Permissioned Blockchain: 8 Questions with Petko Karamotchev.

This article has been adapted from Bulgarian podcast “Internet Speaking”’s interview with Petko Karamotchev.

An illustration of blockchain nodes with the “Internet Speaking” logo in the lower right

Petko Karamotchev recently sat down with the Bulgarian podcast “Internet speaking” to talk blockchain. You can listen to the whole podcast in Bulgarian here

The most relevant parts have been translated and adapted into the article below.

Internet Speaking: We might call corporate blockchain “permissioned blockchain,” which is different from so-called “permissionless blockchain.” Bitcoin, Etherium, etc. - is that what the industry means by “permissioned blockchain,” or has “enterprise blockchain” already stuck as a name?

Petko Karamotchev: Enterprise blockchain” has stuck, and it means three things. First of all, it’s both enterprise and permissioned; that is, you need permission to join. It’s a private club, not like a public venue, for example, where anyone can enter. The third phrase we use to describe it is “distributed ledger technology.” The two things people have heard about public blockchain, about bitcoin, about Etherium, about Solana, and numerous other protocols, the two things are deeply intertwined but also very different in both how they work and what their goals are.

IS: If you had to explain the concept to a 12-year old, how would you go about it?

PK: In the time between the Russo-Turkish war and the creation of modern Bulgaria, there was a several-year span where no registry agencies or systems existed. 

Bulgarians were considering the previous Turkish system and the newer Russian or German systems, but at that exact time, we had none.

In this intermediate period, when a deal like a horse sale happened, you would go into the local pub and say, “I’m selling a horse for 300.” The seller would agree, and then both parties would be obliged to treat everyone in the pub to a drink - so they would all remember the event. And should the buyer or seller give up the next day, they can each go back to the pub and confirm that the deal indeed took place.

So that’s how public blockchain works.

Two or more people exchange value and then “treat” everyone else to lock down the transaction to a “chain.” 

With Bitcoin, for example, this happens entirely within a public system where various people who want to be “treated” compete to make mathematical calculations to earn on this public transaction.

Private blockchain is very different from that. As I said, it’s much more like a private club where you identify everyone. You can’t accidentally stumble your way into it.

IS: Do the members of this club trust each other?

PK: If they did, they wouldn’t need a blockchain. They would use a centralized database.

I mean, they do, and they don’t.

But cryptographically locking transactions allows them to reference said transactions.

What Corda, R3, and INDUSTRIA do is very different from other participants in the industry.

For us, it’s not ideal to inform individuals when others are talking to each other, as is the case with the classic example of Bob & Alice - the third party, Tom, doesn’t need to know what Bob & Alice have agreed on.

That’s what our technology allows for.

IS: Is that visible on the public blockchain?

PK: Depends on the protocol, but usually, yes.

IS: That’s what makes it “public.”

PK: Exactly. That’s the point. It needs to be able to provide full transparency.

For us, that transparency is available only between participants in a transaction. If one bank transfers money to another, third-party banks don’t need to know that information. Maybe there’s a regulator that needs to be looped in, but participants can keep their transactions confidential outside of that use case.

In the interest of truth, the cheapest transactions are the ones you perform yourself, on your own computer or database. You don’t pay anyone for these transactions. 

Our systems cost a bit more - the price is not based on gas, as it is with public blockchain - you pay for a piece of Enterprise software - you pay the one in charge of the business network, the so-called Business Network Operator.

Transactions are not cheap, but they’re not exorbitantly high, either.

The price relies on the fact that every cryptographic transaction is significantly more expensive than a regular database entry, plus you’re paying for participants’ access to the network.

Public blockchain is the most expensive. The price can get very high depending on different protocols, how busy the network is, and how far ahead of other participants you want to be.

IS: What are the established use cases for both companies and countries?

PK: There’s somewhat of an overlap between them.

Permissioned Blockchain, or Distributed Ledger Technology (DLT), is also called Enterprise Blockchain.

We’re continuously seeing more and more use cases relating to Central Bank Digital Currencies.

So that’s two types of currencies - one type focuses on the end-user, that’s called Retail CBDC. It looks like Public Blockchain, but it functions very differently to it.

The other is meant to be used between banks - that’s called Wholesale CBDC.

These are a lot more modern, they work 24/7, and are significantly more efficient than existing bank transfer systems.

So that’s one colossal use case we’re seeing.

The second prominent use case we’re seeing is Electronic Bill of Lading (eBL), which pertains to trade finance, international shipments, customs, regulatory bodies, etc.

eBL can digitise the entire thing from paper.

A third use case can be found in capital markets - the years ahead of us will be very interesting. Central depositories like DTCC and the London Stock Exchange - both organizations we’re working with - are interested in tokenising various assets and stocks.

