As the amount of information that we are able to consume grows exponentially, it’s ever more important that we ask questions about the ‘facts’ that we’re given that shape our perspective. What’s been edited, what is actually true?
[As a short aside, (and even though I’m not a huge fan of the guy), this really struck me with the recent Andrew Tate interview that was conducted by the BBC. They released their edited version, which is here. It makes him look like a delusional psychopath. But Andrew Tate filmed the whole interview himself (very clever), and released that too - it’s here. It’s shocking how underprepared, naive and ill informed the BBC were; and how the two versions of the interview leave us with two very different perspectives].
[[Can I please reiterate that I do not in any way support or endorse Andrew Tate or anything that he does or says. My point is about perspectives being shaped via editing and manipulating content]].
The devil is in the detail.
And so with probably the first ever comparison between an alleged human trafficker and child abuser and a US publicly listed company (apart from maybe Epstein and JP Morgan), our friends at Coinbase recently released a report on the State of Crypto adoption, with a rather compelling title:
Exciting times! And it makes you think that all the crypto assets that Coinbase trade will end up with more demand if the likes of IBM, Apple, Walmart and so on start using Blockchain. Could this be the turning of the bear market? Shall we all start buying?
We must disassociate our impression of the message based on the entity that’s conveying it (Coinbase, who trade crypto assets) and the detail of the message itself; we assume that the implication from the message is that the crypto assets are going to grow. But actually, it’s extremely important to ask ‘what type of blockchain initiative?’. Because there are two; permissioned and permissionless.
A permissionless blockchain is a type of blockchain that is open to anyone who wants to participate. This means that anyone can join the network and add blocks to the blockchain, as long as they have obtained the relevant consensus status. Some of the key characteristics of permissionless blockchains are:
Open access: Anyone can join the network and participate.
Public ledger: All transactions are recorded on a public ledger that is accessible to everyone.
Decentralized: There is no central authority that controls the network.
Secure: Transactions are verified by the network and cannot be tampered with.
This is the type of blockchain technology that can be traced back to Satoshi Nakamoto's Bitcoin whitepaper, where unaligned users generate consensus through Proof of Work. There are other consensus mechanisms such as Proof of Stake, but the important thing to know is that with permissionless blockchains, a crypto currency tends to be involved in order to achieve consensus around block creation.
Permissioned blockchains are totally different. A permissioned blockchain is a type of blockchain that is restricted to a specific group of users. This means that only authorized users can participate in the network and add blocks to the blockchain. Permissioned blockchains are often used for applications where security and control are important, such as supply chain management and healthcare.
Here are some of the key characteristics of permissioned blockchains:
Closed access: Only authorized users can join the network and participate.
Private ledger: All transactions are recorded on a private ledger that is only accessible to authorized users.
Centralised: There is a central authority that controls the network
Secure: Transactions are verified by the network and cannot be tampered with.
Here’s a nice little summary table from the folks at Binance:
Anything from the table staring you in the face based on Coinbase being a digital assets exchange? Yep, you’ve got it. Permissioned blockchains rarely have tokens or digital assets (that Coinbase trade) embedded within their protocol, because the consensus mechanism is different (they use PBFT (Practical Byzantine Fault Tolerance) which uses a limited number of nodes to achieve consensus and doesn’t necessarily require staking). So it’s really important what type of blockchain we’re talking about here.
From the Coinbase report, they tell us that “The top 10 Fortune 100 brands in volume of web3 initiatives are:
IBM (18)
Alphabet (11)
Microsoft (11)
Goldman Sachs (10)
JP Morgan Chase (9)
Amazon (6)
Citigroup (6)
Coca Cola (5)
Nike (5)
Bank of America (5)”
Great stuff, and that all sounds very promising. But what type of web3 initiative are we talking about here?! Because if it’s permissioned blockchains, Coinbase might as well be telling us that digital assets are on the up because the sun is shining in San Diego…
The answer is that most of these companies are involved in both to a certain extent. But the solutions providers and the SaaS businesses, including IBM, are much more involved in permissioned blockchains. Hmmm.
The most famous of the permissioned blockchains is a project called the Hyperledger Project, which was created in December 2015 by the Linux Foundation, and has the objective of “advance cross-industry collaboration by developing blockchains and distributed ledgers, focusing on improving the systems’ performance and reliability” (from Wikipedia). JP Morgan and IBM are founding members of the Hyperledger Project. You can see the full eco system here: https://dltlandscape.hyperledger.org/
So what does this mean for the future of blockchain? What are we actually looking at? Well the bottom line is that the Linux foundation and the other folks in the permissioned blockchain world are developing closed loop systems, that are built on the fundamentals of blockchain technology, but that are closed to only people that are invited to put data into the system. They are often used by businesses and organisations that want secure databases with controls that they they set, where access is limited. That’s fine for people like Maersk, who will invite all of their suppliers to enter their data into the blockchain, and build smart contracts on that protocol to optimise their supply chain. But you know what? They tried to do this, and it didn’t work.
The collaboration between Maersk and IBM was called TradeLens, which was founded with the vision of taking a leap in the digitisation of global supply chains through an open and neutral industry platform. The project was shut down in 1Q23.
Whilst there are many reasons why this happened, one of the main ones is that blockchains are only as good as the data that they store that can be used by smart contracts for process optimisation (in this case). For TradeLens, the best solution would be to have all of the supplier data and all of the shipping data in the world…. then you can really build some meaningful systems to help predict optimisations. But if you’re a shipping company, do you really want to send all of your supplier data to a system that’s owned by Maersk? And where you’re likely signing another disclaimer that says that IBM can use your data for other clients? Probably not. You’ve got this problem again and again of centralised entities surreptitiously obtaining, storing and reselling sensitive data.
So permissioned blockchains are great when everyone wants to collaborate, and when you want to pay IBM (for example) a fee for providing you with a service. Which is centralised. Which is limited to the data that IBM are able to obtain for the system.
If you really want to optimise systems and develop smart contracts, you need as much data as possible (ideally all the data that’s ever been created), which means you need a decentralised, mathematically driven blockchain, that is totally secure and distributed across nodes that have nothing to do with the competitors that might be using the commingled data. You need application developers that are able to build tools using that data that are independent and impartial, that are able to create products that are sold as software solutions, that are available to anyone that is willing to pay for them. And for that, you need a permissionless blockchain. Which means you need digital assets. Traded by Coinbase. Eventually.