Blockchain has been around for quite some time now. The revolutionary technology is still going strong taking over wide range of sectors. The main purpose of this technology was to establish a digital currency ecosystem that runs in a trustless environment. It’s a great system that can take over the so-called “centralized networks” with too many flaws.
However, the general public ledger system can be both a blessing and a curse. Mostly for companies that deal with sensitive information. So, how can those enterprise-level organizations leverage this impressive technology?
With the breakthrough of Federated blockchain, it’s now a possible scenario. Federated blockchain is an interesting application among the new blockchain applications. But most of the people don’t actually know what this new technology is capable of.
To help you in this matter, we’ve put together this article solely dedicated to the federated blockchain. So, let’s get started!
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What is Federated Blockchain or Blockchain Consortium?
Before we move onto Federated blockchain examples, let’s talk a little bit about private blockchain. Private Blockchain and Federated blockchain is kind of similar but with a bit of twist. In the private blockchain, you won’t get access unless you are authorized to enter the network.
Private Blockchains are basically permissioned distributed ledger system. Only a single authority or organization has to write access to the network. Read permissions could be public or even restricted. This unique organization makes the decision.
Some private blockchains include public readability feature, while others don’t. So, you see this solely depends on the characteristic of a specific private blockchain, and it’s not related to the overall architecture of the system.
Here some nodes are pre-determined to make changes to the network, and no other nodes will have any level of access to that. Private blockchains are best suited for organizations that want to verify the transactions internally, away from the public eye.
But doesn’t that disrupt the whole decentralized aspect of public blockchains? Well, to tell the truth, it does. That’s why private blockchains aren’t considered to be a full decentralized network.
On the other hand, it can deal with the disadvantages of public blockchain such as scalability, privacy, and slower output. But to get rid of these you’ll have to sacrifice security. So, it’s mostly suited for an organization where there is a significant amount of trust.
Federated Blockchain: The Missing Piece of the Puzzle
You must be wondering where federated blockchain falls in this situation. Well, federated blockchain or blockchain consortium examples work with best of both worlds. It’s very similar to the private blockchain, but there’s a significant difference.
Federated blockchain examples will remove the sole organization influence in the network. This means that multiple entities will be using the network and re-establish a decentralized type system.
So, instead of only one organization is in charge you will get multiple organization using the network for their benefit. Think of it as a hub where multiple organizations can exchange information and work simultaneously.
This way any consumer will be able to fast forward any kind of work that requires multiple companies.
These groups will come together in this federated blockchain system and make necessary changes to keep and make the network work more efficiently. These groups are best known as federation or consortium. That’s why the naming of this type blockchain is blockchain consortium or federated blockchain.
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How does Blockchain Consortia Work?
Let’s start with an example. Imagine that a blockchain consortium has ten banks working together in the network. From these ten organizations, a node will be pre-selected to make changes on the network.
These nodes have the authority to read or write transactions; they can also allow or restrict participants on the network. But can any of the nodes add a block in the database?
Well, no. to add a block, every single node has to sign off the block. If even one of them disagrees, then the block would not be added to the ledger. By this way, the network helps to ensure that no can exploit their superior access.
The mechanism of reaching a decision is based on the voting system. So, blockchain consortia need to work on Proof of Vote mechanism in order to reach that decision. So, now we will talk about how this new type of consensus mechanism actually works.
Proof-of-Vote
Bitcoin first introduced the decentralized consensus mechanism Proof of Work. After that many other blockchain application adapted this new type of consensus mechanism. However, this type of mechanisms is best suited for a public blockchain rather than a Blockchain consortium.
Proof of work or Proof of stake or any other type of public consensus mechanism can’t cope with the requirements of the blockchain consortia.
That’s why proof of vote or rather a voting consensus were introduced in this regard. The primary purpose of this new technology is to follow up on the selected nodes. Here every node will need to vote in order to validate a block.
The number of voting required will be pre-determined. This means that for ten selected nodes it might take seven nodes vote or even ten nodes vote to validate a block. The developers of the network will determine this feature.
By using this different mechanism, the organizations make sure that every block is on point and no is misusing their power. It’s a great method really, and Blockchain consortium could be the new technology for the enterprise level companies.
How Will the Federated Blockchain Empower the Business World?
Public blockchain has a good level of security, but they lack speed and efficiency when too many users join the network. On the other hand, Private blockchains offer a much scalable and faster solution, but it’s not fully decentralized.
It has a similar kind of security flaws just like a centralized system. So, you see, every blockchain applications need to go through some changes for it to manifest it as an all in all technology.
But what about federated blockchain? How are they overcoming all the shortcomings of both these blockchains? Let’s see what benefits you will get with this new type of blockchain consortia.
