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Conor Svensson

Published On - December 15, 2022

The Winter of Discontent

The past few weeks have seen the plug (not rug) pulled on a few well-known DLT initiatives — the ASX with their CHESS post-trade system replacement and Maersk's Tradelens which was created in collaboration with IBM. We've also seen the enterprise blockchain company Symbiont enter Chapter 11 bankruptcy. Whilst the naysayers may fathom that these were failures of blockchain, they are anything but.   


What is Distributed Ledger Technology? 

At its core, it's a decentralized digital system for recording transactions across multiple computers or nodes. Unlike traditional centralized systems, where a single entity (like a bank or a government) maintains a central database, DLT operates on a distributed network where every participant has a copy of the ledger. This decentralization ensures transparency, security, and immutability of data. 
To better understand how they work, here's a breakdown of the process. 
  • Transaction initiation: Users initiate transactions by creating a digital record of their action. For example, in the case of cryptocurrencies like Bitcoin, this could be sending funds to another user.
  • Verification and validation: The transaction is broadcasted to the network, where nodes validate its authenticity and verify that the sender has the necessary funds. This verification process is crucial for preventing fraud and double-spending.
  • Consensus: Once the majority of nodes agree on the validity of the transaction, it is added to a block. This process ensures that all copies of the ledger remain in sync and prevents any single entity from controlling the network.
  • Adding to the ledger: Once a block is filled with verified transactions, it is added to the blockchain. The new block is linked to the previous one through cryptographic hashes, creating an unbroken chain of data.
  • Immutability: Once data is recorded in the blockchain, it becomes nearly impossible to alter or delete. This immutability makes DLT particularly valuable for applications requiring secure and transparent record-keeping.


On the ASX CHESS post-trade replacement, Accenture published a lengthy report as part of their ASX Chess Replacement Application Delivery Review which provides perspective on what led the ASX to ultimately canning a project they'd spent $170m on since 2015. There were some criticisms levied against the DLT platform. First and foremost of these was that the ASX was the operator of the platform and was the only party with full visibility of the core smart contracts of the platform which contained all of the business logic. It was also impossible for participants on the network to verify and see the results of business logic taking place on the DLT. 


When such a centralised governance and access model is being imposed, it's hard to see why a DLT solution was chosen in the first instance when there was a centralised operator in place. There were also criticisms levied at how Digital Assets’ DAML smart contract language was being utilised — business logic was encapsulated on the ledger, and there was a lack of usage of well-established DLT patterns such as multi-party computation which was very surprising to hear. 


But what really stands out from the report is why a DLT approach was chosen in the first place when there appeared to be no good reason for having one — the ASX was the network operator, and this was a role not being shared with anyone else, and the ASX wanted to keep a lot of implementation detail in smart contracts away from participants. 


For blockchain to be utilised effectively, there should be a clear pathway to a decentralised network, where there is transparency of activity taking place on the ledger to participants. The role of the network operator should transition towards being focussed on the activities that are taking place on the ledger, rather than solely focusing on network provisioning. Operators should be thinking of the governance and permissioning of applications, in a manner that participants can understand how they work, it shouldn’t be a black box as it was with the ASX. Participants don’t need to be privy to all the data contained within at DLT, but they should be able to comprehend how results on-chain were reached that affect them. 


This is one of the main criticisms levied toward private and public permission blockchains, that ultimately there is a company or consortia responsible for operating the blockchain, which means that it can be challenging to incentivise participants equally to utilise it, as its operator is always going to care more about their precious network then the participants will. 


In a permissionless network, such as the public Ethereum network or one of its layer 2 networks, the network is available much like a utility. It is readily available to all participants, and there is no operator requirement as such. Instead, the role of the operator is replaced by a trust anchor, which is those entities which provide the trusted code used by participants to interact with one another for the prescribed product or service. 


In the case of Tradelens, unlike the ASX, the DLT was being used appropriately from the information provided by Maersk's head of platform, it was the challenges of collaboration that caused the project to fail: "Unfortunately, while we successfully developed a viable platform, the need for full global industry collaboration has not been achieved."
It's also been argued that Maersk's dominant position in the supply chain industry would be cannibalising itself with the Tradelens project, as it would have brought efficiencies into play that would have benefitted smaller, more nimble organisations. 


This cannibalisation playbook is a cornerstone of Clayton Christensen's Innovator's Dilemma, which argues that companies need to be willing to disrupt themselves to achieve greater long-term preservation in industry, but in the case of supply chain technology and DLT we cannot say at this point if Maersk's decision will be short-sighted. Whilst using IBMs blockchain platform was not the driver of the project failure, it would have no doubt resulted in higher costs for the project, due to its inability to leverage any of the widely used Ethereum technology. 


In the years since IBM came to market with their blockchain platform Fabric in 2015, Ethereum's popularity has gone from strength to strength, creating a huge ecosystem around it. This has seen it emerge as the de-facto smart contract platform, with most major blockchains supporting the execution of code on the EVM. 


Finally, based on the information provided thus far on the Symbiont bankruptcy, it appears to have been caused legal disputes they had with IHS Markit and who they had a partnership agreement in place with respect to the syndicated loans market. 


For anyone who has been involved with the technology industry for any length of time, it's well known that technology is rarely the cause of project failures, it's generally people and management issues. From my own perspective, I would only have reason to lose faith in blockchain and DLT technology were the Ethereum mainnet exploited in such a way that the community were to lose faith in it. 


I see such a scenario as close to impossible as the Ethereum community is committed to turning the narrative of providing an internet-scale settlement layer into a reality. Without some serious loss of confidence in those individuals leading these communities, it's hard to see how anything could change this vision. Yes, in the current economic climate there will continue to be companies that run out of money and further failures of web3 companies and protocols. However, this will not be due to the technology powering these initiatives, it will be the all too familiar playbook of running out of funding, management failures, corruption, etc that cause companies to go out of business time and time again. 


Hence, I do find it interesting to see why these high-profile companies or projects come to (in some cases) a sticky end, but it has zero bearing on my belief in where this technology will take us. 
DeFi, Blockchain Platforms