03.31.2020

The Future of Public and Private Blockchains

By Richard Johnson, CEO, Texture Capital

Richard Johnson, Texture Capital

When Bitcoin launched over a decade ago nobody could have imagined the success it would have, probably not Satoshi or the cypherpunks and certainly not Bitcoin Pizza Guy. The price of each bitcoin has risen from nothing to over $10,000 and hundreds of new cryptocurrencies have been launched. At the same time an innovation revolution has occurred with scores of companies taking the underlying technology, blockchain, and deploying it to numerous different use cases across nearly every industry, drawing in billions of dollars in venture capital.

If one thing is clear, it’s that blockchain and crypto are here to stay. But how the future of the ecosystem will unfold, is still far from clear. While the advantages of decentralization, immutability, and trustless transfer of value are clear, there is still a paucity of valid use cases beyond remittances and as a store of value. In addition, enterprise blockchain has failed to replace the plumbing of financial services as promised. So how will public and private blockchains evolve over the next decade?

By the year 2030 the value of blockchains will be determined by actual utility and not token utility. Both public and private blockchains must deliver meaningful ROI, and improved functionality over the systems they seek to replace. The below represents one vision of how that might play out.

Public Blockchains: 2030

The Libra project crashed and burned before even lifting off, as regulators around the globe citing various concerns including loss of control of the money supply, held hearings and passed laws stymieing the project until most backers dropped out. Faced with the prospect of a crippling ‘internet tax’ being levied by the EU, Facebook itself ultimately pulled the plug on the project.

But the big tech consortium that backed Libra had not given up on the idea of an internet-native cryptocurrency powering transactions, online gaming, personal finance and other apps. They turned their attention to supporting the existing public blockchains. The core bitcoin network remained too slow for any meaningful transaction volume, so development efforts focused on building a parallel rail called the “Whizzy” network with super fast transaction processing. The Whiz token gained rapid adoption as support for it was built into browsers, wallets, online marketplaces, smartphones and other connected devices.

Independent mining hardware companies were bought out by the likes of Intel and Cisco while other tech companies began developing their own ASIC chips. Soon these companies moved downstream, vertically integrating mining farms and applying economies of scale to squeeze out efficiency and margins from the mining process. By 2030, public blockchains had become highly centralized with transaction volume in Whiz representing over 99% of all crypto transaction volume and 99% of all Whizzy network power controlled by fewer than a dozen big tech companies.

Dismayed by this turn of events, Bitcoin maximalists, the DeFi crowd and a large cohort of crypto originalists, development teams and entrepreneurs coalesce around the core Bitcoin network forcing the Whizzy network to fork off.

Ethereum survives and thrives, as the bridge between public and private blockchains, as the open source world computer, and as the protocol layer for most stablecoins. A US CBDC does not emerge by 2030, bogged down by regulatory intransigence, allowing privately managed stablecoins on the public network to grow and disrupt traditional payment rails.

Private Blockchains: 2030

In the enterprise blockchain space, widespread disillusionment had already been evident in 2020. This continued as more projects failed and companies pivoted.

It eventually became clear that blockchain used just as a database did not add value over traditional systems. Ideas like using blockchain for tracking tomatoes or land registry on the moon were thankfully consigned to the scrapheap.

Trade finance on the blockchain was able to build on some of the early success, although much of these benefits were due to a general digitization of workflows. Ultimately the trade finance projects shifted to the public blockchains which were more suited to global trade flows.

Enterprise blockchain projects that focused only on post-trade workflows were abandoned. As these initiatives had to build an entirely new system as well as backward compatibility to legacy systems, they had a nigh negative ROI. Similarly, trying to disrupt mature markets and asset classes proved fruitless. Ultimately it was recognized that enterprise blockchain could not offer any functionality improvement in efficient markets with established centralized clearing.

Focus turned to less developed markets where market structure could be reimagined from scratch. Here, the asset could be truly digitized and represented on the blockchain, finally delivering the promise of crypto to securities markets. With digital securities (the term security token was abandoned), transparency and programmatic functionality unlocked trillions of dollars of liquidity globally across private markets, real estate and other alternative investment assets.

The early projects in this space, which started off as closed networks with just one or two ‘nodes’ gradually expanded adding more financial services companies as they demonstrated value. Regulators initial intransigence eventually gives way as they become comfortable with digital securities, and refine regulations to fit the new technology. By the middle of the decade, these digital securities networks have grown to encompass thousands of broker dealers, asset managers and individual investors. Transactions are settled by consensus, as digital securities

are exchanged for stablecoins across a distributed network that was by that time more decentralized than the public networks.

Final Thoughts

This is just one version of the future, and events may not play out as described. The technology has made tremendous progress over the last decade plus, but to succeed and continue to grow, the next stage of blockchain development must follow the path of profitability and ROI.

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