Lessons from Failed Blockchain Consortia and How to Avoid Similar Pitfalls

Blockchain consortia, which are groups of organizations working together to use blockchain technology, have been hailed as a revolutionary way to solve problems in the business world. 

However, not all consortia are successful, and those that have failed can teach us important lessons. 

This article will discuss some lessons from failed blockchain consortia and how to avoid similar pitfalls.

Understanding Blockchain Consortia

What is a consortia in a blockchain?

A consortia in a blockchain, also known as a blockchain consortium, is a semi-decentralized network that some institutions or organizations jointly control and maintain. 

It is a collaborative effort among multiple organizations or entities to leverage blockchain technology for shared benefits.

A consortium blockchain is often considered the bridge between a private and a public blockchain. It is formed when a group of organizations with a common goal seek to work together. 

Consortium blockchains involve participants from different backgrounds, such as businesses, government entities, and other organizations, to develop, implement, and use blockchain solutions collectively.

Unlike public blockchains, a consortium blockchain requires permission, allowing only pre-authorized users access to the network. It differs from private blockchains because every consortium member is granted equal control as the next.

Each member of a consortium blockchain runs an individual node on the chain as a stakeholder. Consortium stakeholders need authorization before a new member can be added to or removed from the blockchain. While each organization manages its node or blockchain, other organizations within the consortium can access, share, and distribute the data. 

Features of a Blockchain Consortium 

The consortium blockchain aids in data transfer but is not involved in crypto creation or administration because a public blockchain handles those tasks. Some key features of a blockchain consortia include: 

• Data privacy
• Fast Transactions
• Regulations and Rules
• No Illegal Activity 
• Zero Probability of 51% Act

Data Privacy

There are fewer nodes and a lighter network load to support data privacy. Unlike private blockchains, only a select few individuals can access the datasets. This system exploits the safety and uniqueness of the data in the blocks. The network’s information cannot be changed without the permission of some nodes.

Fast Transactions

There are few users in a blockchain consortia. Because of this, there is less competition for transaction verification among nodes from various groups. Controlled user groups can also speed up the consensus-building process. All of these elements help make deals happen more quickly.

Regulations and Rules

Regulations are essential to keep the consortium’s creative juices flowing because they were created for multiple companies and groups. In this situation, nodes must abide by the network’s regulations. Doing so creates a team atmosphere, and efficiency is increased quickly.

No Illegal Activity 

Because most anonymous users are infamous for clogging up a network’s processes, the risk of criminal or illegal activity is completely eliminated when a federated blockchain is connected with a few well-known members. This chain’s familiarity with one another fosters a system of checks and balances that reduces the likelihood of unlawful activity, making this platform a secure choice for businesses.

Zero Probability of 51% Attack

A 51% attack is an attack on a cryptocurrency blockchain by a group of miners who control more than 50% of the network’s mining hash rate. 

Owning 51% of the nodes on the network theoretically gives the controlling parties the power to alter the blockchain. 

There is zero probability of a 51% attack in a blockchain consortium.  On the other hand, a private blockchain is more vulnerable to this problem because members of multiple groups can work together to override or perform reverse transactions.

Lessons from Failed Blockchain Consortia and How to Avoid Similar Pitfalls

Most blockchain consortia projects end in failure. Was yours one of them, or could it be on the same path to failure? The slow death of blockchain consortia has everyone in the industry thinking the worst. Here are some lessons from failed blockchain consortia and how you can avoid similar pitfalls:

• Set Clear Objectives 
• Building a Consortium
• Choose the Right Technology
• The Expense of Blockchain
• Avoid Competitor-Led Platforms
• The Environmental Cost of Proof-of-Work (PoW)

Set Clear Objectives 

Most blockchain consortia fail because they need to clearly define the objectives and use cases of the consortium from the outset. Lack of clarity on what the consortium aims to achieve and how blockchain technology can address specific industry challenges can lead to confusion and failure.

Building a Consortium

The choreography and stakeholder alignment involved in blockchain are hard work, particularly if not all stakeholders are aligned with your mission or members will come and go. 

This is perhaps the biggest problem for enterprise blockchain: convincing all stakeholders that the project is worth pursuing, looking beyond participants’ self-interest, and aligning with the greater good. 

Overcoming the tragedy of the commons is not easy, especially if there is massive infrastructure cost for all involved and everyone must take the leap of faith simultaneously. If blockchains need consortia to succeed, then it’s fair to say that the problem is not the technology but how to adopt it. 

Organizations need to be free to get on board when they are ready. This is where a good SaaS model can help with frictionless onboarding, infrastructure setup and maintenance. In fact, a SaaS model could remove the consortium-building step entirely!

Choose the Right Technology

Nobody wants to end up spiraling into technical debt. With so many blockchain projects in active development and the complexity of the space, it’s hard to spot which technology is in the lead today. It’s even harder to predict whether something better will come along to replace it. 

At this point, it makes sense to use technologies that hedge against lock-in to future obsolescence and allow for quick pivots. 

