Brooklyn-based blockchain startup launched its hybrid blockchain on Jan. 15, a key step toward giving the enterprise world access to the power of public blockchain, while retaining the privacy that comes with a private chain.
The company, founded by Stuart Popejoy and Will Martino, who worked on the blockchain team at multinational financial services firm JP Morgan Chase, says its hybrid blockchain solves the known scalability issues with proof-of-work (PoW) networks like Bitcoin and Ethereum.
“Kadena mainnet is a scaled proof of work mainnet. The key here, with this launch, is that for the first time ever we figured out how to have a scaled proof of work network. We figured out how to shard proof of work,” Martino said on a phone interview.
The main components of the Kadena hybrid blockchain include the company’s private chain dubbed kuro, a public chain called chainweb and Pact, its open-source smart contract language. Pact is a human-readable smart contract language that Martino says lawyers with Microsoft Excel-level of programming competence could use to write contracts and publish them on the blockchain.
Why Hybrid Blockchain Is Needed
One of the promises of blockchain is to cut out unnecessary intermediary in business processes. In card payments, for instance, that might include the acquiring bank, issuing bank and payment networks. If enterprises are ever going to enjoy the low-friction that blockchain brings to transactions, they would need to connect to a public blockchain. By running on a private blockchain, enterprises “have only substituted one intermediary (financial institutions) for another (software companies and hosting organizations),” Ernst & Young’s global blockchain leader Paul Brody, wrote in a Coindesk column.
The challenge, however, has been that public blockchain comes with a host of privacy concerns, some of which may even make certain companies non-compliant with regulations. In some other cases, it’s a problem with how using a public blockchain would require companies to share sensitive information publicly.
A few projects are seeking to connect enterprises to public blockchain networks, without compromising on privacy. Quorum, a blockchain that’s built based on Ethereum is one of those projects. There’s also Besu from Hyperledger, a consortium dedicated to connecting enterprises to public blockchain networks. Besu is essentially a codebase that connects businesses directly to a public blockchain, starting with Ethereum.
Outside of Ethereum, proof of stake blockchain platform Waves is also working on a solution called Gravity Hub that would potentially connect different blockchain networks, including private chains connecting to public chains.
“Gravity Hub solves the problem of scalability and also allows us to get data from other blockchains (including private chains) and the real world (solving the so-called ‘Oracles problem’),” Sasha Ivanov, Waves CEO and founder said. “Gravity Hub aims to allow enterprises with private chains to share only necessary data with the public chain, which we archive using interchain bridges.”
The company says Gravity Hub is a blockchain that doesn’t have a token but can interact with other blockchain platforms, including Ethereum.
The Kadena network appears to be doing things differently in that it aims to be an end-to-end solution for connecting enterprises to a public blockchain. The company wants enterprises to build applications on its own private chain, instead of building from scratch and create smart contracts on its public chain that allows users to interact with those applications
It’s important to note that the Waves platform has both public and private blockchain as well. It offers its private blockchain services though Waves Enterprise. The difference is that, unlike Kadena, both chains aren’t part of the same network. With the introduction of Gravity Hub, however, its private and public blockchain platforms could become interoperable in a similar manner to Kadena’s hybrid chain.
A Different Approach to Proof of Work Blockchain Scalability
Despite blockchain networks Bitcoin and Ethereum, which are built using the proof-of-work protocol, being the two most successful blockchain networks, they still take a longer time to verify transactions than the traditional digital transactions.
Based on the data for the Bitcoin network available at Blockchain.com, the network completed an average of 3.8 transactions per second over the last one year. Ethereum, on the other hand, is widely estimated to complete 15 transactions per second.
Both of those figures are meager for a technology that seeks to upend the traditional financial system. Visa alone can process up to 1,700 transactions a second and up to 65,000 transaction messages per second. Clearly, blockchain needs to support several more transactions to be any close to competing adequately with traditional processors.
The problem with PoW blockchain networks, however, is that they’re computationally demanding and process transactions linearly. The demand for high computing power exists to discourage network attacks. However, that has made PoW blockchain notorious for its enormous energy consumption.
