Consortium Blockchains

For several years now, the blockchain technology has been an increasingly important part for both the business and the IT landscape. Especially when it comes to digital transformation, new ways to store data and exchange information securely, blockchain continuously gains momentum. Some even consider this “new” technology an achievement similar to the introduction of the internet.

The involvement of many large players across multiple industries underlines the importance and relevance of this emerging technology. Companies such as IBM, SAP, Amazon and Microsoft (and many more) already offer individual solutions to set up blockchains on their respective cloud platforms.

The objective of this article is to shed some light on blockchain technology in general and consortium blockchains in particular. That said, it is apparent that there are different types of blockchains all of which are meant to serve a specific purpose. To be more precise there are three (main) types of blockchain: public blockchains, private blockchains and last but not least consortium blockchains (also referred to as Federated Blockchains).

In addition to those three main categories, there are also hybrid forms of both public and private blockchain types (e.g., public-permissioned blockchains) that essentially differ in terms of their users’ permissions. In other words, these hybrid types enable participants to define who is allowed to access (parts of) the data in order to validate, read and write.

The purpose of this blogpost is to explain consortium blockchains. To better understand this type of blockchain it is helpful to briefly look at private blockchains. In contrast to public blockchains, private blockchains are only accessible for a predefined group. Usually there is specific staff to maintain the blockchain and to determine the respective user rights within the network. Due to the centralisation aspect, private blockchains are often referred to as distributed ledgers.

Consortium blockchains can be seen as an extension of the private blockchain. However, they aim at removing the sole autonomy of a private blockchain by making more than one participant responsible for the network’s maintenance. Essentially there is a group of participants (i.e., companies) that work together. Vitalik Buterin, co-founder of Ethereum, put it this way:

“So far there has been little emphasis on the distinction between consortium blockchains and fully private blockchains, although it is important: the former provides a hybrid between the ‘low-trust’ provided by public blockchains and the ‘single highly-trusted entity’ model of private blockchains, whereas the latter can be more accurately described as a traditional centralized system with a degree of cryptographic auditability attached”

For instance, a consortium of 20 financial institutions can define a code that a transaction or a decision may only be validated if more than 15 participants confirm it. So, a consensus is reached within the consortium, allowing transactions to be processed quickly without having to rely on the decision of one individual.

This majority-based mechanism prevents fraudulent activities or wrong decisions by individuals. Consortiums therefore enable efficient and secure exchange of information while allowing for a certain level of central control (partially decentralized), making it more likely to find a trusted consensus.

The number of required votes for validating a transaction is pre-determined by the developers. This is also referred to as proof of vote or voting consensus.

Due to this mechanism, consortium chains offer:

• faster transaction speeds,

• easier to scalability (as the number of participants or nodes is always controlled),

• lower costs and energy consumptions, and

• more security.

The security aspect comes down to the benefits of a private blockchain. The pre-determined participants (nodes) of the consortium chain maintain the integrity of the network, eliminating the prominent risk of 51% attacks (public networks).

There are already some interesting examples and applications out there, using consortium chains to solve specific business problems. IBM’s Food Trust solution is one of such examples, trying to tackle the current issues of a food supply chain, such as fraudulent actions, cross-contaminations, or waste reductions. Their modular architecture allows companies to plug and play the Food Trust components and services.

Conclusion

This article briefly introduced the different types of blockchain. In terms of their properties those different types are essentially similar to the relation of the internet and an (organizational) intranet.

In this regard, consortium chains are somewhat stuck in the middle (in a good way), offering the efficiency and transparency of public blockchain technologies in a protected (private) environment. However, since there is no single authority governing the control, consortium chains remain of decentralized nature.

Combining features of both public and private blockchains, consortium blockchains are beneficial in terms of cost-savings, flexibility and privacy. Of course, it would be way too optimistic to put all hopes in one (blockchain) technology. But consortia might lay the groundwork for a healthy blockchain development.