In blockchain, “convergence” may mean different things to different people, but it is a word which is appearing more and more in public rhetoric of late. For some people, the word simply means that some innovations which are developed on a public blockchain powered by a cryptocurrency can be leveraged on a private blockchain that is used by enterprises, and vice versa. But for others, the rise of the term shows that the lines that are between these categories, once starkly drawn, are starting to fade.
With the companies starting to recognize the merits of public chains; as new technology enables some different types of ledgers to communicate with each other; and as central banks consider issuing digital versions of their fiat currencies which could be used to settle trades in blockchain assets; nomenclature is evolving to fit the times.
At the Consensus 2018, John Wolpert, who is the former blockchain lead at IBM, said that he would like to see in a year from now for most people to think it is absurd to say ‘private networks’ or ‘public networks.’ He also said that back in 2015, the industry needed to diverge into public and private spheres. But to hum, it is becoming clear that the industry is now heading the other way.
His CV also supports this idea, as he left IBM last fall to take up the new position of “seeker of awesomeness” at Ethereum design studio ConsenSys.
In another instance, one new project of the former JP Morgan blockchain leader Amber Baldet, which is known as Clovyr, is all about building the middleware developer tooling and connectivity services in order to make convergence a reality.
Baldet told CoinDesk that there are a lot of rational reasons for people to use private networks, whether it is for added privacy, control over corporate governance or a computationally expensive game to get performance, as well as cost benefits.
Internet or intranet analogy
What this actually means? Even in the highly regulated, cryptocurrency-opposet world of banking, some seasoned technologists see potential osmosis between the public, as well as open-access blockchains and private member-access networks somewhere on the horizon.
The director of Banco Santander’s Blockchain Lab, named John Whelan, drew on the Internet-intranet analogy, which is usually used by cryptocurrency proponents to argue private blockchains is one day going to dissolve to insignificance.
He thinks that they may see some convergence between private permission ledger networks. For private, as well as permission, he is going to use the internet analogy, with suitable bridging protocols, which are developing.
However, according to him, the essential first part of the convergence story has to take place within the banks themselves: a massive reduction in the number of ledgers, as well as duplicated technology and reconciliation. He also said that the financial industry is moving from the architecture of many ledgers to one of the fewer ledgers. It is that simple, according to him.
But, there are also others who are more skeptical about the notion of public-private convergence at the network level, but they still see the two spheres influencing each other.
The CEO of MultiChain, a startup that helps organizations build and deploy blockchains, Gideon Greenspan said that on the product level, he thinks they can expect to see a continued cross-pollination of ideas and technologies between the public. As well as private blockchains, as there is a great deal of technical overlap between these two systems.
He also added that he rarely hears of a use case which could be sensibly implemented on Ether. The closest he has seen was using a public chain to notarize a hash that represents the state of the private chain, and this can also make sense for some extra security, but he doesn’t really think that it can be called ‘convergence.’
Such views are not stopping progress in the form of collaboration of course. The Enterprise Ethereum Alliance (EEA), which was formed in 2017 to develops some private forks of Ethereummstandards, has become one of the more visible convergence-seekers which were backed by major banks, as well as businesses.
In recent times, the group released a long-awaited spec, together with some information – how its architecture stack connects with the work of the Ethereum Foundation, the non-profit which promotes the development of the public Ethereum cryptocurrency. Everything happened under the guidance of the new EEA chief Ron Resnick.
The EEA sees a positive feedback loop which is between features that were developed for enterprises and the ethereum improvement proposals (EIPs) which are floated by developers for the public network.
Maybe one of the most prominent instances of this so far was the work that Amis Technologies did with its implementation of Istanbul Byzantine Fault Tolerance for the Ethereum client Go Ethereum (Geth).
Such improvement proposal of the Ethereum also added a new consensus algorithm to Geth, one which was better suited to financial enterprises than existing proof-of-work or proof of authority. It was actually then added to Quorum, the private blockchain platform which was developed by JP Morgan.
Conor Svensson, the founder of blk.io and chair of the Quorum and core standards working for groups at the EEA also pointed to identity as another area where the public, as well as private chain boundaries, could theoretically be crossed since a private key always protects the identity on a blockchain.
He said that as long as the private key remains secure, people have a notion of identity which can potentially be used on multiple chains. However, it is another question whether you should use one identity across various chains.
Cash on the ledger
There is still a prerequisite for full-fledged convergence of public and private chains which would be the development of fiat cash on distributed ledgers or so many seem to agree.
It is also going to permit all kinds of digital assets, as well as blockchain-based financial instruments to flow through the systems more easily as the users would trust a government-backed currency more than a volatile cryptocurrency.
Clark Thompson, who is the global solutions architecture lead at ConsenSys, says that cash on the ledger is a necessary thing if not the essential building block for commerce on ledger platforms.
That kind of ethereum-based app builder has a dedicated team of experts who are looking at all varieties of fiat cash on distributed ledgers, and that is also working with UnionBank of the Philippines to create a low-cost tokenized fiat solution for rural banking.
Ultimately, while fiat currency which is held in a traditional bank account can be described as a token on a distributed ledger, this setup is also going to create redemption risk which may put off some investors. For the point of view of enterprises, the ultimate digital cash would be a central bank-issued digital currency (CBDC).
Thomson said that the policy of central bank changes are necessary to prohibit central bank-issued tokenized fiat, which also has the advantage as it carries no counterparty risk.
Nobody can guess how long such a change is going to take, though, as central banks themselves are still tentatively exploring the concept.
But Whelan at Santander, a member of the Utility Settlement Coin consortium, in attempting to make central bank money on distributed ledgers a reality, said he believes there could be a CBDC on a distributed ledger within a few years period.
What is still to be seen is if it is deployed directly by the central banks or while it used a kind of two-step process where commercial banks essentially lend money into the system.
Whelan concluded that this was indeed a policy question for the central banks to examine. Also, that is not a technology question, according to him.