Faster Speed
The one thing that’s been dragging Public blockchain applications is the slow speed of transaction. Whenever there are too many users on the system, the network deliberately slows down.
This type of situation makes all the transaction process extremely slow and sometimes impossible to finish. But in Blockchain consortium examples you would be able to get a much faster transaction speed.
Here not all the people can transact or validate a block. So, when a selected group of people does it, the transactions becomes too fast. It would take 100x msec. to authorize a transaction. That’s an insane amount of speed.
Scalability
You won’t face any kind of scalability issues in the federated blockchain. Why? Because the number of nodes needed for validation is always controlled. The network doesn’t just allow any member to join the network and start validating transactions.
They go through a secured procedure and authorization to reach the inner network. So, everything on the network is always controlled and maintained differently. That’s why you won’t face any type of scalability issues.
Low Transaction Costs
Although public blockchains claim to provide a lower cost for transactions, still that’s not always the case. As we said earlier, the more people join the network, the slower the transaction gets. This gives rise to a more complicated situation and ultimately increases the overall cost of a transaction.
But that’s not the case with federated blockchains (blockchain consortia). Here, the transactions are much faster and less complicated. So, regarding costs, the overall price decreases to a great extent.
Thus, by using this new technology, you will be able to get a cheaper transaction cost.
Low Energy Consumption
Public blockchains run on energy consuming consensus algorithms. On the other hand, mining takes a lot of computational power. This computational power requires more electricity than average computing. In the long run, the need for energy keeps increasing and increasing.
If this situation keeps up, the world won’t be able to supply the minimum requirement of energy for mining.
Federated blockchain on the other hand, only uses a selected group of nodes to validate. So, the complexity issue is much lower in this case. Also, it doesn’t use the typical consensus algorithms rather it uses a voting system to validate the nodes.
This doesn’t require much computational power, and so it saves a lot of energy.
No Risk of 51% Attack
51% attack can easily disrupt the usual nature of the network. In public blockchains, anyone can join the network and validate a block. But this comes with both merits and demerits. If a group of miners unite together and increase the number of hashing in the system, it can easily take over other participants activities.
This situation happens if 51% of the users take over the overall mining power in the network. In this way, they can exploit and even change or reverse a transaction to benefit them.
Federated blockchain, on the other hand, won’t allow any random strangers on the network. They always have a limited number of nodes validating the blocks. This way, they maintain the integrity of the network. Thus, removing any possible 51% attack chances.
No Risk of Criminal Activity
Being anonymous blockchain applications raised the bar too low for criminals. Now criminals can access the network and freely use it for their benefit. But in the federated blockchain, you’ll have to go through an authentication process to access the system.
So, the anonymous nature gets removed, and everyone would know how many and exactly who they are dealing with here. This discourages the criminals for using this type of technology.
That’s why federated blockchains are really safe in the long run and blockchain consortia gaining popularity.
Regulations
Public blockchain technology lacks the superior regulations needed in the network. No network can work seamlessly without some regulations. However, you won’t find any in the public ledger system.
But in blockchain consortia, every node works in a regulated environment. All the organizations connected in the network follows some strict rules and maintain a good relationship among them.
So, when you are working on the enterprise level, it’s an excellent catch to work with blockchain consortia.
Use Cases of Consortium Blockchain
There are so many use cases of consortium blockchain. Starting from supply chain to organizational data management everything falls under their territory. Let’s take a closer look at them, shall we?
Financial Services
We are going to start with the most familiar blockchain application – the financial system. To make an economic system work we need to follow two rules strictly –
No double spending.
Zero forgeries.
If a system can’t follow these two rules, then that system can’t be trusted and would exploit common people’s money. This is a scenario that we see with the typical centralized banking systems. Hackers or rough workers can hack into the system and then make modifications accordingly.
To fight this scenario, a decentralized ledger system was introduced. But that too comes with a bit of a flaw. The ledger system is public domain, and this makes any information added on the network a public property.
Even though people can’t change the information, but they still can see what transaction was made and other sensitive information. If banks want to work in this environment, they would have privacy issues.
In this regard, blockchain consortia would work best. This network can utilize the two basic rules and also provide the privacy level needed for sensitive information. This way, no one would have to deal with the trust issues of centralized authority and still enjoy the decentralized like nature.
Streamlining insurance claims can be another use cases of consortium blockchain. Basically, people have to deal with a lot of paper works when it comes to claiming insurance. Also, in specific scenarios, the process takes too much time that could cause more issues.
For example, in hospitals when a particular patient has a health issue and needs emergency surgery, claiming the insurance for that could put him in a life risk. If the hospital and insurance companies can unite in a network where they can exchange the information without any hassles, then it would be easier to handle.
This type of scenario also demands a safer network as they are dealing with sensitive, confidential records of the patient. Federated blockchain, in this case, can unite these two type of institutions and give them the security they need.
