Why Blockchain is the next big revolution? (Part II of II)
Significant number of projects are on both public and private blockchain. Some of them are working to create their own blockchain ecosystem, whereas many companies and startups are trying to integrate blockchain into their current business practices.
Let’s look at some of the interesting projects in public and private blockchain.
Public blockchain is the first type of blockchain that came into existence. Due to its nature of direct accessibility without any restrictions, it gained popularity among the technological enthusiast. Later with the improvement and development in the blockchain protocols, it opened up the door for new possibilities in how value will be transferred. Public Blockchain aims to transform all the current centralized systems into decentralized systems. Although many projects are still in the prototype mode with partial Blockchain implementation.
Blockchain 1.0 — First full proof working Blockchain application is Bitcoin. Created with the vision to eradicate middleman or intermediaries for transferring value from one person to another. Independent and complete ownership is bide to the individual/group who holds Bitcoin. Whereas in terms of fiat currency (rupee, dollar), transfer of value needs intermediaries (such as central banks) depending upon geographies, no. of parties involved etc. Even today, Bitcoin has high volatility which is a concern. But overall, bitcoin is the first, oldest and the most successful application which showed the power of blockchain technology to the world.
Blockchain 2.0 — Blockchain 1.0 gave decentralized currency, 2.0 took the concept of currency and created a whole ecosystem so that a single unit of currency can be used as a medium of exchange for transfer of digital assets. Let’s take an example of crude oil (a valuable commodity). Crude oil extraction helps to produce gasoline, heating oil, resident fuel oil etc. which are in turn used to fuel cars, run a machine and so on. Similarly, Ethereum is a Blockchain 2.0 ecosystem and its currency ‘ether’ token acts as crude oil which powers the whole Ethereum ecosystem. These ether token helps facilitate running of the Decentralized Applications (called Dapps) on top of the Ethereum ecosystem.
Main purpose of Ethereum was the management of digital assets without any central authority so it offered a new functionality called ‘smart contracts’.
Smart contracts are basically self-executing contracts between the buyer and the seller without any centralized party.
Suppose, an Over The Top (OTT) content service provider called Aflix is running on Ethereum blockchain. A studio called ‘Zed’ made an independent movie. Now full-fledged working smart contracts will check all the parameters set by the parties on the ‘business viability’ on both the sides. For eg. on the Aflix side, smart contracts will check the studios’ history, cast and crew background, categorization of the movie- genre, pre-reviews and critic opinions etc. On the Zed studio side, smart contracts will check approximate user base with attributes, payment terms etc. Once all set parameters are approved, the contract will be self-executed. These type of contract gives complete trust on either side and there is no possibility of manipulation of the data. This is one of the many use cases blockchain 2.0 can provide.
With the invention of 2.0, digital assets can be held as a value of a single unit. Take an example of a movie, song or a document stored on any digital medium. One day your friend requests you to transfer a movie. Now, one can create a digital copy of the movie and give it to your friend while retaining the original one. But on the blockchain, each digital asset will have a value of its own and it is not possible to create a new one unless one has proprietary ownership registered on the blockchain. Similarly, it could be done for millions and billions of digital assets on all the digital mediums.
Blockchain 3.0 — Blockchain 3.0 aims to solve the scalability and interoperability issue which are the biggest disadvantages of public blockchain. In addition, some of the 3.0 projects are also trying to solve the problems of governance and sustainability.
Cardano and EOS are some of the open source, decentralized public blockchain. It aims to solve Scalability by running greater number of decentralized applications at a time without slowing down the network and Governance through tools used for regulatory integration with individual rights protection. Cardano aims to solve the sustainability problem through consensus voting to make changes in protocols. Currently, Blockchain 1.0 and 2.0 both suffer disagreements within the team for changing protocols, resulting in a fork. Bitcoin has forked into Bitcoin cash, resulting in two separate blockchain with two separate vision of their own.
Public blockchain forks- Some companies have established forks(copy) of public blockchain and tweak certain functions to make it suitable to their requirements. Ethereum/Stellar are some of the public blockchains which are forked to private permissioned blockchain. Although there hasn’t been a successful implementation of this type yet, it remains to be seen what will be implications once it is fully working.
Projects like Icon, Aion, Wanchain have formed Blockchain Interoperability Alliance with shared goal of promoting inter-connectivity between different blockchain.
In future, we will see a decentralized application shifting from one blockchain to another blockchain platform with ease.
Hyperledger is a permissioned based private blockchain which can be thought of as Blockchain as a Service (BaaS) wherein companies can create their own blockchain platform catering to their own dynamic needs and requirements. Monax is also a similar type of private blockchain platform. Some of the working Hyperledger projects are:
· Hyperledger Fabric- Protocol used in supply chain management and market networks
· Hyperledger Sawtooth- Protocol used in the fishing industry
· Aroha- Protocol used in Blockchain based mobile applications
· Hyperledger Indy — Protocol used in decentralized identification databases for business networks.
There are a few primary benefits of Hyperledger blockchain. One of them is speed and efficiency. Public blockchains require each peer to peer transaction to be executed and recorded as an activity and verify that activity every time a succeeding activity is carried out. This creates a massive computational effort and makes the overall blockchain slow. In the permissioned blockchain, one can have pre-approved nodes, so that not all previous activities are needed to be verified each time. This helps to increase the speed of the overall blockchain, reduces costs by minimizing computational resources required and makes it more efficient than a public blockchain.
Another advantage is that it supports private and confidential transactions. Let’s say, a manufacturing company ’Zapple’ produces a niche product and for that it requires specific raw materials which are necessary to be confidential to protect the company’s advantage in the market. With the private features on Hyperledger, this information is safe and secure while all the other necessary information such as logistics, distribution, payments can be made available or on approval basis in a private blockchain.
We are just beginning to explore the uses of public and private blockchain. Let’s not forget that the timestamp technology was around long time before Bitcoin. There were numerous attempts to make a viable digital currency and all of them failed. The next wave of innovation will be led by handful of all the current blockchain projects that exist today. Blockchain impact will not only be limited to creating new ecosystems but also in integrating existing real world assets such as equities, commodities, real estate, bonds to digital ecosystem. In our next blog we will cover Securitised Asset Tokens and the existing landscape.
(This blog series is co-written with inputs from Mr. Kunal Shivalkar, who is a Blockchain enthusiast residing in Hyderabad. You can reach out to him on firstname.lastname@example.org. To read the first part of this blog you can click here)