Blockchain industry is developing at a very high pace of innovation, adjusting and tuning its parameters, trying to find its market fit. There are thousands of projects available on the CMC, but just a few really worth a bigger attention. Lets try to briefly review the industry, its trends, where we are heading, and how Hybrid platforms (priv+pub) fit into a bigger picture.
There are multiple approaches to categorize blockchain protocols. For the purpose of this article I use the following 3 distinct categories:
- Public blockchains (Bitcoin, Ethereum or Cardano)
- Private blockchains (Hyperledger, R3 Corda or Quorum)
- Hybrid blockchains (Algorand, Kadena or Polkadot)
The whole blockchain “story” started with public chains, with Bitcoin as the first public, open and decentralized protocol. Due to the inefficiencies in its PoW approach and limited programming features, other projects have been trying to advance the concept to the next level, like Ethereum coming up with smart-contract capabilities.
But neither of these have been fast enough, flexible or private, so we have seen further experimentation, starting from alternative consensus protocols (PoS, dPoS), through blockchain specialization targetting to address more sophisticated use-cases (supply chain, DeFi), to the idea of enterprise blockchain.
As the time went by, it became apparent that not all use-cases are well-suited for public blockchains, hence the idea of private chains became more and more dominant, first introduced by HyperLedger (Linux Foundation). Private blockchains, by offering more control over the network participants, higher transaction throughput, seemed to be filling some gaps, but for some reason the industry kept on searching further. For some reason neither public, nor private chains gained bigger traction to this date yet. In the private blockchain domain, we have seen many PoCs being developed, but I am not aware of single project which advanced from PoC to full production stage, that would replace core business processes in a given company.
Why is it so that public chains’ applications are deemed not serious by the mainstream and private chains’ use cases never go to full production mode?Well, maybe that is because these use cases are artificially limited to one ecosystem and one blockchain? Maybe. Projects like Cosmos or Polkadot are trying to solve this problem of blockchain interoperability, to enable different blockchains to communicate with each other, but on the other hand, why should you bother connecting chain X with chain Z, if none of these has real users, real transaction volume or business apps that are used in the 'real world' (outside crypto)?
Hence the birth of parallel trend, namely
Hybrid approachwithin one protocol.Maybe Hybrids will appear to be a smart hack towards adoption, combining offerings of public networks with requirements from gov, enterprises, banking, implemented on private chains, leveraging common base of users, under one, big ecosystem.
This direction is being explored by projects like Algorand, Polkadot or Kadena, so let's discuss briefly these 3 categories (public, private, hybrid), their differences and possible applications, and then see how they combine these 3 characteristics under one, flexible umbrella.
Public Blockchains
A public blockchain network is completely open, anyone can join and participate in the network. The network has an incentivizing mechanism to encourage more participants to join its ecosystem. Bitcoin and Ethereum are one of the largest public blockchain networks in production today.
Advantages of a public chains?
- inclusive ecosystem, with incentivizing rewards mechanizm, that stimulates broader participation, hence opens the gates for typically more innovative use cases.
- unstoppable, due to their decentralized nature (if truly decentralized).
- censorship-resistant and transparent, hence more trustworthy.
Drawbacks of a public chains?
- little to no privacy of transactions, what for many use-cases is not acceptable.
- often not treated seriously by big enterprises, due the the fact that these networks are 'community driven' (difficult to upgrade, unpredicable roadmaps and stability).
- Typically they are challenged with “blockchain trilemma”, namely who to address security x speed x decentralization at the same time.
Due to the facts mentioned above, public, permissionless blockchains are not always well-suited to organizations such as finance, banking, government, health care, which must carefully control access to their data and must comply with complex regulatory requirements.
In result, some of the public chains started to specialize, narrowing their directions, to address concerns of public chains. Just to name a few trends:
- focus on private payments
- focus on private smart contracts
- focus on digital identity
- focus on supply chain
Narrowing use-cases might be a solution to some of the cons of public chains, but eventually you still need to somehow connect those blockchains anyway.
We have also noticed another trend, development of permissioned platforms, which offer different approaches to security, give more control over the network topology, hence are more aligned to the paradigms of "centralized" world, giving a soft entry to the blockchain technology.
Private Blockchains
The sole distinction between public and private blockchain is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger.
A private blockchain network requires an invitation and must be validated by either the network starter or by a set of rules. Businesses who set up a private blockchain, will generally set up a permissioned network, meaning that access to this network is limited to participants selected by this business.
Private permissioned blockchains provide the level of rigorous control, needed by such organizations like governments or military, nevertheless they also have drawbacks, like isolating their users from the external world.
Advantages of private chains?
- much faster and cost-effective transactions, providing thousands trasactions per secod, at "zero cost".
- provide control over who can access the data and how the network is being managed.
- security aligned with the expectations from proprietary enterprise infrastructure providers.
Drawbacks of private chains?
- restrictions on who is allowed to participate in the network, are making the ecosystem growth more difficult (participants need to obtain an invitation or permission to join).
- use cases limited because of narrowed, often closed group of participants.
- isolated from public chains, in result isolated from a broader base of users and developers, hence innovation these users can create.
