Private Distributed Ledger Technology or Public Blockchain?

Some people think that authoritative distributed ledger technology may perform better than open blockchain because it is tuned to address the latter’s problems. These systems are also called “permissioned blockchain”, as if blockchain were a high-level concept and “permissioned” was one of its variants. But this claim is controversial, and you’ll see why below.

Is it “authorized” decentralized?

There are many other options to choose from on DLTs: DLT Authorized, Private, Enterprise, Federated, and so on. And frankly, sometimes, it’s not easy to distinguish between them. Therefore, for this level of discussion, let’s compare only DLT versus blockchain.

A licensed DLT and the aforementioned variety of it are not decentralized. There should be no fallacy around this as it could be fatal to a project. While some opponents of this statement might claim that decentralization can have a degree and of course permissionless blockchain is more decentralized.

Let’s just say it. If there is someone between two counterparties in a transaction and you cannot do anything about it, you are centralized. In a public blockchain, if an ordinary user does not want to depend on a miner for their transaction to be included in a block, they can compose their transaction and mine a block themselves. If the lock is valid, the network will accept it. Of course, mining today requires enormous computational resources, but there are no technical or formal barriers to this, it is not necessary to ask for permission to mine. In DLT, network users have different roles and authority, and ordinary users cannot create and validate blocks. There is nothing wrong with having a centralized system; it’s just a matter of understanding what you’re dealing with.

Related: What is the difference between blockchain and DLT?

Authorized DLTs can be decentralized from only one perspective, that is, having a consortium of independent members (organizations, companies, etc.) managing the network with the exclusive authority to create blocks. Having a few affiliated companies controlled by a beneficiary will not make it decentralized.

And note that any consortium structure with independent members can be decentralized, but only for these members: it will always be centralized for everyone outside the consortium.

Is DLT a cartel?

A DLT (private / licensed) consortium can be considered a cartel. Sooner or later, an antitrust body may challenge this. A safe strategy would ensure that the terms and conditions of the consortium are built in compliance with antitrust laws.

By the way, being a completely centralized system it is much safer. But a centralized system will never achieve the same level of reliability and credibility that blockchain can achieve. It will be vulnerable like any other centralized system is, and this is why.

A centralized DLT is not immutable. The ledger can be arbitrarily rewritten by one (or more) controlling it or due to a cyber attack. Due to its open and competitive nature (mining, participation, etc.), any blockchain can achieve immutability and therefore its records will be credible. Thousands of independent nodes can guarantee an unprecedented level of resistance to any type of attack.

It usually comes after the immutability discussion. How to correct a mistake? What if you need to change your smart contract? What happens if you lose your private key? There is nothing you can do retroactively – alteration on the blockchain is impossible. What done is done. In this sense, DLT is usually the opposite of an alternative to blockchain. You will hear that DLTs can be designed so that those who control the network verify transactions on entry and therefore non-compliant transactions cannot pass through. But it would be a fallacy to think that network censorship will eventually exclude all errors and unwanted transactions. There will always be a possibility of error. So what? A retroactive change as a last resort? But if you can alter history, it undermines the whole idea of ​​blockchain. No other technology can guarantee such a level of data immutability. It is not one of the advantages of blockchain, this is its distinctive advantage.

Related: Going back to blockchain’s originally intended purpose: time stamping

However, immutability is perceived as something that prevents its legal application. Say, your circumstances have changed and you need to alter smart contact. The answer to this is proper application design that does not undermine the immutability of the ledger. The smart contract should be designed so that the user can attach a new transaction to reflect a change to the previous one. The blocks are clearly chronological and only the latest transaction will reflect the current state of affairs, while all previous transactions will be a historical reference. It is not necessary to change the history. Blockchain is a public repository of evidence of everything that happened. There are different methods for designing applications that address all possible legal problems; for instance, is and is Academic article proposed solutions to manage property rights in blockchain registries. These problems are also discussed in the series of articles I published last year.

Allowed is not blockchain

If someone questions you regarding your system, they will be right. More discussion on why permission is not a blockchain can be found in this academic article. paper, but in a nutshell: Not all blockchains are blockchains. Connect timestamped data chunks with hashes was made up by Haber and Stornetta in 1991. But no one has ever called it a “blockchain” because blockchain is more than just a chain of blocks. This is how these blocks are created and validated. The blocks that are created are the result of open, decentralized and uncensored competition. This is the definition of blockchain and this is what Satoshi Nakamoto designed. So anything that is centralized (licensed, private, etc.) is whatever, but not blockchain.

