Never before has any open source project generated as much attention on the international stage as Bitcoin.
But Bitcoin, a cryptocurrency platform void of allegiance to any nation or financial institution, is just the first of an expanding and more sophisticated class of open source blockchains expected to revolutionize the exchange of all digital assets — money, real estate, music and intellectual property — in future commerce.
The Bitcoin Foundation continues to develop its peer-to-peer payment network under an MIT license. The value of Bitcoins has fluctuated up and down, and while some naysayers have already pronounced its death, backers saw an upswing after Brexit.
However Bitcoin pays off, inherent in its survival is growing acceptance of blockchain platforms and their open source roots — and the notion that no financial company, merchant or government should control the technology platforms or the transactions.
“The only way a blockchain can work is to have open APIs and open source approach,” said Judith Hurwitz, owner of Hurwitz & Associates, pointing to investments by IBM and SAP in blockchains, also often referred to as Distributed Ledger Technology.
Loyyal Corp, of New York, is developing a rewards platform on multiple blockchain platforms.
“I personally see the blockchain industry as a free market of commoditized trust …commoditized for the first time ever in human history [and] a blockchain is the interface for the customization of that commoditized trust for each consumer’s needs,” said Loyyal CEO Greg Simon. “What matters is the users trust the code enough to use the platform and the transparency of open source reduces the cost of trusting the platform.”
The second generation of open source blockchain projects – Ethereum, Hyperledger Project, MultiChain, Eris, and Ripple — illustrate how platforms are evolving in different directions to support distributed transactions and contracts of all types.
“Bitcoin is an application of a distributed ledger like PowerPoint is to Windows. Hyperledger is a distributed ledger, like raw Windows, and a much broader range of contracts is possible,” said Sam Ramji, CEO of Cloud Foundry, who also points out that openness is core since the platform is designed for digital trust and settlement.
“There is a need for a commons to support civil utilities like Linux, Apache, Hadoop and Cloud Foundry — we’re in a moment where every company depends on software as much as they depend on electricity or cash,” Ramji added. “A distributed ledger for everyone on the planet is just such a project.”
And the explosion of these open source projects — from Ethereum to Hyperledger to Ripple, illustrates the rapid pace of adoption and experimentation.
“We expect blockchain technology to well and truly break out of its FinTech niche in 2016,” wrote Duncan Johnston-Witt, CEO of Cloudsoft and a member of the Hyperledger Project.
Last month, for example, ATB Financial announced its collaboration with SAP and Ripple has already paid off with the launch of an international blockchain payment system from Canada to Germany.
What is a blockchain?
The blockchain consists of a series of interconnected storage blocks, distributed across servers throughout the globe, each with time-stamped batches of transactions that are highly secure.
“A blockchain is a distributed, decentralized database that is specialized in storing transactions [and] it is architectured to be secure even if one or more of the nodes running are compromised,” said Gilles Gravier, Director and Senior Advisor of Global Open Source Practice, Wipro Limited. “Transactions processed and stored are immutable. They can’t be rolled back or modified after the fact. Blockchains can be shared publicly (permissionless) or shared among a limited, selected, group of entities (permissioned).”
There are many platform forks derived from Bitcoin, including, most notably, Ethereum, which delivered its first platform in July of 2015.
Ethereum, dubbed Bitcoin 2.0 and founded by an original developer of Bitcoin, is a public blockchain offering smart contract features that contains a virtual machine executing peer-to-peer contracts using a cryptocurrency known as Ether. Formally established in Zug, Switzerland in June 2014, the Ethereum Foundation has support from Microsoft, Deloitte and Touche, IBM, and JPMorgan Chase.
Ethereum software-as-a-service is now certified to run on Microsoft’s Azure cloud platform, for instance.
“Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third party interference,” according to the project web site, noting that the platform can be used to crowd fund to sell products or auction off items. “These applications run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property .. all without a middleman or counterparty risk.”
Blockchain project differences
One core differentiation from one platform to another is whether they are permission-less, like Bitcoin and Ethereum, in which anyone can join or create blocks, or permissioned platforms such as Hyperledger, MultiChain, and Eris. MultiChain is backwards compatible with Bitcoin but is a private blockchain platform, said Gideon Greenspan, CEO and founder of Coin Sciences, developer of MultiChain, which is in alpha testing.
The Hyperledger Project, announced by The Linux Foundation last December and backed by IBM, Intel, Cisco, JPMorgan, Wells Fargo, the London Stock Exchange, Red Hat, and Swift, is at work on its 1.0 release of Fabric.
The Fabric codebase, based on IBM’s Open Blockchain, was “built specifically to focus on permissioned chains – chains where the nodes are not anonymous to each other but are known and permitted by mutual consent,” explained Brian Behlendorf, executive director of the Hyperledger Project and founder of the Apache Software Foundation.
“This means there is no anonymous participation in the chain. However, it allows for a much simpler form of consensus … and it also means that you can set a much higher transaction volume than that defined by Bitcoin or Ethereum.”
Eris and HydraChain are forks of Ethereum yet have been retooled as permissioned blockchains. Unlike cryptocurrencies, permission blockchains are often demanded by enterprises and financial institutions that require consensus of participating parties.
Another distinction, notes Luxoft Technology Strategist Vasiliy Suvorov, is how transaction data is submitted and validated on a ledger.
Suvorov, whose company, like Ethereum, is based in Zug (known as Crypto-Valley), said token-based blockchains, such as Bitcoin, and Smart Contract-based blockchains such as Ethereum, Tendermint, and Eris, appeal to different classes of users but no doubt the second generation platforms are gaining more traction.
“As of late, many are considering switching to Ethereum. Scalability issues with Bitcoin and lack of support for more complex logic drive popularity of Ethereum and the price of Ether higher,” Suvorov claimed, noting that many enterprises are developing prototypes on Ethereum. “Hyperledger and Microsoft Bletchley [an architecture and set of tools proposed by Microsoft that will allow different DLT to run on its Azure cloud] will be a great alternative and will gain popularity when ready.”
Blockchain adoption on the rise
The R3 Project, for instance, connects more than 40 banks to distributed ledgers of Ethereum, Chain.com, Eris Industries, Intel, and IBM running on Microsoft Azure. In January, R3 CEV launched its distributed ledger experiment with Barclays, BMO Financial Group, Credit Suisse, Commonwealth Bank of Australia, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit and Wells Fargo. As part of that, the banks were connected on an R3-managed private peer-to-peer distributed ledger, based on the Ethereum technology and hosted on a virtual private network in Microsoft Azure.
The Moscow Stock Exchange is moving forward on Hyperledger. In a public statement last month, Sergei Poliakoff, CIO of Moscow Exchange, which recently became a member of Hyperledger, said “we believe in the future impact of distributed ledger technologies for the whole financial industry. Our team has been exploring possible applications of Blockchain in trading, clearing and settlement.”
Most of the industry’s players are very optimistic about the market prospects for public and private blockchains but it’s clear that it will take a little time to evolve, at least outside of the financial services industry.
The CEO of MultiChain maintains his private blockchain — and many other private blockchains under development — will appeal to many industry sectors outside of finance including insurance, healthcare, distribution, manufacturing and IT — in time.
“It will take many years to become mainstream , or at least to reach its full market potential because right now the products are very new and not yet mature,” said Greenspan.
“It’s not too outlandish to think that in five years time, every Fortune 500 company and perhaps even the top 1000 will have deployed a blockchain somewhere,” said Hyperledger’s Behlendorf.