In an exclusive interview with Binary District, Patrick McCorry, a researcher at the prestigious University College London, discussed the limitations of the permissioned blockchain networks that are currently being developed by large-scale conglomerates and blockchain consortia. He also touched upon the future of two-layer and off-chain scaling solutions such as bitcoin’s Lightning Network, and how blockchain networks are beginning to solve serious and unprecedented scalability issues.
IBM, Microsoft, JPMorgan, and Intel are some of the many multi-billion dollar technology and financial conglomerates that are currently developing permissioned blockchain networks as members of blockchain consortia, such as the Enterprise Ethereum Alliance and Hyperledger.
The main criticism of the aforementioned companies - and others that have allocated billions of dollars to blockchain research and development - has always been the lack of working prototypes and functional networks.
“Permissioned blockchains can be decentralized, by having a trusted third party run the protocol and have participants or node operators verify the work of the network administrator.”
To date, not a single technology or financial company has successfully integrated and deployed permissioned blockchain networks or centralized blockchain-based platforms.
Applicability of Permissioned Blockchains, Limitations of Centralized Ledgers
Blockchain technology is employed by cryptocurrencies such as bitcoin and Ethereum. It is, by its very nature, decentralized. Through consensus protocols and the existence of nodes, blockchain-based platforms can operate on a truly decentralized and peer-to-peer protocol, maximizing security by creating a trustless environment.
Several companies have been inspired by the decentralization of bitcoin, Ethereum and other blockchain networks. Over the past few years, many have attempted to create permissioned or centralized blockchain platforms to automate operations and reduce operating costs.
The vast majority of cryptocurrency and blockchain researchers reject permissioned blockchain networks, on the grounds that they eliminate the main advantage of bitcoin, that is decentralization. However, McCorry explained that permissioned blockchains can still be decentralized to an extent - by having a trusted third party run the protocol, and participants or node operators who verify the work of the network administrator.
That way, the third party service providers do not have full control over the blockchain network and participants can dispute the decision making of the network administrator.
“Traditionally, if I want to leverage a trusted third party to run a protocol on my behalf, I have to blindly trust that party to run the protocol correctly”, McCorry explained. “From what I can see with permissioned blockchains, their goal is to still allow a trusted third party (i.e. a party that all participants can agree upon) to run the protocol, but allow participants involved in the protocol to verify that it was run correctly (i.e. a public verifiability property).”
“In this sense - the blockchain provides a mechanism to detect whether the trusted third party is honest or not - and to make it easier for various protocols (i.e. smart contracts) to agree upon a single global state in order to facilitate interaction with each other”, he concluded.
McCorry further emphasized that he is not opposed to the implementation of centralized blockchains as even leading blockchain networks, such as bitcoin and Ethereum, rely on small committees.
For instance, McCorry noted that bitcoin and Ethereum rely on the mining community to select the contents of new blocks. The fundamental difference between the committees in decentralized networks and centralized blockchains, is that the latter appoints their committees instead of operating an open-source development community and ecosystem.
“I am not ideologically opposed to permissioned or centralised blockchains”, he noted. “It is arguable that blockchains like Bitcoin have many similarities with them (one similarity being that both systems rely on a small committee to select the contents of new blocks; in bitcoin this committee is elected based on wealth/investment, whereas this committee in permissioned blockchains are appointed), but there are some issues.”
McCorry stated that he is more interested in the elimination of third party service providers and network mediators to build truly decentralized networks and systems. Additionally, he explained that existing permissioned blockchains, developed by blockchain consortia, require companies to pay expensive membership fees and trust developers behind the projects.
McCorry expressed his concerns regarding the lack of social consensus and open-source development.
“Companies must trust that the maintainers of the system will not disappear in the future (i..e it is not always no straight forward way to replace them)”, he added. “Permissioned blockchains don't allow “code to be law” (for better or worse) and if the contract fails, then participants may default to an agreed legal jurisdiction - the problem here is that it is not always feasible to agree on a single legal jurisdiction.”
Scaling Solutions and Off-Chain Technologies in Bitcoin and Ethereum
In bitcoin and Ethereum, scaling and off-chain solutions are developed by an open-source development community. Therefore, the development of certain solutions such as the Lightning Network can be openly accessed; and the progress of its development can be seen by the bitcoin community.
Open-source development is vital in networks like bitcoin and Ethereum because it ensures that all participants are in agreement with protocol updates. For instance, the implementation of the Bitcoin Core development team’s Segregated Witness (SegWit) took over a year. This was due to conflict and disagreements between the mining and development community.
The inefficiency of integrating technologies and solutions into decentralized blockchains can certainly be seen as a limitation and a challenge. Conversely, these processes also ensure that proposed solutions undergo transparent and thorough evaluation from developers, miners, users, and businesses.
In 2016, the Lightning Network was introduced to bitcoin as a scaling solution that enables a micro payments ecosystem. Through Lightning payment channels, users can transact micropayments, or transactions with extremely small fees.
Businesses, developers, and users were optimistic about Lightning because it reduced fees and improved the overall usability of bitcoin. However, miners like Bitmain’s Jihan Wu opposed the implementation of Lightning, claiming that the solution would make bitcoin more centralized. Wu’s argument was that Lightning would allow for payment channel operators and third party service providers to come in and create a centralized ecosystem.
“Wu is worried that Lightning will become a hub-and-spoke model, where there are large landmark nodes with lots of channels (i.e. like exchanges), and most users only have channels with landmark nodes”, McCorry explained. “As a result, these landmark nodes are involved in routing most of the payments (i.e. Alice pays Bob via Coinbase). There is no doubt that this is a possibility - especially with people’s tendency to keep their coins on exchanges today.”
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]