Businesses
used
to
prefer
private
chains.
Here’s
why
the
shift
will
happen,
according
to
EY’s
Paul
Brody.
Dec
4,
2024,
8:34 p.m.
UTC
For
the
last
decade,
financial
institutions
have
defaulted
to
closed,
private
blockchains
for
digital
assets
over
open,
permissionless
systems.
Many,
if
not
most
of
the
world’s
biggest
banks
and
financial
institutions
have
invested
in,
and
tested
out
digital
assets
on
private,
permissioned
blockchain
networks.
None
of
them
have
achieved
traction
with
customers,
businesses
or
institutional
investors.
continues
below
A
key
argument
that
financial
institutions
have
made
for
prioritizing
these
efforts
over
putting
assets
on
public
blockchains
is
that
regulators
and
regulations
strongly
prefer,
and
in
some
cases,
specifically
require
permissioned
blockchains.
I
believe
that
time
is
coming
to
an
end.
The
“default”
regulatory
perspective
is
going
to
evolve
much
more
over
the
coming
years.
Though
it
might
be
hard
to
see
now,
I
believe
we’re
not
far
from
a
time
when
regulators
will
look
on
with
suspicion
not
at
putting
assets
on
a
public
chain,
but
keeping
them
on
private
networks.
Three
factors
will
drive
this
change.
Liquidity
matters
First
and
most
importantly,
liquidity
matters.
Public
networks
like
Ethereum
have
millions
(soon
billions)
of
users
and
will
hold
hundreds
of
billions
(soon
to
be
trillions)
in
capital.
Digital
assets
trading
on
Ethereum
get
the
benefit
of
all
those
customers
with
capital
to
invest.
Like
big,
public
stock
markets,
the
more
buyers
and
sellers
there
are
in
a
market,
the
more
likely
it
is
that
your
product
will
be
priced
fairly
and
find
buyers
willing
to
pay
a
fair
price.
Digital
assets
that
are
only
bought
and
sold
on
private
networks
may
not
get
the
same
fair
pricing
opportunities.
Indeed,
I
am
already
aware
of
at
least
one
case
where
a
real-world
asset,
tokenized
and
launched
on
a
private
network,
has
fallen
below
its
net
asset
value
in
price.
This
could,
of
course,
represent
a
reasonable
expectation
that
the
asset’s
underlying
value
is
set
to
further
decline,
but
it
could
also
be
an
indicator
that
the
private
network
doesn’t
have
a
robust
group
of
buyers
who
would
normally
snap-up
such
deals.
I
don’t
think
it
will
be
long
before
the
first
angry
customer
with
an
underperforming
token
and
no
buyers
complains
to
a
regulator
about
that
financial
entity.
They
will
claim
that
in
selling
them
as
an
asset
only
tradeable
on
a
private
network,
they
were
not
treated
fairly.
Evolving
technological
maturity
and
resilience
The
second
big
driver
that
will
transform
how
regulators
look
at
public
networks
is
their
evolving
technological
maturity
and
resilience.
Not
only
have
permissioned
systems
not
really
achieved
take
off,
but
their
evolution
has
also
been
relatively
slow,
and
the
offerings
developed
relatively
few.
The
most
ambitious
permissioned
systems
today
have
less
than
a
dozen
products
and
many
that
are
in
production
have
only
a
few
users.
The
lack
of
privacy
in
blockchains
means
that
many
permissioned
systems
have
only
one
entity
that
can
directly
access
the
chain
and
all
the
others
must
access
the
network
through
restricted
APIs.
Compare
this
to
public
blockchains.
Ethereum
alone
has
several
hundred
thousand
smart
contracts,
nearly
3,000
operational
protocols,
and
is
processing
several
trillion
dollars
a
year
in
payments
and
asset
transfers.
The
Ethereum
ecosystem
is
going
through
a
substantial
hard
fork
every
3-6
months
and
its
overall
capacity
has
risen
from
about
a
million
transactions
a
day
by
itself,
to
hundreds
of
millions
a
day
through
more
than
50
layer
2
networks
and
dozens
of
independent
analytics
vendors,
compliance
providers,
and
auditors.
This
is
more
than
an
order
of
magnitude
bigger
than
any
permissioned
blockchain.
Regulatory
acceptance
of
public
blockchain
ecosystem
Lastly,
as
regulators
accept
more
and
more
frameworks
and
infrastructure
for
cryptocurrency,
they
will
be
forced
to
accept
that
the
same
Know-Your-Customer
(KYC)
and
Anti-Money-Laundering
(AML)
rules
that
work
for
selling
and
transferring
cryptocurrencies
can
work
for
stablecoins
and
other
digital
assets.
Crypto
exists
only
on
public
networks
and
its
widespread
acceptance
around
the
world
has
blazed
a
trail
for
digital
assets
of
all
kinds.
Regulations
like
the
EU’s
Markets
in
Crypto
Assets
(MiCA)
is
a
good
example
of
where
things
are
headed.
MiCA
was
developed
with
knowledge
of
public
networks
in
mind
and
while
it
does
not
require
them,
it
has
unlocked
a
wave
of
investment
and
innovation
among
Europe’s
banks
in
public
blockchain
systems.
Bottom
line:
the
advantages
that
digital
assets
on
private
networks
have
had
with
regard
to
regulator
comfort
and
compliance
are
eroding,
if
they
have
not
eroded
entirely
yet.
We
have
already
reached
the
point
in
many
parts
of
the
world
that
regulators
are
not
systematically
blocking
offerings
simply
because
they
will
be
on
public
networks.
Sooner
or
later,
they
will
take
one
step
further
and
start
asking
anyone
trying
to
offer
assets
on
a
private
network
just
what
it
is
they
think
they
are
doing.
Don’t
say
I
didn’t
warn
you.
Disclaimer:
These
are
the
personal
views
of
the
author
and
do
not
represent
the
views
of
EY.
Note:
The
views
expressed
in
this
column
are
those
of
the
author
and
do
not
necessarily
reflect
those
of
CoinDesk,
Inc.
or
its
owners
and
affiliates.
Paul
Brody
Paul
Brody
is
Global
Blockchain
Leader
for
EY
(Ernst
&
Young).
Under
his
leadership,
EY
is
established
a
global
presence
in
the
blockchain
space
with
a
particular
focus
on
public
blockchains,
assurance,
and
business
application
development
in
the
Ethereum
ecosystem.