Recent headlines reported failure of Blockchain to meet its expected efficiency gains. Bloomberg.com’s headline said: “Blockchain Settlement Was Slow, Costly in Trial, Weidmann Says”. FT Alphaville reported: “Blockchain Officially Confirmed as Slower and More Expensive”.
It is true that Blockchain still has to prove its expected efficiency gains. In the meantime, the amalgamation of DLTs and Blockchains leads to inaccurate reporting. The attribution of conclusions on tests with DLTs to Blockchain and vice-versa leads to a misunderstanding of reality. The above articles referred to experiments with DLTs and not Blockchains.
Let’s create clarity.
The definition and classification of Blockchain and DLT is mainly influenced by a technological analysis, as prominently brought forward in the 2017 Global Blockchain Benchmark Study (1). The following paragraphs take a different functional -and predictive- stance: Blockchain will be the term that in the medium to long term sticks around to indicate the Internet of Value and DLT, as a term, will stick to indicate the private permissioned corporate interpretations of Blockchain. These private instances of Blockchain could be indicated as IntRAnets of Value. Within this functional differentiation DLTs are not Blockchains and Blockchains are not DLTs, like internet is not intranet and vice versa.
The implementation of DLTs and Blockchains have two completely different objectives. DLTs try to improve the processes for economic value creation within the existing siloed and adversarial business logic. Blockchains try to propose a whole new freely accessible economic and societal infrastructure for value exchange. With this open platform comes a global collaborative business logic with network effects, crowd wisdom, crowdsourcing and frictionless and borderless exchange and creation of economic value at its powerful core.
A Blockchain is a freely joinable global community of users that transfers value over the internet, directly from person to person, by writing transactions in one single database, which is created, shared and maintained by the users’ computers. A consensus protocol enables for all these computers to agree in a decentralised way on the authenticity and accounting integrity of new transactions and add them in a permanent and unchangeable way to the Blockchain database. The correct outcome of this process is the consequence of an economic-incentive-and-sanction-scheme that monetarily rewards / sanctions correct / incorrect participation in the consensus process. The avoidance of personal economic damage leads to a trustless consensus system. Blockchain is a global macro-economic and societal transaction system that operates without the need of trust between actors.
A DLT ledger is a shared database that is created and maintained by its community. In so far, it resembles a Blockchain. The big difference with Blockchain is twofold. First, the community that shares the database is not freely joinable and second the trust in the consensus process and the unchangeable character of the database is based on contractual agreements between the participants. DLTs are shared databases that are customised for existing business logic and integrated with existing infrastructure between siloed competitive actors. DLT is a micro-economic transaction system.
As both implementations have their own distinct value, it is important to be accurate in allocating test results to its corresponding substance.
(1) Dr Garrick Hileman & Michel Rauchs, “Global Blockchain Benchmark Study”, Cambridge Center for Alternative Finance, University of Cambridge, Judge Business School, 2017, p 23, online at: https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2017-09-27-ccaf-globalbchain.pdf (last accessed Oct 6th 2019)