When a permissioned blockchain is also a decentralised blockchain by Zurab Ashvil

Up to now, there
has been a clear division in the blockchain community between those who believe
decentralised blockchain is best and those who prefer permissioned blockchain.

Countless
blockchain networks have already been designed along these strict lines but
none of them is delivering what people really need. As a result, no-one is
seeing the true power of the technology to transform people’s lives.

I have seen the
benefits and pitfalls of both approaches ever since I first really dedicated my
time and effort towards blockchain in 2012. Ultimately though, both approaches
have too many drawbacks to scale at the global level.

What is needed
is a new blockchain consensus operating system, designed from the ground up and
incorporating the benefits of both decentralised and permissioned blockchain,
so the whole of society can benefit from this transformational technology.

Why
decentralised blockchains have failed

Having first
emerged as the power behind Bitcoin’s distributed ledger, decentralised
blockchain has developed into a standalone technology used in various second
generation networks.

The great
benefit of decentralised blockchain is it allows for huge amounts of
unnecessary bureaucracy to be cut from a whole range of economies and markets
as they digitalise. Smart contracts can be used in decentralised applications,
or dApps, to automate processes that intermediaries would charge for or
institutions would control.

It is not hard
to see how this technology could reduce costs across economies. However, where
the evangelists of decentralisation have gone so badly wrong is in upholding
the importance of anonymity above all else. This is such a fundamental error
because it doesn’t reflect human nature or the
societal structures we all recognise. People want to know who they are dealing
with so they can be trusted to operate fairly and honestly.

Of course, there
are also many permissioned blockchains that have been built on the
understanding that decentralised and anonymous networks would not be well received
in certain industries and jurisdictions. The problem with the most established
of these solutions is that they’ve been built by big corporations on
the legacy systems they’ve relied on for years and don’t take advantage of the modern technology available
today.

This is why a
new blockchain consensus operating system designed for the needs of society in
2020 and built from the ground up is so desperately required.

A permissioned blockchain regulated by government

One way to see
why a permissioned and decentralised blockchain is needed and how it will work
is by relating it to the area of Central Bank Digital Currencies (CBDCs).

These new
digital currencies are being considered by governments across the world, with
the People’s Bank of China probably the most
advanced in its planning. A range of leading Western nations are also
interested, with the US Federal Reserve, Bank of England and Bank of France all
investigating their feasibility.

To implement
such a system, you would need fully regulated infrastructure based on
blockchain. Such a system would not be possible on an existing decentralised
blockchain because it would need to be permissioned and regulated.

The L3COS system I have built over the last
six years can power CBDCs. It is a blockchain consensus operating system with a
triple layer consensus mechanism that is regulated by super nodes under the
control of sovereign states. There will be 195 of these super nodes – one for
each of the 195 sovereign states of the UN – when it is fully operational but,
even now with only three super nodes communicating, it is achieving speeds of
1.5m transactions per second.

Therefore, not
only does the system enable the secure exchange of information between governments
via Proof of Government consensus, it can also power a sovereign state’s CBDC that underpins its regulated digital
economy.

Decentralised applications on a regulated blockchain

Within these
regulated digital economies, corporations and organisations at the second layer
can act as pillars of the economy, just as many do today. This would mean that
government super nodes could pass on their authority to these entities via a
delegated Proof of Stake consensus mechanism. In the case of a CBDC, this would
involve commercial banks being delegated the authority to operate the banking
system.

In a wider
context though, all organisations would be able to build smart contracts into
decentralized, regulated applications that provide fast and efficient services
to individuals. In L3COS, this is made possible via a
software development kit (SDK), with all existing ERC-20 and ERC-21 smart
contracts easily transferable from other blockchain networks.

As such,
everything from a corporation’s supply chain, payments, legal,
accounting and HR services could be digitalised for use in a regulated economy,
with KYC, AML and all other compliance processes fully automated.

Regulated digital economies designed for society

At the third layer
of the blockchain consensus operating system, individuals can interact with
governments, corporations and each other in a totally decentralised manner. A
CBDC can be used to transact, enabling individuals to exchange value with other
entities via smart contracts.

Benefits can be
accessed automatically. Taxation can be paid without manual accounting.
Insurance, credit and other financial products can be purchased in an instant.
Travel across jurisdictions becomes quick, easy and enjoyable.

Most importantly
though, people feel empowered to have their voices heard because of efficient
and transparent democratic processes that make protesting, rioting and social
upheaval unnecessary. Their safety and security is also increased by the Proof
of Storage consensus mechanism, which means they never need to share data, and
the enclosed nature of the operating system, which makes hacking impossible.

Permissioned and decentralised blockchain is the future

Blockchain
technology now sits at a major crossroads. The last 11 years have been a story
of great promise and potential but also underachievement. At the heart of this
story has been the divide in the community that has pitted decentralisation and
anonymity against the  underwhelming
permissioned blockchains put forward by legacy technology corporations. 

The battlelines
between decentralised blockchain and permissioned blockchain must be broken if
the potential of the technology is to be realised by the entire world.
Blockchain is changing forever and the future lies in a blockchain consensus
operating system that is permissioned, decentralised and regulated by
governments.