees blockchain as only being useful if the participants are tightly controlled. This is what we call a “private” or “permissioned” blockchain.

On the other side, the champions of decentralization as exemplified by Bitcoin and Ethereum, see public blockchains where anyone can participate as the right path forward.

Taking the best of both worlds, the “hybrid blockchain” is starting to gain broader awareness. It presents a solution where decentralization advocates can work alongside enterprise technologists to change the nature of transactions. By bridging the divide between traditional workflows and emerging business models, hybrid blockchain allows all participants to work together.

Uncovering the Freedom of Decentralization

Public blockchains like Bitcoin are completely free and open. Anyone can participate. To use it, all you need is a wallet and a few fractions of the associated crypto asset. Anyone can join the Bitcoin economy as a user or as a miner. There is no administrator with more control than even the newest user.

This egalitarian decentralization is both a gift and a drawback. Because public blockchains are so open, their transaction speeds are far slower than businesses require. The slower speeds arise from the methods these systems use to ensure security, like Bitcoin’s battle-tested Proof of Work protocol. Recent innovations like Proof of Stake attempt to address the speed vs. security tradeoff but are too new to demonstrate that they can be as secure as Proof of Work.

The best example of a public blockchain, Bitcoin, has entered its second decade and is on the cusp of vast improvements. Even at its height, Bitcoin performs slower like the decade-old technology it is. That said, Bitcoin remains vital to the entire blockchain ecosystem.

Conserving Data Integrity Through Private Blockchain

Private blockchains are similar to public blockchains in that they are distributed and immutable. However, these permissioned blockchains offer businesses many benefits such as faster speeds and greater privacy.

A private blockchain is similar to a series of replicated databases. However, this class of blockchain allows for owners to selectively share information with trusted participants while simultaneously allowing for rapid iteration of blockchain-based products. This enables enterprise stakeholders to collaborate in ways never before possible.

Hybrid is the Way Forward

You can’t disrupt the future without understanding the past, which is where my 20+ years of experience in the banking and financial services industry comes into play. The many opportunities I see to reduce operational costs through a streamlined blockchain platform are grounded in first-hand experience. For example, some of the blockchain use cases currently getting explored include Anti-Money Laundering (AML), Know Your Client (KYC), and cross-border payments, where a lot of time and effort is spent on verifying information. Performing these functions on a hybrid blockchain will provide security and a level of transparency that could be very useful to parties involved in both the private and public side of transactions.

Below, we’ll share some examples of what hybrid blockchain can facilitate, from an end consumer experience to an enterprise providing new services.

Hybrid Example 1: I want to share my medical data easily with my doctor and health insurance company, but also want to ensure personal privacy and security.

Laws such as HIPAA in the United States recognize the importance of privacy when it comes to personal data like medical records. Hybrid blockchain allows for siloing Protected Health Information in a secure, HIPAA-compliant database and passing along an encrypted identifier to a private blockchain that connects healthcare insurers, doctors and hospitals. Then, public blockchain accounts can get linked to the private network. Other medical companies can interact with the data through a public smart contract, giving greater visibility and control over who accesses sensitive information.

Hybrid Example 2: I want to use private payment systems on public networks.

Companies like JP Morgan are already creating their own private tokens. However, the value of JPM Coin can only be redeemed/settled within the company, like a Starbucks point or an airline mile. For digital currencies to have greater value, they need to connect to a public blockchain. Hybrid blockchain makes interoperability possible. Using hybrid blockchain, consumers can unlock greater liquidity so their money isn’t so restricted like on a corporate gift card.

Hybrid Example 3: I run a company that wants to monetize our excess capacity and share our services with others.

We’ve called this concept the smart contract sharing economy. It allows individuals and small businesses to gain access to services that are otherwise cost prohibitive for them to perform on their own. One example involves fashion startup Rent the Runway (RTR), which has the largest dry cleaning facility in North America in order to service all their rentable formalwear. RTR already has an economy of scale when it comes to dry cleaning. With a hybrid tokenized contract API on the blockchain, RTR could offer up their excess dry cleaning capacity to a small or medium-sized business at an affordable rate through selling a token that represents a full door-to-door dry cleaning lifecycle. Hybrid smart contract APIs have the potential to be much more specialized, accessible, and affordable than current APIs and database services.

Hybrid blockchain works because it eliminates the unnecessary public-private ideological divide on blockchain. Businesses can reap the benefits of private blockchain without the tradeoffs.  Individuals can participate & control their personal data in secure transactions at faster speeds. The ability for both groups to securely participate on a blockchain takes us closer to realizing a modern shared economy, one where a hybrid blockchain can drive security and efficiency across industries.

As Head of Product at Kadena, I see a true interconnection of public and private blockchains within the upcoming year. A real hybrid blockchain takes the best of public and permissioned blockchain, empowering participants to seamlessly leverage decentralization while also gaining management of sensitive personal data and improved performance.