This post was first published on Medium.
The case for private blockchains
An associate recently posted an article here on Medium illustrating the positive impacts of several private blockchain implementations. He also challenged proponents of public blockchains to present implementation options for clients based on facts and not hyperbole. This article attempts to do that by examining several inherent limitations of private blockchains while still maintaining that clients always evaluate private as well as public blockchains for their specific enterprise use cases.
Public blockchains: The scaling issue
First of all, let’s get straight to the scaling issue. It is an issue that has bedeviled popular public blockchains since their inception. Given their abysmally low transaction throughput (average of 7 TPS), it isn’t feasible for enterprises to run mission-critical applications directly on top of the two most well-known blockchains: BTC and ETH. They simply do not scale on-chain.
Rather than addressing on-chain scaling issues, core development teams of both blockchains have opted instead to offload an increasing number of transactions to Layer 2 (L2) or off-chain solutions. Bitcoin Core (BTC) utilizes the Lightning Network for scaling micropayments. Ethereum (NASDAQ: ETH) transactions are diverted to the Polygon (NASDAQ: MATIC-USD) chain in addition to other L2 chains that charge lower gas fees. Several of these L2 blockchains leverage creative Web3 infrastructure platforms like Alchemy to further scale.
With respect to BTC and the Lightning Network, this approach merely addresses a single use case—micropayments. And even then, it doesn’t work.
While BTC is a non-viable blockchain for virtually all enterprise use cases, Ethereum at least supports the issuance of ERC-20 tokens and NFTs (ERC-721/ERC-1155). Like BTC, however, ETH is a poor choice for enterprise use cases needing to process thousands or millions of daily transactions. It seems then to beg the essential question: if there is no scalable on-chain utility with respect to either BTC or ETH, should enterprises even consider them for mission critical use cases?
If the scaling limitations quantified above aren’t enough to dissuade companies to look elsewhere, the L2 networks that BTC and ETH leverage should. These networks add unnecessary complexity, security, and governance risk to any implementation. Governments and highly regulated industries, such as finance, healthcare, food, and drugs, etc., are unlikely to ever consider running mission-critical applications on these chains, given the associated risks mentioned above. If such participants don’t dare or cannot run their mission-critical applications on the two most popular public blockchains and associated L2 networks, then what public blockchain options remain?
Enter Solana (NASDAQ: SOL-USD) and Bitcoin SV (BSV). Both Solana and BSV purport to be able to process up to or in excess of 50,000 TPS, with theoretical limits well beyond that. Additionally, actual TPS on both chains now surpass that of the Visa (NASDAQ: V) network, which daily processes around 6,000 TPS. Solana, however, has been plagued throughout its short history by several network-wide outages lasting up to a few days. Some critics have argued this is due to flaws in its basic design. In addition, its association with FTX and dubious governance practices (coin issuance) should give governments and enterprises pause when evaluating whether to deploy enterprise use cases on top of it.
BSV, on the other hand, is currently the only viable and most energy-efficient PoW blockchain, achieving among the highest TPS throughput and lowest transaction costs of any blockchain in existence. With the introduction of Teranode in 2023, actual throughput may exceed 1 million TPS, further lowering energy use and fees per transaction. Once Teranode is released, no other blockchain will likely be able to match its capabilities. Finally, there has never been a reported outage on the network, even during major upgrades, since the base protocol is stable or “locked in stone” (i.e., no future protocol upgrades expected—or needed).
Limitations of private blockchains
Limitation 1: The network effect
In the article referenced above, the author enumerates three criteria of successful private blockchain implementations, the first being a network effect. In the example provided, a dominant firm uses its clout to influence other participants to join the private network vs. “incentivize” them like miners as proposed in Section 6 of the Bitcoin White Paper. This is a key distinction between the two types of blockchain implementations and impacts the long-term ability of a network to scale.
It is conceivable that the dominant firm may persuade other companies to join the network by offering incentives, but such incentives are very likely to be tailored to each participant and inconsistent from one to the next. Over time, this becomes untenable even for the dominant company (as may have been the case with the abandonment of the Maersk TradeLens offering), thus negating the long-term benefits of the private network effect.
Another obvious limitation in private blockchain implementations is that each participant must invest in and maintain redundant infrastructure. By leveraging highly scalable public blockchains instead, such investments are greatly minimized or eliminated altogether. Participants simply pay minuscule per transaction fees as network use increases. Over time, there is a greater likelihood that highly scalable public blockchains, not private blockchains, will increase participation due to lower overall technology costs and complexity and increased efficiencies.
