Hi all,

Back in 2017, there was a lot of hype around blockchains but the actual technology wasn’t quite ready to deliver. Today, the tech side looks much better but the track record isn’t great, partly due to some high-profile failures (more on that below).

We’ll put a positive spin on it. Trial and error is the best way to adapt, although some background knowledge also helps. That’s where today’s post comes in.

So what’s up?

We’ll explain the differences between public blockchains (which you may have heard about in connection with cryptocurrencies) and private ones. You’ll also often read something about ‘permissionless’ and ‘permissioned’ blockchains, but that’s the same.

• How does a private blockchain work?

• What’s the difference between a private blockchain and a typical database?

• When will blockchains revolutionise the way we do business?

Hint about the third question: It may take some time.

Let’s get started! 🤓

For most people using them, the main ideas behind blockchains are easy to summarise: they should be transparent, decentralised, open to everybody and usable with an anonymous account. In one word: they should be permissionless.

However, that's just one way of using a technology which started to gain popular interest when Bitcoin was launched in 2009 (we’ve written about the history of blockchains here). It's also possible to set up a private blockchain which can only be used by participants who have the permission to do so. Obtaining permission usually requires some form of verification or identification.

So what's the difference between such a private blockchain and a good old database? The cynical answer: just the hype associated with blockchains (although that has worn off in recent years). As usual, however, the reality is a bit more complex.

How does a private blockchain work?

A blockchain is configured to define the roles of participants. Do you need special permissions to read and/or write information or is it enough to connect to it?

That said, any blockchain is a so-called distributed ledger which stores information in standardised blocks. Every block is linked to the previous one. It is impossible to change the data inside a block that has been added to the chain.

On a public blockchain, everybody has access to this information. Private blockchains have one key difference: Participants have to identify themselves which usually involves a centralised authority that is also responsible for maintaining the blockchain.

That's important because most ardent supporters agree that decentralisation is key for blockchain-based projects. It goes back to the ethos behind Bitcoin which was supposed to be a decentralised digital currency which was launched in the immediate aftermath of the global financial crisis. Confidence in central banks was at a low point.

On the plus side, the lack of a central authority means that there is no single point of failure (or single point of control, such as central banks or huge social media platforms). The rather obvious downside is reduced efficiency.

Blockchain, database... what's the difference?

In a nutshell, a database is a piece of software that is able to store, process, manipulate and retrieve data. As a centralised authority, it can handle large volumes of data. Moreover, it can be optimised according to the needs of clients using the data.

Blockchains, on the other hand, are not centralised. Data is distributed across various nodes which – in combination – constitute the blockchain. It reduces the performance but improves security as it is extremely difficult to tamper with the data once it has been added to the blockchain.

From this – admittedly short – summary, you can see that the use cases for databases and blockchains are extremely different. And when it comes to blockchains, the question is whether a private or a public blockchain is more useful.

The postponed revolution

At the peak of the hype around blockchains between 2016 and 2018, they were supposed to revolutionise most industries, “changing money, business, and the world” in the process. Shipping giant Maersk wanted to be at the forefront and partnered with IBM to launch an ambitious blockchain project called TradeLens.

It was eventually shut down in late 2022 after it failed to gain traction. Does that mean that blockchains don't provide much value in the supply chain? Well, maybe a private blockchain doesn't.

TradeLens was supposed to address the main issue of blockchains in 2018: lack of scalability. However, the centralised structure was apparently too much of a concern for other participants to commit to TradeLens.

Shipping stuff from a factory in country A to a logistics centre in country B and then to a shop in country C is complicated. It involves logistics providers, insurers, government agencies and various payments along the way. Even in 2023, that requires lots of paper documents and manual spreadsheets.

Without a trusted middleman, it's virtually impossible to coordinate these organisations and processes. TradeLens aspired to become that middleman – but it required other logistics providers to accept one of their direct competitors to be in that position. Meanwhile, any company with a need to transport goods had to give up a lot of leverage in future negotiations over shipping rates.

Ultimately, sacrificing decentralisation to improve scalability didn't turn out to be the right approach. However, blockchain technology has progressed and other solutions are gaining traction. Projects using public blockchains now have the necessary infrastructure to support efficient solutions in the supply chain (we'll look into this in more depth in future articles).

While a private blockchain didn't revolutionise the logistics sector, there are still a lot of potential use cases. Blockchains lack performance compared with databases, but they can be easily audited and provide unchangeable records – characteristics which are vital for financial records, verification of documents or proof of identity to name just a few.

Summary

Blockchains and databases are not the same – it makes sense to think about useful applications for blockchains. If blockchain technology is the most efficient solution, the question is whether it should be a private or a public one.

Giving up on decentralisation to improve scalability – or create other advantages – can make sense, but context is important. That includes commercial implications as well as regulatory requirements.

Finally, the clear distinction between private and public blockchains is likely to become blurry in the coming years, thanks to ongoing development work which we'll cover in future posts.

That’s the end for today! 😢