Lessons from Failed Blockchain Consortia and How to Avoid Similar Pitfalls 

Blockchain consortia can potentially change how businesses collaborate fundamentally and solve business problems in ways not previously possible. This article will look at the lessons from failed blockchain consortia and how to avoid similar pitfalls. 

 

A private blockchain is a fantastic solution for individual firms to collaborate on a decentralized network; however, what if numerous organizations wish to share a platform for cross-technology solutions? 

 

A consortium blockchain is an ideal fit since its qualities distinguish it from public and private blockchains.

 

A consortium blockchain is a collection of various financial institutions, each with its private blockchain, that allows a pre-selected set of nodes to govern the consensus process. 

 

Consider a consortium of ten institutes, each of which acts as a node with equal say. If 8 nodes sign the block, the transaction will be legitimate.

 

Now that you have some background knowledge of blockchain consortia, let’s get into the details.

 

What is Blockchain Consortia?

Blockchain consortia are blockchains in which nodes from several organizations or corporations control the network considerably more privately. 

 

They collaborate on this platform to share and alter information to preserve workflow, scalability, and accountability. 

 

As a type of blockchain, a consortium shares several characteristics of private and public blockchains, such as privacy and scalability.

 

Still, it distinguishes itself by minimizing network burden through a fixed number of nodes; another is its voting base mechanism through a few recognized participants. 

 

All of this contributes to the network being lightweight and secure.

 

A consortium blockchain’s main goal is to help institutes solve problems and find answers that can be used on this platform. Some examples of blockchain consortia are CORDA and Quorum.

 

Features of Blockchain Consortia

The consortium blockchain aids in data transportation, but it is distinct from crypto production and maintenance, which a public blockchain handles. 

 

Where is the ideal place for a consortium? It is ideal for organizational collaboration. Here are some of its key features:

1. Secrecy of data
2. Rules and regulations
3. Fast paced transactions
4. No criminal act
5. Change of data

 

Secrecy of Data 

Aside from reducing network traffic, fewer nodes also promote data privacy. Unlike private blockchains, datasets are only accessible to a small group of people in this case. 

 

This approach takes advantage of the blocks’ security and uniqueness. Only the approval of some nodes can update the information in the network.

 

Rules and Regulations 

Since consortium blockchain is made for many businesses and groups, rules are even more important to keep things running smoothly. 

 

Nodes in this network have to follow the rules. That makes it easier for people to work together and boosts productivity quickly.

 

Fast Paced Transactions 

Consortium blockchain has a small group of members. That’s why nodes from different groups make the battle for verifying transactions less fierce. 

 

A controlled user group can also help people agree quickly. All of these things help make deals go more quickly.

 

No Criminal Act

Since a federated blockchain is intertwined with a few known members, it eliminates the chance of illicit or unlawful behaviors, as most anonymous users are renowned for clogging up network procedures. 

 

Everyone in this chain knows one another, resulting in a system of checks and balances that reduces the likelihood of criminal activities, making this platform a safe option for businesses.

 

Change of Data

A modification in data on a public blockchain is practically impossible. A large number of users contribute to this. Meanwhile, in the consortium, fewer users can easily update the data using the consensus rule. 

 

All nodes have an equal say in this system, and no node has a monopoly on any decision.

 

Though Blockchain consortia have several unique features, it also has some disadvantages, which we will consider below.

 

What are the Disadvantages of Consortia Blockchain?

Some of the disadvantages of consortia blockchain are;

 

• A consortium’s centralized network structure makes it easier for malicious parties to break network restrictions.
• Because of the rising number of members, upgrading such a platform is difficult, as this process requires the permission of each network member.
• The consortium’s effectiveness is continually being refined.
• A partnership among businesses can aid in the development of the field. However, the likelihood of such a corporation exists in this location.
• Aside from options such as R3’s Corda, JP Morgan’s Quorum, and Hyperledger in a consortium, a uniform framework has yet to be built.
• Building a platform like blockchain consortia is time-consuming and requires multiple organizations to collaborate on communication standards. 

 

Now that we have seen the challenges of a blockchain consortia, let’s also look into the risks associated with a blockchain consortia.

 

What are the Risks of Consortia Blockchain?

Using blockchain consortia for corporate transactions can bring certain security benefits compared to traditional centralized systems. 

 

It is, nevertheless, critical to be aware of the potential security dangers associated with this technology. Consider the following standard security risks:

 

1. Insider threats 
2. Distributed denial of service (DDoS) assaults
3. Smart contract vulnerabilities
4. Governance and consensus issues
5. Data privacy concerns
6. Regulatory compliance

 

Insider Threats

Blockchain consortia comprise a group of known members who have been authorized network access. While this reduces the likelihood of external attacks, it does not rule out the possibility of insider threats. 