Solutions that use open APIs and abstract away complexity with layered architecture mean you can swap components if needed when better options emerge. Also, look for solutions that let you export your data anytime and anywhere you wish.

The Expense of Blockchain

If every supply chain step enterprise needs to use blockchain to make the project successful, then all players, big and small, need to be on board. However, the cost-to-benefit ratio will not be the same for all players. 

Blockchain architects and developers are costly. Operations and maintenance of the blockchain node infrastructure do not come for free. Not all players can afford the consulting fees charged by the big integrators, and if the economics don’t make sense for everyone, then the whole project fails. 

Look for enhanced blockchain-as-a-service solutions that cut through complexity while making the solution accessible through a simple API that any developer in any organization can use. Also, explore pricing options that make sense for your organization’s budget.

Avoid Competitor-Led Platforms

It’s incredibly hard to build trust among competing businesses. The IBM-Maersk project TradeLens, for example, faced so much difficulty convincing other shipping companies to sign up and share sensitive data on their platform that it was suspended in November 2022. 

Even though blockchain technology promises neutrality, the optics of proprietary platforms from tool vendors will also face these same challenges when competitive tool vendors don’t trust the integration. 

In the same way, you and your competitor can use Microsoft Office 365; blockchain solutions don’t require you to be friends with your competitors or even know whether you’re on the same platform. So, choose a neutral platform that poses no competitive threat to your consortium.

Understanding of Cryptography Key Management

Knowing where your keys are located and how they are protected is vital. As many enterprises are only just making the leap from usernames and passwords to better identity and access management (IAM) solutions using single-sign-on (SSO), two-factor authentication (2FA), and other more modern techniques, wallet key management could be a step too far for them. 

Look for solutions that take care of the hard work of cryptographic key management to protect your wallet keys. Since anyone with access to your keys could masquerade as you or your enterprise, it’s even better if your solution integrates hardware security modules (HSMs) to protect those keys and connect them with your enterprise identity system.

The Environmental Cost of Proof-of-Work (PoW)

The misunderstanding that blockchains are bad for the planet stems from the fact that the total energy consumed to mine bitcoins can exceed that of a nation’s demand for light, heat, and industrial power!). 

But not all blockchains rely on proof-of-work to reach consensus; even those that once did (Ethereum) have moved on to more energy-efficient consensus protocols. 

Private blockchains where the participants know each other need not engage in such wasteful activity. Don’t assume all blockchains use proof-of-work; the vast majority now don’t..

Regulatory Compliance

Blockchain system designers must tread very carefully concerning personally identifiable information (PII) and, in some regions, the right to be forgotten, legislated under the European General Data Protection Regulation (GDPR). 

Also, many enterprises need to be more comfortable with forced transparency, which would leak information and erode competitive advantage.

Private permission systems with fine-grained control of who gets to see what data can overcome these issues.

What are the risks of consortium blockchain?

A consortium blockchain, where organizations or entities work together to maintain the network, comes with risks. Let’s discuss the risks of consortium blockchain. They are:

• Centralization and Lack of Decentralization
• Security and Vulnerabilities
• Governance Challenges
• Data Privacy 
• Member Dependability and Compliance

Centralization and Lack of Decentralization

Consortium blockchains involve a group of entities working together, but there’s a risk of centralization if a small number of participants control a significant portion of the network. This can undermine blockchain’s decentralized nature, leading to censorship and manipulation concerns.

Security and Vulnerabilities

Security is a critical concern in any blockchain network, and consortium blockchains are no exception. If any consortium member has weak security measures or vulnerabilities in the network’s software, it could expose the entire system to attacks, data breaches, or unauthorized access.

Governance Challenges

Consortium blockchains require effective governance to decide the network’s rules, upgrades, and operations. Disagreements among consortium members regarding governance can lead to delays, disputes, and challenges in decision-making, potentially impacting the network’s effectiveness.

Data Privacy 

Consortium blockchains often involve the sharing of sensitive business information among member organizations. Ensuring data privacy and confidentiality is crucial, and any lapses in these aspects can lead to reputational damage, legal issues, and a loss of trust among consortium members.

Member Dependability and Compliance

The reliability and compliance of consortium members are essential for the smooth functioning of the network. If one or more members fail to meet their obligations, engage in malicious activities, or violate the agreed-upon rules, it can disrupt the trust within the consortium and affect the overall integrity of the blockchain.

Conclusion

Blockchain consortia are considered the bridge between private and public blockchain networks, making them the best option for collaboration between organizations. 

The cooperation among private organizations in a consortium blockchain has numerous benefits, including sharing data, resolving common challenges, and saving time and operational costs.

Despite being one of the newest types of blockchains, it has already been deployed in various industries. However, the effectiveness of this type of blockchain for mainstream adoption is still being tested. 

Learning from the failures of past blockchain consortia is essential for steering future collaborative efforts toward success. 

By studying the lessons from failed blockchain consortia and avoiding the pitfalls that have derailed previous initiatives, future consortia can unlock the true potential of blockchain technology and drive innovation across industries