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Public, private and hybrid blockchains: what makes sense where

After enthusiasm for blockchain technology usually come strong constrains about privacy, security or sulfurous reputation. Both private networks and public blockchains offer benefits but to what extent are those advantages worth the loss of control? Explore the metrics to consider when architecting a blockchain solution.

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Public, private and hybrid blockchains: what makes sense where

  1. 1. EY Global Blockchain Summit San Francisco, CA April 26, 2017
  2. 2. Page 1 EY Global Blockchain Summit Public, private and hybrid blockchains: what makes sense where?
  3. 3. Page 2 EY Global Blockchain Summit Blockchain: going public about it
  4. 4. Page 3 EY Global Blockchain Summit Bitcoin, why would you even get involved with that? ► October 2013: FBI closed Silk Road, seized bitcoins worth approximately $3.6m ► February 2014: Bitcoin’s main exchange went bankrupt after being hacked, $600m worth of bitcoins ► Validation time can be considerable when fees are miscalibrated ► Difficult to scale: 200,000 transactions per day ► Mining centralized in China ► Intense controversy in the development community, stalemate about the future of the protocol, cf. “block-size debate”
  5. 5. Page 4 EY Global Blockchain Summit Bitcoin is a tremendous tool for sending large amounts of money. ► Transactions move the asset itself, there are no IOUs, no third party and no regulatory authority. ► The ledger is fast to read, secure and temper proof. ► Since 2009, bitcoin is still public, has no central authority, had experienced no downtime and no hack exploiting the core protocol. ► To get a glimpse, search bitcoin block 380943: ► $47.5m in a single transaction for a fee of 12 cents ► Confirmed in 10 minutes Source: Source:
  6. 6. Page 5 EY Global Blockchain Summit Ethereum: blockchain as a general-purpose and distributed computer ► Smart contracts: software living inside the blockchain ► 20,000 developers, cloud offerings from Alibaba, Microsoft Azure, Red Hat OpenShift, Pivotal Cloud Foundry ► Huge security setback in June 2016 as The DAO loses $50m embezzled by a hacker and refunded by forking the chain ► Focus on security ► Clearer scaling perspectives and add- ons for decentralized cloud storage and computing, Internet of Things Source:
  7. 7. Page 6 EY Global Blockchain Summit What did we learn so far? ► “It’s been a tough two years for public blockchains.” Angus Champion de Crespigny, EY Americas Blockchain Strategy Leader for Financial Services ► Smart contracts need their own best coding practices. ► Private environments look more comfortable and familiar, similar to the 1990s with the discussions around the internet vs. the intranet ► OK to go online but not OK to go public ► Radical changes happen faster in open environment ► Blockchain technology is counterintuitive and has steep learning curves. ► “You don’t need a blockchain for that.” ► Experimenting brings high rewards and valuable skills. Source: 794d92aeb2318c6d1993057397a613a1?convert_to_webp=true
  8. 8. Page 7 EY Global Blockchain Summit Blockchain: bespoke or one size fits most?
  9. 9. Page 8 EY Global Blockchain Summit Miscellaneous considerations ► Blockchains rely on a subtle equilibrium between game theory, computer network and cryptography. ► Blockchains are both a network of peers, a shared ledger and a shared token. Taking out the latter is nontrivial because it is a powerful means of aligning the incentives. ► For tryouts, see Hyperledger decentralized ledger technology ► The main benefit of a blockchain is providing trustless and governance-less reconciliation between multiple nodes. ► Governance moves (i.e., forks) hard to perform, even with a governance committee ► Central authority performs better if need to intervene often Network Ledger Tokens Blockchain tri-force
  10. 10. Page 9 EY Global Blockchain Summit Metrics to consider ► Metcalfe’s law + peer’s heterogeneity = the blockchain golden rule: ► The more peers you have, the more diverse they are, the more useful your blockchain ► Heterogeneity in terms of objectives, expected behavior, allegiance, downtime Too bad that bringing consensus among numerous nodes comes with scalability limitations. Who can write in the ledger? How fast? How much payload? How many replications of the ledger? Who can modify the ledger? Traditional public blockchain Traditional database Permissioned public blockchain Permissioned private blockchain Many One Owner group Anyone Anyone Trusted users Who maintains the integrity of the ledger?
  11. 11. Page 10 EY Global Blockchain Summit What technologies are available? ► 700+ different cryptocurrencies with their own consensus algorithm derived from proof of work, proof of stake, proof of activity, proof of burn, proof of capacity, proof of elapsed time ► “Pluggable consensus” is a chimera, the consensus’s constrains spread all over the protocol ► Few clients have been tested and hardened at large scale ► If you need smart contracts, consider bitcoin and its derivatives: BTCsuite, Bitcoin Core, Bitcoin Unlimited, Zcash for privacy ► If you don’t need for smart contracts, consider Ethereum and its derivatives: ► Parity (3000tx/s) with Proof-of-Authority Round and TendermintBFT ► Quorum by JP Morgan (2000tx/s) with transaction and contract privacy and Raft Consensus
  12. 12. Page 11 EY Global Blockchain Summit Key contact Jerome De Tychey Blockchain Technology Leader EY Paris Lab, Ernst & Young Advisory +33 1 46 93 81 87
  13. 13. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit © 2017 EYGM Limited. All Rights Reserved. EYG no. 04033-173GBL 1705-2288253 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.