While I personally believe that in the long run we will see the most exciting use cases being invented on top of the public chains, in the interim period the "old school" of doing business is still choosing the private chains over public chains, most often.
Taking into account the above characteristics, both advantages and limitations of private and public chains, the Hybrid approach, offered by projects like Algorand, might appear to be the best answer, especially that it covers the characteristics of both public and private blockchains, moreover making them even stronger, thanks to their interoperability.
Hybrid Approach
Hybrid? Simply put, private and public chains communicating under one umbrella protocol.
Offerings of public and private chains are often complementary. Public and private chains can be both inclusive in term of who can participate (open) or exclusive, available for pre-selected group of users (closed). This is driven by the the expectations of particular business case.
THE PROBLEMAlgorandis a response to address this problem. Algorand is both public blockchain platform and private blockchain provider, and thanks to co-chains, these two worlds are now free to interoperate.co-chains architecture
To briefly illustrate why it is needed: let's take a life insurance app, as an example. On one hand it needs to collect and analyze sensitive data (like health history, income, personal information) on the other hand it needs to incorporate data from public networks or social media, to do behavioural analysis and accurately qualify the user into a particular "risk profile". Some of these features will touch sensitvie information and will require high privacy, while other can be sourced from public chains. This is where co-chains fit perfectly.
Before going deeper into co-chains, let me very briefly introduce Agorand, helicopter view, if this is the first time you hear about this project.
Algorand was founded by MIT professor Silvio Micali, who is Turing Award winner, respected authority in the cryptography space. He built a pretty strong team, vastly Boston based, and seems they have managed to address the challenge of how to make blockchains fast x secure x decentralized at the same time.
Mainnet has been live since mid 2019. Algorand is an open, public, decentralized network, operating under unique consensus protocol, called pure-proof of stake, with set of features, like Smart Contracts, Algorand Standard Assets and Atomic Transfers (implemented on Layer-1)
Recently they have introduced private and public chains interoperability, known as Co-Chains.
Co-Chains
Co-chain architecture ensure that you can enjoy the advantages of private chains and public chains at the same time.
By making public and private blockchains interoperable, organizations can isolate and control sensitive data on a private blockchain, while still safely interact with the world at larger scale, through an interoperable public blockchain.
What it means in terms of interoperability of public and private chains?- Co-chain is totally independent from the public chain, shields its transactions from all outsiders, chooses its own validators, and runs its own consensus algorithm.
- Co-chain interoperates with the main chain to transact with other co-chains, and everyone else, with the same ease and security, which the members of Algorand permissionless chain transact with each other.
- Co-chain inherits the characteristics of public chain, like atomic transactions, layer-1 smart contracts, and all other primitives and tools offered by the permissionless Algorand protocol. It will also automatically inherit all the improvements and upgrades that will be added to Algorand’s permissionless protocol in the future.
Projects like Kadena or Algorand believe that the world needs both permissionless and permissioned blockchains and provides implementations for both, guaranteeing their synergy.
No matter how scalable, distributed, and secure a permissioned chain might be, its members may not want to interact only with each other, but also with other chains and with the rest of the world, so hybrid approach by seems to be a good answer to this problem.
This is yet premature to say if we will see
one "super flexible blockchain” to rule them all, or rather
many specialized blockchains, connected into bigger network,but in both scenarios, hybrid platforms like Algorand, Kadena, Polkadot, might have chosen the best path,
preparing for both possible outcomes.Particularly Algorand is fully functional platform, with active use cases in different domains already:
- DeFi applications
- Real Estate tokenization
- Gov / public sector projects
- Digital Identity implementation
- Tokenization of Securities
- ..and many more..
so is noticing a good traction in terms of adoption from both startups, entrepreneurs, solo developers, public sector and enterprises - below is just a small snapshot of their growing ecosystem.
Worth highlighting is their completeness of SDKs (Software Development Kits). Full coverage for several programming languages:
- Full Java
- Java Script
- Python
- Go
- .NET (comming soon)
seem to focus on attracting developers from both worlds, big enterprises and startups.
CLICK here to learn more about Co-Chains.
Summary
Whatever the end goal for the industry is... either we will see hundreds of platforms interconnected, or one super platform, super flexible and super scalable, that attracted majority of businesses, or maybe answer is somewhere in the middle? Time will tell...
...there is still a space for experimentation and new ideas, before we get to the end goal..
Hybrid platforms like Algorand, Polkadot or Kadena seem to be on one hand thinking long term (focus on developing their open, public, decentralized infrastructure, attracting startups with more innovative use cases) on the other hand also addressing mid term needs of big Enterprises & Governments, who might not yet be ready for a big change, and prefer permissioned chains, connected to broader infrastructure.
On one hand innovatory, on the other hand pragmatic, this might appear to be a very good strategy for Hybrids.Let’s see how the industry evolves - especially these days - when apparently we are at the beginning of another economical and financial crisis.
Great times for DeFi platforms. Hopefully Algorand, Cardano, Polkadot can spread their wings these days.
Exciting years ahead of us.
Strap in.
Andrzej_0xa0