What Are Consortium Blockchains & How Do They Work?
May 20, 2024
Bitcoin's emergence led to interest in blockchain technology for organizations to operate decentralized networks, thanks to the security, trust, and reliability that comes with the technology. Consortium blockchains arose from the need to achieve consensus, privacy, and efficiency among multiple organizations using one decentralized network by limiting validation to a small group of nodes.
Read on to learn what consortium blockchains are, how they work, and to discover examples of leading consortium chains.
What Are Consortium Blockchains?
Consortium blockchains are permissioned blockchains with access provided to a small group of nodes. Each node operator has equal power, ensuring the decision-making process is not centralized.
The enterprise use of consortium blockchains means pseudonymity is not an option, as identification of all parties is a feature of these networks.
How Does a Consortium Blockchain Work?
Several organizations agree to form the consortium blockchain, each providing a peer for block commitment and transaction endorsement.
The client applications propose transactions, and the peers validate them. They then leave them to the orderers, who package them into blocks.
Five features characterize the workings of a consortium blockchain:
- Semi-decentralized: Public blockchains are fully decentralized, while private ones are fully centralized. Consortium blockchains strike a balance between the two by leaving the joint network management to the consortium members.
- Speed: Given the small number of users, meeting the threshold limit for transaction verification is achieved quickly.
- No Anonymity: Consortium blockchains don’t operate under the veil of anonymity or pseudonymity. The participants' identities are known, fostering a checks and balances system that mitigates the chances of malicious actions.
- Data Privacy: Unlike public blockchains, where datasets are available to anyone, consortium blockchains limit access to a select few. Additionally, the participants' consent is a prerequisite for changing the information. The permissioned nature of consortium blockchains ensures that the source is easily traceable in the event of a breach.
- Consensus Mechanism: Common consensus mechanisms for consortium blockchains include Proof of Vote (PoV), Proof of Authority (PoA), Raft, and Practical Byzantine Fault Tolerance (PBFT). Regardless of the chosen method, the shared consensus process involves trusted nodes agreeing on the validity of transactions.
Examples of Leading Consortium Blockchains
Now, let’s take a look at some of the leading consortium chains on the market.
Hyperledger
Hyperledger is the brainchild of the Linux Foundation and has been operational since December 2015. The platform enables groups to create their consortium blockchains.
One of its products is Hyperledger Fabric, a modular blockchain infrastructure with Ethereum Virtual Machine (EVM) support and smart contract functionality. Using Hyperledger Fabric, IBM and Walmart built the IBM Food Trust, which uses blockchain technology to track food.
Hyperledger has provided multiple companies with tools to create their consortium blockchains. These companies include Aetna, Oracle, Huawei, BNY Mellon, Visa, FedEx, and Amazon.
Enterprise Ethereum Alliance
The Enterprise Ethereum Alliance (EEA) comprises corporations from various sectors who share an interest in driving the use of Enterprise Ethereum and Mainnet Ethereum blockchain technology to empower all participants.
The EEA focuses on offering private and consortium blockchain solutions to organizations. Its partnership with Intel and Microsoft led to the creation of a token that incentivized companies to take part in EEA-based consortiums.
In addition to the two aforementioned corporations, EEA founding members include Wipro, Tendermint, UBS, ING, Credit Suisse, BP, Banco Santander, BBVA, J.P. Morgan, and ConsenSys.
R3
The objectives behind the formation of the R3 consortium were to increase settlement speeds, reduce transactional errors, and decrease the cost of transactions. The consortium comprises financial institutions working on Corda, a blockchain-based project aimed at achieving the goals.
Using the Corda consortium blockchain, multiple companies can share data while concealing its content from other participants. Consensus and transaction validation only require the participation of the parties involved. Regulatory and observer nodes only participate in ensuring the blockchain's integrity. The network ensures the smart contract terms are enforceable by recording a link with real-world legal documents.
Companies using the Corda consortium blockchain infrastructure include China Merchants Bank, HSBC, MetLife, BNP Paribas, and Morgan Stanley.
Aura Blockchain Consortium
Based on the Ethereum blockchain, the Aura Blockchain Consortium helps fashion companies and their customers authenticate products to combat counterfeiting. The consortium blockchain also promotes ethical consumerism by providing detailed supply chain information on details such as the sourcing of raw materials.
Aura Blockchain Consortium uses consortium blockchain technology to grant equal rights to any participating organization. It also offers a SaaS product that allows immutable storage of product history, ownership, and transfer information.
The founding companies include Cartier, Prada Group, and LVMH. Later, the project expanded from fashion to luxury brands, including OTB Group, Mercedes-Benz, Bvlgari, Hennesy, and Hublot.
IBM Food Trust
IBM Food Trust links food manufacturers, distributors, processors, retailers, growers, and other relevant stakeholders to optimize collaboration, efficiency, and safety. Built using Hyperledger Fabric, IBM Food Trust comprises multiple consortium blockchains where a company connects with its stakeholders. Depending on their needs, participants can opt for private or consortium blockchains.
One of the best-known participants is Walmart, which can use IBM Food Trust to instantly trace products to their source. This helps the retail giant identify food contamination issues at the source.
IBM Food Trust participants in addition to Walmart include Golden State Foods, Driscoll's, Kroger, Unilever, McCormick, Dole, Nestle, Tyson Foods, Raw Seafoods, CHO, and Carrefour.
Benefits and Drawbacks of Consortium Blockchains
Consortium blockchains combine the features of public and private blockchains to offer participants unique benefits, such as:
- Low energy requirements: Given the small number of nodes involved in the consensus mechanism, the energy requirements are comparatively low when measured against public blockchains.
- Adaptability: Participants can easily achieve shared consensus and make necessary changes to the network.
- Scalability: Given the small number of nodes, there is room for scaling with no network congestion concerns.
- Low transaction costs: All participants work towards securing the network to safeguard their interests and not to earn rewards. The transactions are relatively cost-effective, with no additional fees to fund reward mechanisms.
- Privacy: Only preauthorized participants access the data, and with the high level of trust within the consortium, third-party access is greatly limited.
Consortium blockchains present various drawbacks as well:
- Network formation costs: Building a secure network that meets the participating organizations' needs requires significant resources.
- Centralization risk: Given the few nodes, participants could collude to take control of the network.
The Bottom Line
Consortium blockchains utilize distributed ledger technology to serve enterprises across various industries.
Companies can pool resources to solve common challenges and share data to reduce operational costs and improve efficiency. However, the relatively new concept still presents challenges, such as collusion leading to centralization risks and bootstrapping costs.
Future development that addresses such concerns will be key in determining its viability for mainstream adoption.