Blockchain technology has mostly been viewed as a swiss-army knife, a tool to solve all the problems in most modern industries. It has brought about the power of decentralized systems that share a transparent, immutable, permissionless, and secure nature. Permissionless blockchains can be defined as a blockchain that allows anyone to actively participate in the network without the permission of any central authority.
Fully open and transparent blockchains were vital in the early adoption stages. They still play a significant role in the public blockchain domain by providing unique access to a financial system. However, these blockchains have not attracted Enterprise adoption.
A public ledger that is accessible to all has no limitations. It depends on the goodwill of network users for continuous support and upgrades without malicious intent, all the data is visible public, has unpredictable pricing and scalability issues where all users are competing for block space. Unfortunately, this makes it unsuitable for handling business transactions.
This exact reasoning led to the development of alternative blockchain solutions that are more suited for enterprise needs, such as private or permissioned blockchains. Some well-known private or permissioned blockchains, like IBM Fabric (Hyperledger) and R3 Corda, were designed to tackle the issues of scalability, security, and customization that can be found in their permissionless counterparts. More recently, a solution for increased security and scalability has emerged through private sharding on highly secure permissionless blockchains, such as Calimero Network, on the NEAR protocol.
Let’s explore how private sharding solves the persisting issues of permissionless blockchains.
The scalability of permissionless blockchains is a major concern as the networks have to process the addition of new users and transactions. For instance, Bitcoin can only handle around 3-7 transactions per second, which often leads to congestion and longer validation times and lead to higher transaction fees and reduced attractiveness to users. Ethereum fares somewhat better, with a range of 15-45 transactions per second, but still faces similar issues.
On the other side of the spectrum, NEAR Protocol is a next-generation blockchain that works to address the issues of scalability found in most permissionless blockchains by utilizing sharding technology.
Sharding can be thought of as splitting a large public ledger into smaller, more manageable parts called shards. Each shard then processes transactions independently among its validators, allowing the network to handle a larger number of transactions in parallel.
For the Enterprise world, sharding can provide a more appealing solution due to its inherent ability to scale linearly with the addition of new shards, thus offering a more sustainable and adaptable infrastructure for large-scale operations. This novel method of decentralized partitioning allows for greater data privacy and security. As each shard operates independently, it reduces the impact of potential attacks or malfunctions on the entire network.
NEAR's sharding technology is a significant step towards making permissionless blockchains more scalable and suitable for enterprise use cases.
The decentralized design of permissionless blockchain protocols leads to the absence of any central authority to regulate the network. While this can be considered one of the main benefits of permissionless blockchains, it also creates security concerns.
A major issue is the possibility of attacks or other malevolent actions against the network, which can potentially result in irreversible damage.
Additionally, smart contract vulnerabilities may result in the loss of funds or system exploitation. For instance, the DAO hack of 2016, where a vulnerability in a smart contract led to the theft of millions of dollars worth of Ethereum, set the DAO ecosystem back for years, and the Parity wallet hack of 2017, where a significant bug in a smart contract led to the loss of over $150 million worth of Ether.
Furthermore, the complete visibility of transactions made on public blockchains doesn’t work in favor of enterprises trying to operate on them, as for most, privacy in business dealings is a must-have, and the lack thereof could prove potentially dangerous or damaging to the parties involved.
By using private sharding, enterprises can create their own private sub-networks, which can be used to store and manage sensitive business data without sharing it with the public. This allows businesses to enjoy the benefits of blockchain, such as transparency, immutability, and decentralization, while also ensuring the confidentiality and privacy of their sensitive information.
The operations of permissionless blockchains are in a regulatory gray area. The lack of a central authority makes it challenging to determine who is responsible for enforcing regulations. This causes issues for enterprises seeking to use blockchain technology, making them reluctant due to the uncertainty surrounding regulatory compliance.
Permission management on public blockchains poses a challenge due to the lack of granularity in management rules. While smart contracts can restrict access to certain parties, it can be difficult to specify different levels of access or permissions for individual users. This can make it hard for enterprises to manage their data effectively and ensure that only authorized users can access it.
Calimero and the NEAR protocol are emerging as leading alternatives to permissionless blockchain protocols, addressing the challenges of privacy, security, and scalability.
Boasting top-tier TPS numbers, Calimero enables previously unattainable use cases, thanks to its performance capabilities. Built on the NEAR protocol, Calimero is a customizable sidechain that allows businesses to create and tailor their own private shards. This enables them to selectively limit network participants and retain control over sensitive transaction data while still benefiting from the efficiency and security of the extensive NEAR blockchain.
Unlike competitors like R3 and Fabric, Calimero is fully NEAR and EVM compatible, allowing companies to leverage the vast array of open-source code developed for web3.
Additionally, Calimero's unique bridge architecture enables secure and seamless integration with public chains. By utilizing private shards, businesses can harness the advantages of blockchain technology while avoiding the costs and privacy concerns associated with permissionless blockchain networks.