Finally, the fourth use case we often see is building products for the insurance market, solving damages, fraud, the exchange of information, etc.

There are many use cases with telecommunications companies, pharmaceutical companies, and government administrations.

IS: Could you elaborate on eBL?

PK: Of course, I can think of at least four different consortiums currently operating in this space, some work with our technologies, some with third-party providers.

One of the biggest challenges in trade finance is the immense amount of paperwork. It’s not unheard of for someone to expect a shipment of expensive TVs, for example, that ends up filled with sand.

Or in other cases, a company delivers the products they had agreed on but end up not being paid.

This practice isn’t new, and the system has been around forever. You get stamps at every harbour you pass through, so for example, you leave from China, pass through Singapore, part of it is shipped to Europe and Australia. And what you end up with is a huge folder filled with stamps and documentation - you also need approval from customs, regulatory bodies, banks, etc. 

All of this ends up in the hands of the final buyer.

Everyone involved in the shipment - from beginning to end - is at risk of not getting it.

Managing money between all parties, including multiple banks, is also an issue.

So this is a critical use case and a very major trend.

We hope that this enterprise blockchain project will decentralize the closed market.

Another significant challenge is the lack of a universal standard. Different standardising institutions are attempting to crack eBL, but it will take time. You can’t just enforce standards, either - all parties need to agree to them.

IS: Side question, is it possible for a company or government to implement a corporate blockchain where all participants are internal to that organization? Have you had a use case like that?

PK: We have. For a bank that has an extensive international branch system, it’s possible that some amount of fraud can occur, so we have been asked to implement blockchain in a way that guarantees individual participants are not susceptible to some administrator or insider who wants to manipulate information maliciously. 

For this reason, we already have a lot of cases in which large companies are implementing this technology. 

Regarding governments, this isn’t that big of a secret, but as recently as today, we’re discussing a similar system with representatives from the British government.

Individual institutions will be able to exchange confidential information based on these technologies, and they can be confident that only they see said information - no one else.

IS: Do NFTs have a place in corporate Blockchain?

PK: A typical use case for both permissioned blockchain and the corporate world is the deed. It provides the opportunity to know what your token represents - a notarized deed for a piece of property. So we can’t both have it - either you have it, or I have it.

IS: Would a deed like that be built on smart contracts, or is that different?

PK: So you would use a smart contract, but you’d also need an extension on top of that called a Smart Legal Agreement.

At INDUSTRIA, we’re currently working on modernizing one such protocol called the Accord Project.

It allows for as many different parties as needed to connect digitally, without a paper copy, and to be aligned to a singular deal that is then automated to move forward once certain conditions are met.

That’s a Smart Legal Contract, also known as a Smart Legal Agreement.

This type of contract could be based on fungible and non-fungible tokens and even circumvent the need for a blockchain.

IS: How should all this be approached legally?

PK: There are many legal obstacles, as there are tons of laws that dictate exactly how a deal needs to be conducted. They also need to include how a deal would work digitally.

Furthermore, it needs to encompass how participating parties could settle disputes in a court of law by using these digital contracts.

IS: What are the disadvantages of permissioned blockchain?

PK: I really should be talking about how amazing permissioned blockchain is, but the disadvantage is that each organization needs to maintain their own business network or participate in a business network with their own servers, whereas with public blockchain, you only need to connect to whichever one you need to.

Needing to maintain and support a network on your own can cause problems.

IS: How do you see the world being impacted by blockchain over the next few years?

PK: As far as finance is concerned, INDUSTRIA and R3 will continue digitising the British and other economies.

I see it as being Digital-first, one in which new businesses exchange information, but not through PDFs, WhatsApp, or Excel email attachments, but one in which we digitally transact, and computers do our work for us.

One thing we’re currently aiming for is digitising Great Britain’s construction industry, one that’s traditionally been seen as stagnant.

I’m personally envisioning lower administrative costs, something that these Digital-first services can do, seeing as a large portion of these companies complain of low margins. They’ve thinned out to the point where their businesses don’t have a certain future.

So we’re seeing that companies can save a large portion of these expenses using Digital-first technologies.

My hope is that we’ll be able to lower expenses and optimise communication between market participants.

When these technologies get introduced, we should base the language of businesses on the technology, not the other way around.

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About INDUSTRIA

INDUSTRIA is a global technology consulting, development and ventures firm with extensive expertise in the field of enterprise blockchain, confidential computing, process automation and digital experience. Official and strategic partner of R3.

Moreover, INDUSTRIA pays attention to developing CBDC in all aspects and assisting different countries in their CBDC research and implementation.

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