Limitation 2: Data security/sensitivity
The author asserts that enterprise “comfort with making data visible across the network” is a critical success factor for private networks. Further, the data should be of low sensitivity.
While the foregoing may be true on private networks, there are no such limitations on many public networks. One popular method to enhance privacy is smart contracts. These are ideal for concealing sensitive enterprise or consumer data but can pose a bit of a challenge for tracking and investigations by law enforcement.
zk-SNARKs are another method for enhancing transaction privacy and have a long track record of being integrated into smart contracts or even blockchains (e.g., Monero, Zcash).
One of the simplest methods to improve privacy is to use a different address for each transaction. BSV wallets do this by default. This feature can be combined with other methods discussed to further enhance privacy.
Last, the integration of IPv6 into blockchains like Bitcoin SV will usher in a new era of privacy and security by establishing P2P, secure payment channels using Simple Payment Verification (SPV) mentioned in Section 8 of the Bitcoin White Paper. It will also enable secure machine-to-machine or IoT payment channels.
Limitation 3: Efficient payments processing
This is an interesting assertion to make with respect to private blockchains. The author doesn’t give any specific details on successful implementations nor am I requesting any at this time. It’s common knowledge that cheap or free P2P payment processing options have proliferated in the fiat realm (e.g., Venmo, PayPal, Zelle, etc.), but I wasn’t aware of any cheap or free B2B options running on private blockchains. So, I went looking for some.
One traditional payment network, Mastercard (NASDAQ: MA), boasts openly on its website that its solution, Mastercard Blockchain, “facilitates new commerce opportunities for the digital transfer of value by allowing businesses and financial institutions to transact on a distributed ledger. Our technology can power multiple use cases and can help take time, cost and risk out of financial flows.”
This is an impressive claim, especially on cost. It comes from one of the two largest incumbent payment networks. The lowest category of fees shown on their website is for grocery merchants (1.65%). Consumers and enterprises alike should ask themselves one basic question: How on earth could Mastercard, or VISA for that matter, offer merchants or consumers transaction fees even approaching the minuscule transaction fees now levied on a public blockchain like BSV? — currently around 1/1,000th of a penny. Fees this low would simply break business models for traditional payment networks like Visa, Mastercard, or even Stripe and Square (Block).
But could Mastercard truly be transforming itself into a blockchain payment network? Unlikely. Rebranding a private payment network as a blockchain network is simply a clever marketing gimmick (e.g., Block). Business models of private payment networks like Mastercard, Visa, SWIFT, and others have come under existential threats due to public blockchains like BSV and their rebranding efforts as blockchain networks are looking more and more like final acts of desperation. They may all need to entirely transform their business models—in effect, become miners—in order to survive, or they may simply disappear altogether.
Wrapping up
While the goal of this article has not been to offer specific implementation guidance, I can suggest technology platforms and tools as viable options for enterprises willing to investigate public blockchain options like BSV. I follow developments more closely on this specific blockchain, but there may also be comparable solutions available on other public chains. Fully implemented enterprise use cases on BSV include Track and Trace, tokenization, smart contracts, and blockchain as a service (BaaS).
Many Web3 consultants like me are starting to see a big uptick in client interest around Track and Trace. UNISOT offers a complete, vertical supply chain solution, including a Track and Trace module and a slew of other logistics features. To my knowledge, nothing like it exists on any other public blockchain.
Tokenized offers an award-winning all-in-one tokenization solution for institutions, government agencies, enterprises, and individuals.
Relysia offers a robust BaaS platform that entities can leverage to quickly spin up proof of concept applications.
And finally, sCrypt offers a state-of-the-art smart contract platform that now allows developers to use TypeScript, as well as a smart contract transpiler that will even allow Solidity developers to port their scripts to run on BSV. These are just a few of the many solutions available on BSV to help clients quickly and easily investigate and leverage public blockchain capabilities.
In conclusion, Web3 consultants should encourage clients to evaluate both private and public blockchain options before making a decision that might impact their business performance for years. Unfortunately, most clients are not aware of the solutions now available on public blockchains and may all too often be guided towards private blockchains by consultants and advisors who themselves are not current—or comfortable—with the rapidly evolving capabilities in the public realm. The essential role of any good consultant though is to present solution options that they can actually deliver for the client and then let clients make the final decision.
Watch: BSV Blockchain A World of Good
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.
