The Slow Death of Private Blockchain Tech—R3 Reportedly Explores Sale Despite Big Bank Support

R3 and the Decline of Private Blockchains

Back in 2014, big-name financial institutions thought private blockchain projects were going to be the next big thing, overshadowing leading crypto networks like Bitcoin. R3’s journey offers a captivating glimpse into how traditional banks wrestle with disruptive technologies such as Bitcoin. Early on, R3 attracted support from major players like Intel, Wells Fargo, HSBC, SBI Group, Barclays, Bank of America, Temasek, and UBS Group AG, along with 32 other investors.

With over $100 million raised from these backers, R3 transitioned from a consortium into an innovative product company. Banks, wary of Bitcoin’s open and permissionless design, saw private blockchains as a way to harness similar efficiencies while maintaining control. They liked the idea of limiting participation to trusted entities and working within their existing regulatory relationships.

But, this strategy hit some major roadblocks. Private blockchains created isolated ecosystems, lacking interoperability, and the complexities of establishing governance between competing banks became a significant hurdle. Many of the proposed use cases could have been handled by traditional databases, and the effort required to implement blockchain tech often outweighed the benefits for these closed networks.

According to Bloomberg’s report, someone familiar with the situation mentioned that R3 has been weighing options for selling the company. Reportedly, Adhara, Ava Labs, and the Solana Foundation have been approached. The anonymous source said that for the past six months, discussions have explored options like joint ventures, a minority stake sale, or even a full sale of R3.

R3 also brought on former Bitcoin developer Mike Hearn, who developed Corda—R3’s blockchain-inspired distributed ledger designed for the financial sector. Hearn played a pivotal role in shaping Corda and contributed significantly to R3’s technical progress. However, in Feb. 2021, it was announced that Hearn would be stepping away from his full-time role at the company. Before leaving, Hearn had spent about a year focused on Conclave, R3’s confidential computing solution.

What banks underestimated was the value of public blockchains’ permissionless design. While trust minimization is a key advantage in public networks, it doesn’t add much value to a consortium where the members already trust each other. Additionally, the pace of innovation is much faster in open systems, powered by global collaboration rather than limited corporate involvement. Eventually, banks did realize the issue and left R3’s consortium in great numbers.

Ultimately, banks and private blockchain projects like R3 tried to separate the technology from its most valuable aspects. It’s similar to how companies in the 1990s favored private intranets over the public internet—before realizing the immense power of open systems. The market’s preference for public blockchain solutions over private ones eventually proved this point. Now, with a potential sale looming, R3 faces the financial consequences of trying to shape blockchain to fit traditional finance (tradfi) molds.

“R3, the pioneer of private blockchains from 2014, is seeking an exit because there is no business,” said Mikko Ohtamaa, co-founder of tradingstrategy.ai, after hearing the latest on R3. “The whole private blockchain was an oxymoron in the first place. The business benefits, in the form of cost efficiencies, in public blockchains come from — Open source (you do not need to pay license fees for the software) — Open access (you can read it yourself, no need to pay for APIs) — Open transact (you do not make a contract with a third party API provider to move your assets). R3 had none of these,” Ohtamaa concluded.