To understand the linear throughput problem, consider a scenario where you have to fill 1,000 boxes with books and then load the filled boxes onto a truck. Assume that each box can take 20 books. Doing the work alone would take more time than having nine other people helping out — even if you were to get bigger boxes that could take more books at a time. PoW networks like Bitcoin and Ethereum are like the fellow who chooses to fill the 1,000 boxes all alone — linearly.
The Kadena blockchain is designed to be the fellow that calls nine other friends to help out, each packing the boxes at the same time, so more can be achieved in a shorter time. The blockchain startup achieved this by creating a blockchain with the potential to contain several other chains that can be mined in parallel, hence the name Chainweb.
At launch, Chainweb has 10 chains, but it can increase limitlessly along with network demand, according to Martino, who added that his team plans to upgrade the network to run between 20 and 100 chains within the next three to six months.
“Each chain has a dedicated amount of throughput that is somewhere between 10 and 100 transactions a second — depending on exactly what you’re doing,” said Martino. “Then we have 10 chains so you multiply it out. Instead of it being 10 to 100, it’s a 100 to 1,000 [transactions per second].”
Doing the math, for 100 chains, transaction speed could be in the range of 1,000 and 10,000 per second.
The principle of sharding that Kadena has employed to create multiple chains on a PoW network is popular among proof of stake (PoS) networks. PoS is a competing consensus algorithm tipped to solve the computational intensiveness and linear throughput issues with PoW. The Zilliqa network employs sharding. The Ethereum network is working on an upgrade to transition to the PoS algorithm. Nervos, another PoW powered network, also has multiple chains in a network. Waves say it’s also working in implementing the sharding technique.
Kadena differs from these other networks in that it’s a one-layer network, whereas these other networks employ a two-layer approach, according to Martino.
“I believe we’re the only people to have actually successfully scaled layer one in a fundamentally innovative way — we figured out how to have 10 main ledgers in one single network and that’s the key difference here,” he said.
Better Onboarding for Dapps
Kadena also claims to have fixed the onboarding issues that have plagued blockchain networks. Despite the growth that Ethereum is seeing with decentralized applications (dapps) — it remains the favored network for developers — the adoption of dapps continues to be limited by a fundamental user experience issue.
New users need to first jump through the unfamiliar and technical hoops of learning how to use a crypto wallet and buying some crypto before they can try a dapp. An Ethereum community solution called Gas Station Network currently seeks to solve that problem.
Martino said Kadena supports gas stations out of the box through an update to its smart contract Pact.
Enterprise Use Cases
Presently, Kadena is working with enterprises including U.S. based USCF, an alternative investment product provider and Remedy, a startup that develops blockchain-based healthcare applications, according to Martino.
USCF is developing financial products on the Kadena private chain and will use smart contract to allow consumers to access it through the public chain. According to Martino, USCF believes that hybrid blockchain could be the backbone of the next generation of exchange-traded funds (ETFs).
“While we’ve seen the concept of decentralized finance come out the Ethereum side, it can also be approached from a traditional finance side and that’s what the partnership that we have with USCF is about — providing the next generation of ETFs that spans both traditional crypto systems,” said Martino, who couldn’t provide deeper details because the project is at a sensitive time regarding regulatory compliance.
Remedy, on the other hand, is working on a pilot with the U.S. Food and Drug Administration (FDA) as well as an application that tracks CBD oil from farm to consumer table. The pilot with the FDA is to build an application that collects real-world evidence or data on healthcare products using blockchain. Real-world evidence plays an important role in the FDA’s decision to expand patent protection on products.
According to Martino, building on a hybrid blockchain makes it possible to have a public data marketplace for real-world evidence in a compliant way.
Blockchain Community Support Would Be Important
Kadena might have tried to address some of the most pertinent issues with existing public blockchain networks. However, many other blockchain networks before it claimed to have fixed the same issues. Still, Bitcoin and Ethereum continue to lead. Regardless of how scalable and secure the technology is, Kadena will need to pull in large network support to challenge the leading networks. Only time would tell how well it’s able to do that.