With the combination of public and restricted block chain, companies can benefit from the advantages. The e-commerce sector could face a drastic change.
Should Facebook 2020 launch its own crypto-currency Libra, it will not only need a public block chain network for consumers who consume products using cryptowallets. It also needs a private block chain network for the banks that support the new currency. However, the concept of a “hybrid block chain“, with a public or consumer-oriented ledger and a restricted block chain for B2B transactions, could be a blueprint for the block chain business of the future.
Bitcoin & Co: Soon the new hard currency in e-commerce? Hybrid blockchains could fix it.
Facebook’s new currency Libra is to store the associated Wallet Calibra. How it works is easy to explain: Facebook users download the Calibra app, buy Libra via a private block chain and then carry out peer-to-peer transactions via the app. The same could of course be done in the future by users of Facebook’s most popular public communication platforms – WhatsApp and Facebook Messenger.
Block chain as USP
The use of hybrid block chains is expected to bring benefits to e-commerce in particular: massive cost savings are expected through the use of peer-to-peer networks, so-called distributed apps (dApps) and new business models. Block chain technology can also serve as a differentiator for customers and thus create completely new business models, as Jorden Woods, partner at the consulting firm DoubleNova Group, knows: “The technology can help to make products or services appear particularly trustworthy from the consumer’s perspective. Initial test phases have shown that consumers are willing to pay more for block-chain products – this does not happen very often. Consumers will quickly learn that block chain is a synonym for trust”.
The Singapore-based company VeChain, for example, has implemented a supply chain based on an approval-limited block chain. This blocks approximately 10,000 B2B transactions per second – while consumers can watch products move from the manufacturer to the store shelf. Once they have arrived there, a QR code scan provides information about the origin, authenticity and added value. This information will serve as a basis for purchase decisions in the future. The track-and-trace functionality of VeChainThor Blockchain is made possible by RFID.
In early 2019, Walmart China introduced its Blockchain Traceability Platform for meat-based foods, which is based on VeChain technology. For the launch, Walmart China’s Blockchain platform covered 23 product lines. A further 100 product lines are to be added by the end of the year.
Public vs. Private Blockchain
While permission restricted blockchains naturally limit the number of participants, public blockchains are considered more secure because hundreds or even thousands of nodes would be needed to create or forge entries on the Distributed Ledger. A Bitcoin block chain consists of approximately 9,000 nodes that participate in the algorithmic consensus process. Of these, at least 51 percent must agree to the intended new transaction in the network. Although an attack technique exists that allows hackers to take control of exactly 51 percent of the network nodes, such attacks are rare and so far only affect smaller, public block chains. “Public block chains remain the most secure block chains because they cannot be hijacked by governments or corporations,” said Joel Weight, Chief Operating Officer at Medici Ventures. “Properly applied, legal pressure can put an end to any restricted block chain.
A restricted block chain is typically operated by one entity. This is usually the organization that has provided the block chain to its users or partners. “There are the B2B and B2C worlds that differ fundamentally in the way they conduct their transactions,” explains Woods. “In the B2C world, data protection usually has to give way to convenience. It’s one of the great issues of our time: consumers leave their personal data to Facebook, Google, Apple or Amazon – in the expectation of receiving certain services in return,” says Woods.
In the B2B world, however, data protection and confidentiality are the top priority. Companies don’t do business with partners they don’t know – and therefore generally rely on block chains with restricted access. Basically, a permission-limited block chain works much like an IT department that determines which employees have access to sensitive data: Companies that want to participate in such a network are granted access by assigning certain rights or roles. In the case of a public block chain, only usernames and passwords are chosen by the users – ensuring that there is sufficient capital available to purchase Bitcoins or other crypto currencies.
Hybrid block chains offer a way to maintain the security level – but at the same time ensure a higher transaction throughput. In practice, this often results in a “main” block chain with several “side” block chains that scale the transaction rates further because they reach consensus more quickly. “These ‘side’ block chains should be segmented into categories where possible, such as by industry, geographic location or currency,” recommends COO Joel Weight.
The advantages and disadvantages of the chosen consensus model for the “side” block chains remain in force, but they are linked to the “main” block chain and strengthen its security level: To manipulate a hybrid block chain, attackers would ultimately have to compromise both the “side” and the “main” block chain.
Block chain knowledge: PKI, hash values and blocks
The PKI offers the possibility to encrypt and decrypt data or transactions by key pairs (public and private keys) of each participant. The public key of a participant (here receiver), which is known to the entire network, can be used by the sender to encrypt data or transactions. The private key, which only the recipient knows, enables the recipient to decrypt and read the message. Thanks to the uniqueness of the private key, the digital signature of a document or transaction is also possible. If a person encrypts a document with their private key, others can verify that they belong to this person using the public key.
Blockchains vs. interoperability
You can also interact publicly with restricted block chains – via dApps that drag data into the block chain and then visualize it to the consumer. Another way to do this is via Smart Contracts: These are based on business automation software that runs on the decentralized network. The block chain acts as a database and confirms that transactions have taken place, the smart contracts ensure that predefined conditions are met. In practice, this could look something like this: A product arrives at its destination, and the smart contract informs a consumer that the product is now available for purchase.
This usually reveals a major problem: interoperability. After all, it cannot be taken for granted that approval-limited and public block chains can communicate with each other. After all, they come from software developers who live in two completely different worlds. In other words, if a block chain captures data, this does not necessarily mean that the associated block chain will act identically. In fact, both are based on consensus mechanisms that require a “node majority”. “That is why we need a standardization of consensus protocols,” Jorden Woods is convinced.
- It should not be forgotten that block chain technology is still in its infancy – even though public and private block chains have been the norm in the corporate environment for several years.
- It is not yet clear whether Facebook will rely on a hybrid block chain when introducing its crypto-currency Libra.
- It is at least certain that an app must be integrated that can be accessed by the public, while a block chain with restricted approval orchestrates the business transactions in the background.