Not only healthcare but other insurances claims would be more streamlined in this aspect maintain the privacy concerns. So, you see, you will be able to get a much faster and safer output if you use federated blockchain.
Multiparty Aggression
This is another great use case of consortium blockchain. Blockchain application deal with a storage issue when there is too many information in the database.
If enterprise-level organizations want to utilize conventional blockchain technology, they would require a greater storage facility. In this case, federated blockchain offer multiparty aggression.
But what does it do? Well, through this method the organization under blockchain consortia would be able to exchange information based on their customers.
Let me give you an example. Imagine that two banks A and B have the same customer under them. They both require authentication information to provide access to the user. However, storing this information separately would require and waste a lot of space. So, what they can do here, is combine the redundant data and exchange it whenever necessary.
This way they are saving a lot of storage and fully utilizing the storage space.
You might think how much storage can they possibly save? Well, when it comes to one or two customers, it won’t make a difference. But imagine it for 1000 customers. The amount of redundant data would be huge. Using multiparty aggression is this scenario will save a lot of space and time.
Supply Chain Management
Managing a supply chain is one of the basic requirements of any organization that deals with goods. Seeing that every process is on the spot and tracking the goods until it reaches the customer is a tremendous blessing.
The problem with supply chain management occurs in the transferring process. Even if a luxury good gets manufactured from the authentic company, there are several intersecting points where it can get altered.
The companies are currently fighting with this kind of service disruption so that the consumers get what they pay for here. Not only that but maintaining the overall creation of a luxury good is also necessary.
So, why not just use a typical blockchain platform? Well, the problem is with confidentiality. Many consumers do not want their documentation of billing to get put in front of the public eye.
It’s an obvious demand and something that the enterprises need to honor. So, the typical public blockchain can’t get used in this regard.
But what about private blockchain? Well, private blockchains aren’t that secured as of federated blockchain examples. On the other hand, if one company buys goods from another, the process can get much more comfortable if they work in a single network.
This is how they can all track and manage the supply chain without any third party invasion. Supply chain management can be one of the best use cases of consortium blockchain so far.
Use cases like these are much in need regarding big enterprises. Security breaches are no longer a rare event. Almost every multinational company has to deal with this mess one way or another.
Also, the costing of maintaining the level of security needed is tremendously high. Even so, many companies are not able to deal with the problem. Blockchain does provide an excellent solution to deal with it, as the network has a great load of security.
However, the again we come to the issue with the privacy. These organizations require privacy at its best, but public blockchain application can’t do that. So, won’t enterprise level companies ever use this new technology?
Well, if they work with federated blockchain, they can surely achieve the level of security without any hassles. Federated blockchain examples are much secure that private blockchains and they provide privacy along with it.
That’s why organizations can leverage the distributed ledger system here and keep their records safe. The best part is that the costing for keeping all their data here would cost them much less than a separate database.
Also, as only a handful of nodes will have access to the network no one can actually exploit the documents without alerting others. This is how you get both security and decentralized system at the same time.
7 Blockchain Consortia Projects: First Step towards the Goal
The trade wars are really becoming intense by the day. Banks are now looking for a solution that can streamline the transactions even easier than before.
The paper documentation and hacks are making them an unpopular option. To get ahead of their banks are coming together to make the trade finance great again. However, using blockchain consortia isn’t limited to trade financing, but they are also popular in insurance and retailers.
But the question is, why now?
Well, with innovations in blockchain technology these organizations are having a hard time dealing with security loopholes. Not only that but also the demand for faster and better output from consumers are starting to pile up.
In this fast world, following the old traditional rules won’t help. So, without risking the assets anymore, they are teaming up to streamline the process.
This is just the start of the many consortium projects. Now we have seven leading blockchain consortium examples in our midst. So, let’s check them out!
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Well, this project is powered by R3 and CryptoBLK. They are getting tech support from Microsoft’s Azure, which is a cloud platform. In this project Voltron, twelve banks are coming together under the same network.
They are –
HSBC, BBVA, BNP Paribas, U.S Bank, SEB, Scotiabank, Natwest, Mizuho, Intesa Sanpaolo, ING, Bangkok Bank, and CTBC bank.
In this project, Voltron will be using R3’s blockchain technology for digitizing all official documentation. Banks are too eager to make the change. The platform they are using is Corda and using the decentralized nature to create their federated platform.
Voltron can cut down the manual process of paperwork to only one day. Something worth looking for.
Marco Polo
This is yet another collaboration of R3. This time they are collaborating with TradeIX and currently have ten financial organizations under them.
They are –
Natixis, Standard Chartered, SMBC, Bangkok Bank, OP Financial, DNB, ING, Commerzbank, BNP Paribas, and NatWest.