 

Malicious activities or illegal access by a participant can jeopardize the blockchain’s integrity and security.

 

Distributed Denial of Service (DDoS) assaults

Blockchain consortia are vulnerable to DDoS assaults, in which an attacker floods the network with requests, creating disruption or delay. 

 

Because consortium blockchains often have a small number of participating nodes, attackers may find it easier to target and overwhelm the network.

 

Smart Contract Vulnerabilities

Smart contracts are self-executing code that oversees blockchain transactions. However, they may contain faults or vulnerabilities that attackers may exploit. 

 

If a smart contract has security issues, it could result in financial losses or illegal access to critical data.

 

Governance and Consensus Issues

Blockchain consortia rely on a consensus among participating nodes to validate transactions and maintain the ledger’s integrity. 

 

If the consensus algorithm has faults or the governance structure needs to be better built, security problems can occur. An attacker might potentially disrupt the governance paradigm or alter the consensus process.

 

Data Privacy Concerns

While blockchain technology offers openness and immutability, it also poses privacy problems. 

 

Blockchain consortia frequently store sensitive corporate data on the ledger, exposing confidential information to participants who cannot see it. 

 

Appropriate measures such as encryption and access controls must be applied to preserve data privacy.

 

Regulatory Compliance

Consortium blockchains may be required to adhere to specific rules, such as data protection legislation (e.g., GDPR) or financial regulations, depending on the nature of the business activities and industries involved. 

 

Failure to comply with these rules may expose you to legal and security risks.

 

These hazards are not inherent in all consortium blockchains and can be minimized through adequate design, implementation, and security measures. 

 

Conducting extensive risk assessments, implementing strong access controls, auditing smart contracts regularly, and adhering to security best practices are all critical elements in improving the safety of a consortium blockchain.

 

With all of these risks associated with blockchain consortia, some projects have been successful, while others have failed due to some pitfalls. 

 

We will discuss some lessons from failed blockchain consortia projects to avoid those same mistakes and have successful ones.

 

Lessons From Failed Blockchain Consortia and How to Avoid Similar Pitfalls

Some of the lessons from failed blockchain consortia and how to avoid similar pitfalls are;

1. Display your expertise
2. Communication problem
3. Completing administrative processes
4. Budget misallocation

 

Display your Expertise

Before forming the blockchain consortium, ensure that you will have a portfolio to display your partners—a portfolio demonstrating your knowledge of various aspects of the project. 

 

Demand the same portfolio from each partner. Unless you have a valid proof of expertise, you should think hard about joining a consortium only to apply for the call to action. 

 

It is pointless to form a consortium that will subsequently fail.

 

Communication Problem

If communication is not created from the start, it will most likely be one of the key reasons why the blockchain consortium fails. Making a communication schedule and some communication rules is a good idea.

 

Unfortunately, most blockchain consortiums do not operate on communication principles, which leads to misunderstandings, lost data, and, eventually, the consortium’s demise. 

 

If you want to avoid this problem, establish your communication policy and principles from the start of the project. 

 

Maybe even at the proposal writing stage. This will allow you to get to know your project partners and learn how to collaborate with them.

 

Completing Administrative Processes

One issue that may arise in this circumstance is the companies’ incapacity to perform administrative tasks associated with implementing a blockchain consortia project. 

 

Everything from producing reports every two months to storing specific data is covered. These partners will require assistance from the consortium’s expertise to complete administrative processes. 

 

Gathering the papers may appear to be the easiest part of the project. It might not be for others. The consortium must understand each partner’s shortcomings as well as their strengths.

 

Budget Misallocation

Budget allocation is possibly the most unpleasant situation that could arise during the blockchain consortia project. 

 

The project leader, and thus the consortium leader, is also responsible for allocating the funds when the project is completed.

 

If there are issues during the allocation procedure, and the rest of the blockchain consortium is obliged to utilize their budget to implement the project while waiting for the project budget to arrive, it could cause quite a problem between the partners later on.

 

Budget management should be one of the first items decided during the consortium’s initial communications. 

 

Money troubles can cause a blockchain consortium to collapse, which is the type of situation you want to avoid.

 

Final Thoughts

If you decide to move forward in the blockchain consortia project implementation environment and begin submitting consortia bids, you must understand your strengths and shortcomings. 

 

We addressed several lessons to be learned to prevent failure and achieve success. Work on avoiding these errors and strengthening your strong qualities as much as possible.

 

Create a compelling portfolio that highlights your knowledge and experience. Make sure that you strictly adhere to the project’s communication plan.

 

Many issues may arise during the proposal or implementation phases. Proper communication and collaboration are essential for overcoming these issues and ensuring the success of the blockchain consortium.