August 15, 2020

Market News

Focus on consortium blockchains in 2021

In contrast to public blockchain, such as Bitcoin , consortium blockchains are private and licensed networks of companies that have a business relationship to one another and use a common blockchain for their business applications.

Blockckhains Technology Trend 2021

Anyone who wants to join the blockchain network needs prior approval. This can be obtained by coordinating the authorized members. The idea of decentralization is lost here, but mainly business applications can be implemented on the consortium blockchain under strict governance guidelines.

This makes these blockchain networks safer and more efficient at the same time. In addition, at the consortium level, it is easier to determine practical approaches for blockchain technology in a corporate context.

The consortium blockchain represents a group of participants in a network, in most cases the company. Another term for the consortium around a single used blockchain is the Federated Blockchain.

In order to be able to start the necessary approval process for a transaction, the consensus must be reached. This can be achieved using a wide variety of consensus processes, depending on the type of blockchain used, and the transaction can then be processed.

The main advantage of blockchain consortia is the prevention of fraudulent activities by individual network participants. It also makes it easier to prevent wrong decisions.

Business cases ideal for B2B consortia

Consortium blockchains are always ideal when data has to be transferred over a longer "route" or across many parties. The ideal application is the value chain, the supply chain. But the tracing of raw materials or parts of the industrial production process can also be optimally represented on a consortium blockchain.

From logistics to the energy industry and, of course, in the emerging financial industry around crypto assets, consortium blockchains and the proof-of-concept are increasingly the first choice.

The private blockchains only offer limited access to the network and can use various governance models to individually set access rights. With this blockchain model, only approved computers (participants) can check transactions and write new blocks. Basically, it can be said that the task of checking and appending transactions to the chain is only possible for a qualified and known party or group.

Participation in the consortium peer-to-peer network can, for example, be regulated in such a way that only specified IP addresses are given access or access is only possible via VPN. Consortium blockchains are always restricted in admission, so these are permissioned blockchain projects.

Consortium blockchains offer confidentiality

The confidentiality of transactions with third parties remains in accordance with the requirements. The applications and solutions on consortium blockchains are usually "for business" and many of these blockchains represent a closed B2B network . Since access to the network is restricted to identifiable participants, there is a high level of protection for the use of private data.

There is usually an organizing unit that decides on the access rights to the consortium blockchain. This body controls the purpose and means of processing data and is therefore often the person responsible for data protection-related aspects.

Overview of blockchain types
Source: Springer

Compared to publicly accessible blockchains, the flexibility of a consortium blockchain is significantly higher. However, they do poorly on this point compared to private blockchains. They are somewhere in between. Therefore, these blockchains are often referred to as hybrid blockchains.

Individual blockchain structure possible

The formation of new blocks and IT security are based on the individual design of the blockchain architecture. The consensus mechanism can also be designed flexibly, the energy-intensive proof-of-work is usually dispensable, since trust between the individual network participants is required.

A big plus point is the flexibility with necessary system changes, because when the consensus is reached, subsequent changes can also be made to transactions already stored on the chain. With a majority decision, even essential attitudes of the consortium blockchain can be changed.

If sensitive or business-relevant data has to be shared and / or the user group can be clearly defined, then consortium blockchains are an option. It is advisable to form consortia from an existing value chain at an early stage so that the implementation of blockchain applications, for example along a supply chain, can be easier.

The effort to develop such applications can be divided up in advance among the network participants of the consortium. In this way, later dependency relationships can also be avoided. So far, consortium blockchains have proven to be significantly more efficient because they quickly reach consensus. This saves time and energy when validating transactions.

Consortium blockchains are often also referred to as partially decentralized, since the procedures for building consensus take place via previously defined network nodes. The group of allied companies strengthens confidence in the fairness of the system. A group of authorized, known identities grants restricted privileged access to the shared ledger.

Hybrid blockchain with a lot of potential

The hybrid blockchain can not only give partners access, but also limit the number of queries about blockchain status. In the future, this group could even have write access enabled by notarial nodes.

The Federal Chamber of Notaries could imagine involvement in consortium blockchains and take on the role of a qualified trust service provider there. The certification body would therefore carry out the verification of the participants in the blockchain and introduce an electronic validity register for documents and certificates. So far, however, this has only been addressed in a feasibility study. Such approaches would definitely be conceivable in a consortium blockchain.

In the course of these considerations, further application scenarios for consortium blockchains arise. For example when depositing documents that affect property rights. These could be land register entries, but also sales contracts and copyrights.

The legitimation via the blockchain would then trigger significantly lower costs than a visit to the notary. The banks are also discovering the blockchains managed by the consortium. These can be used, for example, to make domestic and cross-border payments more efficient.

Hyperledger fabric for consortium blockchains

The implementation of the blockchain in financial transactions can provide benefits not only in the area of capital markets, but also in insurance and supply chain financing.

A pilot project with 14 companies that have joined together to form a consortium should help to find market-ready solutions for more efficient and transparent load carrier exchange using blockchain technology. Here too, the consortium blockchain is a promising approach for processing. On the basis of a consortium contract, the participants want to develop the governance rules for the later blockchain consortium.

A well-known example of a consortium blockchain with limited permissions is Hyperledger Fabric . It is based on the blockchain from IBM and enables companies to use individually adaptable consensus procedures via plug-and-play modules. Governance guidelines can also be adapted to individual needs with this blockchain framework.