DISTRIBUTED VS. CENTRALIZED CHAIN CONTROL

Kelce S. Wilson, PhD, MBA, J.D. and Larry Plonsker, PhD

A common feature of many existing digital currency blockchain systems is the use of distributed chain growth. This results in decentralized, or distributed, growth of the blockchain. There is no single entity that is authorized, or depended upon, to add new blocks to the chain. Rather, multiple systems independently create new blocks, and the community then votes on which chain to continue. Non-selected chains are then typically abandoned.

Although this is convenient, and perhaps necessary, for digital currency systems that are intended to avoid governmental pressure for turning over account holder identities or permitting confiscation of funds, it is not a necessary mode of operation for established businesses that are not intending to use a blockchain for such insulation.

Distributed chain growth systems do not provide additional basis for trust in the contents of the blockchain. The trust is a function of the wide dispersion of the blockchain contents, preventing anyone from controlling all copies, coupled with the near triviality for anyone to detect any forgeries.

The concept behind blockchains can be summarized thusly: “A mere lack of detecting forgery is not proof that forgery has not occurred – unless detection by anyone would be effectively trivial, and yet not a single person, even including those people having strong motivation to do so, is able to present a plausible theory that forgery has occurred.”

This concept does not require that the chain be assembled in a distributed fashion, but instead, merely requires that the contents of the blocks be distributed. This can occur with centralized chain control systems, in which a single entity, or set of entities, assembles the chain by adding subsequent blocks and publicly distributing them.

Although the decentralized nature of currency blockchains presents an attractive model for trust in the absence of a trusted entity, for many potential applications of blockchaining, the decentralization of the currency systems might go further than is necessary. There are some detriments to the distributed chain control, relative to centralized chain control, including more challenging monetization, less control over participation, less predictability, unnecessary and potentially wasteful network traffic, and the need to stay connected for longer periods of time.

With a centralized chain control, the entity controlling chain growth can limit contributions to some select group or participants. That can have some notable consequences for the long-term viability of the blockchain. For example, if the banking industry adopted a blockchain system for handling transfers among banks, it may be desirable for there to be some control over who can submit entries to the blockchain, so as to limit its growth to something that can be managed long-term. Whatever entity then limits participation, based upon industry affiliation, can also refuse entries into the
blockchain for non-payment of required participation fees. Absent such a control point, not only is monetization more difficult, but there is a possibility that the blockchain might become hijacked by some unpredictable future occurrence, rendering its value to the industry short-lived. That is, there is a possibility that something similar to a denial-of-service (DoS) attack could bloat a distributed chain control blockchain to the point of it having notably reduced utility.

Additionally, a centralized chain control entity can use a preset publication schedule, so that the timing of new block additions is predictable. If there is only a single source of new block additions, anyone submitting to the blockchain needs to submit to only that single entity, with reduced uncertainty as to whether their contribution will appear in the next block. With a distributed system, however, anyone wishing to submit an entry into the blockchain has a less predictable route, given a potential plethora of subsequent block candidates and the inherently unpredictable nature of the community voting.

Anyone who, for cybersecurity or electrical power usage concerns, limits their connectivity to the community, risks missing voting and blockchain updates. In contrast, a centralized chain control system eliminates the network traffic associated with voting and distribution of later-abandoned candidates, and there are no votes to miss when a participant disconnects from the network. Most financial institutions have no advantage to gain by using a blockchain system that is (largely) immune from governmental pressure and interference, but do require predictable and stability in their systems. Thus, many financial institutions would likely prefer to utilize a blockchain system having centralized chain control, for limiting growth and bloat and assembling the blocks in a manner that preserves the institutions’ longterm investment in the system. However, many digital currencies will likely remain as distributed chain growth systems, to preserve the immunity from governmental pressures and interference.