Unfortunately, anyone is free to attribute the word “blockchain” to whatever technology they want, as there is no copyright or legal protection for this word. DLT proponents strove to blur the line between these concepts. But it is only a matter of time until some high profile private DLT takedown tricks show the real difference between DLT and blockchain and drastically change the situation. There is a big difference in the number of nodes that guarantee network security, that is, a handful of known nodes on the DLT network, or thousands and anonymous nodes around the world on the blockchain network.

We can argue about this on a theoretical level, but when it comes to losing money due to vulnerabilities in the system, no one will listen to glowing speeches about DLT. People will start asking questions. If you use “private / authorized” you should be prepared for this.

Related: Blockchain technology can change the world, and not just through cryptocurrencies

If you still want permission

A safe strategy would be to use the word “DLT” in all communications. It may not address potential vulnerabilities, but then you can say, “We never said it was blockchain.” By the way, ENISA (the European cybersecurity agency) always uses a “distributed ledger” instead of blockchain in their reports. In contrast, his colleagues at the US National Institute of Standards and Technology used “blockchain” in their previous report.

Do you want to create your own public blockchain network? It’s not necessarily a good idea unless you have reliable technology and a solid plan. First, [permissionless] blockchain does not mean secure by default. To achieve a decent level of immutability and resistance to attacks (hence credibility and a high capitalization of your currency), you need thousands of independent nodes around the world. If you have enough resources to build your community on this difficult path, your network will survive and you will reap the rewards. But what are the odds?

DLT economy

If you are still considering creating your private or licensed network, think about how this infrastructure will be maintained. If this is only your network, you may have a solution to this because its maintenance can be covered by the commercial applications that you develop on it. But you have to understand: network maintenance is completely on your shoulders.

If you have a consortium of members, how do they amortize the infrastructure costs? In a blockchain, there is a native mechanism for this: the cryptocurrency. Independent nodes compete to mine coins. This is how the entire infrastructure is created and maintained. Those who develop applications on the blockchain need to worry about fees, not infrastructure.

But what about your DLT? Is your DLT only for private use between network members? In this case, the end must justify the means, so the reason independent market players created their own DLT network must cover the cost they bear to create and maintain it.

Consider another story about DLT by members developing a network for external users. Inevitably, you will need to design a viable business model for your network members. No one will waste their resources in vain or the resources will be applied unfairly; it will end with a common tragedy. One possible solution to this is to create a network native token – say hello to cryptocurrencies.

Private DLT or blockchain?

Is a licensed / private DLT better than a blockchain? This is not an appropriate question. They are different and their use depends on what you are trying to achieve. But it would be a fallacy to attribute blockchain characteristics to an authorized DLT.

Existing leading blockchains can provide you with a reliable infrastructure for an application. The idea that immutability prevents the application of blockchain is a mistake. On the contrary, it is the main advantage, since no other technology can provide such a level of credibility to the records. There are several methods to create mature applications without hitting the immutable ledger.

A controlled DLT is solely centralized and therefore requires as much attention to cybersecurity as any other centralized technology. A DLT consortium is decentralized for its members, but it will always be centralized for external users (if, of course, the DLT is designed for public use). At the same time, the use of such a DLT can be fruitful in a private application between independent members, but be careful with the objectives as it can be considered a cartel and questioned by the antitrust bodies.

The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Oleksii Konashevych is the author of the Cross-Blockchain Protocol for Government Databases: The Technology for Public Records and Smart Laws. Oleksii is a Ph.D. Fellow of the Joint International Doctorate program in Law, Science and Technology financed by the government of the European Union. Oleksii has been collaborating with RMIT University Blockchain Innovation Hub, researching the use of blockchain technology for e-governance and e-democracy. He also works on the tokenization of real estate titles, digital IDs, public records and electronic voting. Oleksii co-authored a law on electronic petitions in Ukraine, collaborated with the country’s presidential administration, and served as manager of the Non-Governmental Group on Electronic Democracy from 2014 to 2016. In 2019, Oleksii participated in the drafting of a draft of law against money laundering and tax issues for crypto assets in Ukraine.