Blockchain Tech that Promises Privacy and Performance

Enterprises need to collaborate with each other to accomplish business objectives. In the course of business, there are situations that call for utmost sensitivity in conducting transactions. Here, it is not necessary that all the involved parties can be trusted. Conventional legislation provides trusted third-party intermediaries to create a trustworthy environment.

With increased security incidents and fraudulent activities hitting the headlines — there is a general mistrust in traditional third parties that store data in a centralized database, the party that has control over the central database is in an additional position of power that may not be acceptable to a group of collaborators.

In addition, multiple factors like competitive, economic, operational, strategic risks lead to a trustless environment — so how do you enable business collaboration in such a trustless environment?

It all started with Bitcoin — the crypto or digital currency and the primary use case was in performing financial transactions. So, what is blockchain? Don & Alex Tapscott, authors of Blockchain Revolution say that:

The heart of blockchain transactions is largely built around smart contracts and consensus. Smart contracts transfer the digital assets between parties, whereas consensus is a fault-tolerant mechanism to reach agreement among nodes in a distributed network. The integrity of all the transactions is preserved in this model because the cost of tampering or modifying is prohibitively large. History cannot be re-written or modified, it can only be appended.

When it comes to enterprise collaborations, having publicly verifiable transactions may not be an option due to confidentiality issues. Moreover, these technologies are resource-hungry, and slow. Hence scaling at the enterprise level is still a challenge.

Adding a privacy-preserving protocol and consensus mechanisms that have high throughput would be the answer for building enterprise-level blockchains.

Forrester, in its blockchain predictions for 2019, expects that “the tokenization of digital and physical assets will be one of the key areas of innovation”.

One of our Imaginea labs blog resonates with a similar idea and has presented a thesis that discusses the possibility of smart contracts degenerating into token networks. Let us see how this can be achieved using different blockchain technologies.

Current public blockchains enforce all transaction data to be public so they can be verified by any interested party. Zero knowledge proofs (ZKP), a cryptographic technique, provide mechanisms to make statements about transactions that verifiers can check independently while the statement itself is designed to not reveal sensitive information. One of our researchers has explained ZKP with some interesting examples, which makes a good read to understand what is going on in our research.

In a public blockchain that runs on ZKP, complete privacy is ensured even across a distributed or peer-to-peer network. In this case, all the parties only know that a valid transaction has taken place — the details of the sender, receiver, or the type of asset and quantity that has been transferred are not disclosed. This method also ensures not just hiding sensitive information, it also helps prevent double spend in the private subchain.

Therefore, innovative applications can be built on integrated public as well as private networks and rely on ZKP for instant clearing and settlement. This becomes possible with the use of autonomous contracts, which is a mix of configurable public contract as well as secure private contracts that can be executed within private subchain nodes.

In this type of public and private integrated blockchains, public, semi-private and private transactions are possible. Depending on the requirements, the transaction can be made visible to:

All parties on the public networkAll parties on the private networkOnly transacting parties on the private subchain

A digital currency implemented using this mechanism is ZCash.

Major blockchain systems today (Bitcoin and Ethereum in particular) use a highly computationally expensive means called proof of work to establish consensus among untrusting parties maintaining the distributed ledger. This method is currently estimated to consume around 59.73 TWh of electricity.

Key network statistics in digiconomist.net provides a comparative answer to describe the energy consumption in this context — “Number of U.S. households powered for 1 day by the electricity consumed for a single transaction”. This also results in very low throughput of transactions on the chain. For example, smart contract based payment settlement systems built on Ethereum can deliver about a couple of settlements per second at best. This is way too insufficient for collaboration.

Proof of stake aims to reduce the energy costs of consensus while the Lightning and Stellar networks are about mechanisms that do not require expensive computations. The Federated Byzantine Agreement protocol of Stellar enables it to execute several thousand transactions per second without a “proof of X” system. This brings it into viability territory.

In general, business transactions happen using traditional currencies, which are in the form of cash. In this day of redemption and rewards, air miles, reward points, gift cards are accepted as a form of currency at multiple outlets.

Merchants accept these currencies in the belief that the issuing brands will pay the merchants on redemption. The clearing and settlement process in these systems are complex and often happen outside the IT systems. One of the reasons for such complexity is due to the commission/pricing structure for various merchants. Blockchain tech can help here.

For example, Zagg protocol proposes creating a hybrid model of public and private blockchain to facilitate the exchange of such enterprise currencies. This ecosystem promotes developers to build innovative applications and help bring consumers, brands and merchants together.

In this environment, transaction speeds are expected to be high, with low latency, in-built privacy and smart contracts on a public blockchain. For example, for the insurance sector, the digital currency is the health card. Here, the policy and claims details can be placed on a public block, while verification and settlement process can be kept in a private chain.

In this scenario, ZKP and FBA are technical pieces to the puzzle that can solve the privacy and performance issues in a system that might result in a unified end.