Hybrid blockchains

A hybrid blockchain is often advocated where multiple parties, trust, data access management and sharing, friction, regulations and a combination of centralization and decentralization is involved. A hybrid blockchain is also used by entities that need the benefits of both the public and private characteristics, which can be achieved using Interchain, bridges or other interoperability solutions between legacy systems and blockchains, both public or private.

Private, public, consortium and permissioned blockchains all have their own setbacks and benefits. Entities that do not want to expose sensitive business data to the internet are limited to private blockchains. Entities looking for no access restrictions at all can leverage public blockchains like Bitcoin or Ethereum. The hybrid blockchain ensures sensitive business data stays private on business nodes unless permitted. It also validates the hash of the private transactions through consensus algorithms and even public checkpoints such as Bitcoin and Ethereum. Through Interchain, the hash of a private transaction can be placed on the Bitcoin network or any other public blockchain such as Ethereum, making an immutable record of the event with the benefit of a public blockchain’s hash power.

Benefits of Hybrid Blockchains

• The ability to work in a closed ecosystem - Companies or organizations don’t have to worry about getting their information leaked or stuck forever on a public blockchain, unless explicitly permitted. Some architectures also allow to be compliant with regulatory laws such as GDPR, which protects all individuals privacy within the European Union.
• Flexibility to change rules - The nature of the change depends on what the entity is trying to do. For example, it is not possible to change data or modify transactions in a hybrid system that handles band registry or user identity for verification purposes.
• Extra protection from 51% attacks - Depending on their architecture, hybrid blockchains are just as immune to a 51% attack as Bitcoin, or even less vulnerable to 51% attacks in relation to public blockchains with less hash power. This makes it more difficult for hackers to get access to the network to carry out an attack.
• Protecting privacy while still communicating with the outer world - Even though private blockchains are best for privacy-related issues, they are internally exclusive. Many companies may want to remain private, but also need to configure their blockchain so that they can communicate with external shareholders and networks.
• Low transaction costs - Transactions are bound to be cheap as they could require fewer nodes to verify them. In some cases, enterprises can choose by how many nodes in and outside the network transactions should be verified and if they want to decentralize further, in relation to the more centralized private blockchain, on public blockchains such as Bitcoin.
• Interoperability with other blockchains
• Private and permissioned blockchains are traditional shared databases where access is still in control by a centralized party. In the case of IBM Food Trust, IBM is still the owner and gatekeeper of the supply chain and its participants. It has more characteristics of a regular centralized database. In a hybrid solution a business will have its own private blockchain where they and their clients can share data. And in addition to that tap in to other blockchains for a higher degree of trustlessness, decentralization and transparency, in relation to the centrally owned solution. Specific functions can be executed without putting everything on a public blockchain.

Different hybrid architectures

External video

The Hybrid Blockchain

Dragonchain

Dragonchain, open-sourced from Disney on October 2, 2016, is granted the US Interchain patent and currently offers interoperability with public blockchains such as Bitcoin, Ethereum and Ethereum Classic. Business data and smart contracts remains private and proprietary on the entities’ own blockchain while the hash of transactions are being validated by non-homogeneous or heterogeneous community run nodes. Decentralizing even further by ultimately placing the hash of transactions as proof of existence on public blockchains such as Bitcoin. Dragonchain can run on multiple cloud providers and on-premise which allows flexibility to store data locally or regionally, in compliance with regulatory laws such as GDPR.

Hyperledger Quilt

Hyperledger Quilt has the ability to offer interoperability between different ledger systems, by implementing the Interledger protocol (ILP), which is a payments protocol. It is designed to transfer value across different distributed and non-distributed ledgers. The Interledger protocol is capable to have atomic swaps between ledgers (also with non-blockchain or distributed ledgers) and a single account namespace for accounts within each ledger. Interchain between Hyperledger and Dragonchain is currently in development.

Emerging hybrid blockchain Platforms

Most blockchains working towards a hybrid solution and interoperability are currently in development and have not yet been fully developed. Smilo and Cosmos are two blockchain examples. Cosmos is a decentralized network of independent parallel blockchains, based on a BFT consensus algorithm built on Tendermint. Hybridblock chains are emerging and various entities in the blockchain field aim towards interoperability with both public and private blockchains. Blockchain is often referred to as web 3.0. Ethereum is working on sharding developments and according to conceptual research by the University of Campbridge this is considered a hybrid approach as well. Sharding simply explained divides the total transaction volume into subsets and allocates each subset to a smaller number of nodes to process it.

Uses

General Data Protection Regulation

By nature privacy and blockchain together are not compliant with EU law known as GDPR or other national laws such as the Act on Protection of Personal Information (APPI) in Japan. With blockchain, there is a natural need to decentralize blockchain transactions. Some hybrid blockchains are designed to execute this properly without exposing PII or sensitive business logic. all information is recorded in an immutable manner on a public blockchain. A private blockchain is often considered to be (too) centralized. Current hybrid blockchains are often still limited to AWS, but some provide multicloud and on-premise capabilities. This also allows storing data in a specific region or country for regulatory purposes, or even an entities own servers. Dave Michels at Queen Mary University of London stated `Solutions like hybrid blockchains that combine public and private elements have real potential to promote data privacy`.

IoT

The internet of things can be a tricky thing to manage with complete public blockchain solution as it will give hackers free data to map nodes or even hack into them. With hybrid blockchain, the devices can be placed in a private network with access to the ones that only need them. Some aspects of the network can be made public depending on which data to share. A hybrid approach can solve many security and scalability issues, as wel as GDPR concerns as stated by the GSMA in 2018, representing more than 750 mobile operators worldwide.

Supply Chain

Supply chain requires to work with an enormous amount of various stakeholders. It is essential for supply chains to go hybrid because they cannot go completely private or public. Various supply chain logistics companies have already started implementing it. One well-known example that uses hybrid blockchain in the supply chain is Walmart. They aim to improve efficiency throughout, and the whole food supply chain. It is a network where everyone including farmers, wholesalers, distributors, and others take part. Centricity works with IBM Food Trust and Dragonchain on Dragon Factor identity services to provide users with GDPR-compliant decentralized authentication, permitting them to have autonomy over their data and control over who may access it.