This new technology will utilize the R3’s Corda and TradeIX’s TIX Core. The TIX core is another open distributed ledger technology. The main reason for this consortium is to streamline the process of tracking any kind of payments and ensure the security of the receivable discounting.
Using them both all the financial companies would be able to reduce the risk of credits.
It’s a small blockchain consortia group with only five banks. Batavia is powered through IBM. IBM powers Batavia.
The banks are –
UBS, Erste Group, Commerzbank, CaixaBank and Bank of Montreal.
Batavia wants to make broader blockchain applications such as utilizing smart contracts in every financial aspect. These blockchain consortium examples will ensure cross-border trading and will be able to track the transactions too.
Santander, Nordea, UniCredit, Natixis, KBC, HSBC, Deutsche Bank, and Rabobank.
They are mainly targeted towards Europe and offers an invoice factoring. Utilizing smart contracts, they can factorize much faster than average. However, currently, they are planning to include more companies such as Societé Generale in the group and increase the number.
Hong Kong Trade Finance Platform (HKTFP)
HKMA or Hong Kong Monetary Authority is leading another blockchain consortia project. They are utilizing technology from Ping an Group. Reportedly they have 21 banks on their side, but we only know a few names at this point.
They are –
DBS, Hang Seng Bank, Standard Chartered, HSBC, ANZ, Bank of East Asia, and Bank of China.
Together they want to digitize the supply chain management and keep all the records of trading securely in the platform.
Retail Consortium
Currently, they don’t have any official name for the project, but IBM did announce a new collaboration between global retailers. They will be using IBM’s platform to develop their new federated network.
The primary goal is to ensure the consumers’ satisfaction worldwide. The contaminated food each year burdens the world with illness, waste and economic outbreaks. To deal with these situations, ten organizations are coming together.
They are –
Walmart, Unilever, Tyson Foods, Nestlé, McLane Company, McCormick and Company, Kroger, Golden State Foods, Driscoll’s, and Dole.
This new infrastructure can benefit the food ecosystem in a whole new way.
B3i
Well, this project is powered by R3. They are getting tech support from R3’s Corda, which is a blockchain platform. In this project B3i, thirteen banks are coming together under the same network.
They are –
Zurich Insurance Group, XL Catlin, Tokio Marine, Swiss Re, SCOR, Munich Re, Liberty Mutual, Hanover Re, Generali, Allianz, Ageas, Aegon, and Achmea.
In this project, B3i will be using R3’s blockchain technology for digitizing all official insurance documentation. Insurance companies want to streamline their services and ensure better satisfaction from their consumers.
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Are They the Getaway to Blockchain Development?
Federated blockchain can change the ways of blockchain applications in a good way. This new technology has bets of both worlds. With the added level of security and flexibility, this technology can develop a healthier environment for corporations.
There won’t be any centralized misusing of power in this type of blockchain. Even though they run under a pre-defined group, no one has access to modify the blocks once anyone adds them to the ledger system.
So, the scheme of altering data for your benefit won’t be able to work here. Also, the process of streamlining any process of the organization will result in a faster output. Organizations now will be able to exchange information smoothly without any security breaches. And consumers will benefit significantly in the long run.
However, it’s still in the working process and needs more development. People should come forward to get rid of all the flaws to get a much safer network hub everyone needs.
In The End
Well, to say the truth only relying on one type of blockchain won’t be able to affect the typical systems. Every blockchain technology has their fair share of benefits and flaws. So, relying on only one type would be an absurd move.
However, when you are dealing with privacy, security, and control choosing the federated blockchain would render the best output.
So, can blockchain consortiums change the ways how our enterprises work? Well, that is something we need to wait and see.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
An engineer, a gadget-freak, and a perfection fanatic – the ideal combination of a tech-nerd! This Enterprise Blockchain Analyst seems to have an unfathomable interest in blockchains, which makes him perfect for sharing his new discoveries on 101 Blockchains.
The official name for Retail Consortium is Food Trust (https://www.ibm.com/blockchain/solutions/food-trust). Additional projects are World Wire (https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=KU912401USEN&😉 an integrated Blockchain network for real-time clearing and settlement. This new global financial rail allows banks and financial institutions to send and settle payments around
the globe with finality in a matter of seconds, eliminating enduring challenges that have long hampered the cross-border payments industry.
2 Comments
The official name for Retail Consortium is Food Trust (https://www.ibm.com/blockchain/solutions/food-trust). Additional projects are World Wire (https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=KU912401USEN&😉 an integrated Blockchain network for real-time clearing and settlement. This new global financial rail allows banks and financial institutions to send and settle payments around
the globe with finality in a matter of seconds, eliminating enduring challenges that have long hampered the cross-border payments industry.
Thanks Ronen! IBM Blockchain Activities should receive more coverage.
We should write about World Wire…