Different Types of Blockchain

In the previous article we learned briefly about Blockchain, how it works and some of its applications. If you haven’t read it yet, read it here:

Blockchain – A Brief Introduction

Lets dive into three major types of Blockchain.

Historically, Blockchain started as a public permission-less technology when it was used for powering Bitcoin. Since then, other types of blockchains have been created.

These can be categorized as follows :

• Public Blockchain
• Private Blockchain
• Consortium/Federated Blockchain

Public Blockchain

Public blockchain as the name suggests is open to all users in a distributed network.

• Transactions are open and transparent, but anonymous/pseudonymous.
• There is no one in-charge, and anyone can participate in reading, writing or auditing.
• Everyone has the read and write access to the ledger, and participate in the decision-making process.
• All the users maintain a copy of ledgers on their local nodes.
• As there is no dedicated in-charge, decentralized consensus mechanisms like Proof of Work (PoW) and Proof of Stake (POS) are used to agree upon the final state of the ledger.

Examples: Bitcoin, Ethereum, Monero, Dash, Litecoin, Dodgecoin, etc.

Effects:

• Potential to disrupt current business models through disintermediation.
• No infrastructure costs: No need to maintain servers or system admins radically reduces the costs of creating and running decentralized applications (dApps).

Here is a brief overview on public blockchain

Private Blockchain

Private Blockchain as the name claims is a private property of an individual or an organization.

• It is not decentralized unlike public blockchain; it is just a distributed database. However, all permissions are kept centralized to an organization.
• This type of blockchain enables an organization to create its own currencies.
• There will be an in-charge who manages read/write or provides selective access to read or vice versa.
• Consensus or mining rights are achieved through in-charge.

Main drawback of this kind of blockchain is the beauty of De-centralization, and open protocols get lost.

However, private blockchains have their use case, especially when it comes to scalability and state compliance of data privacy rules and other regulatory issues.

Examples: MONAX, Multichain

Effects:

• reduces transaction costs and data redundancies
• replaces legacy systems, simplifying document handling and getting rid of semi manual compliance mechanisms.

Here is a brief overview on private blockchain:

Consortium/Federated Blockchain

This model of Consortium blockchain evolved to remove the sole autonomy of Private blockchains (single party vested interests).

• The Consortium blockchain is controlled by a group of members. (Group of companies/representative individuals come together and make decisions benefiting the whole network).
• This is partially a decentralized kind of blockchain.
• Here, all or some of the members will have read access, but only few will have the write access.
• They are pre-defined set of nodes where the users have access to write the data or block.
• Quite faster with additional checks to avoid failures.

Examples: R3 (Banks), EWF (Energy), B3i (Insurance), Corda

Federated/ Consortium Blockchains are faster (higher scalability) and provide more transaction privacy.

They are a compromise between the openness of public blockchain and the closed control of private blockchains.

Here is a brief overview on Consortium/ Federated blockchain

Why use permissioned blockchain?

A permissioned blockchain is similar to a permissionless one except for an additional access control layer. This layer controls who can participate in the consensus mechanism, and who can create transactions or smart contracts.

A permissioned blockchain gives the following advantages:

• Performance: Excessive redundant computation of permissionless blockchains is avoided. Each node will perform only those computations relevant to its application.
• Governance: Enables transparent governance within the consortium. Also, innovation and evolution of the network can be easier and faster than in permissionless blockchains.
• Cost: It’s cost effective since there’s no need to do spam control such as dealing with infinite loops in smart contracts.
• Security: It has the same level of security as permissionaless blockchains: “non-predictive distribution of power over block creation among nodes unlikely to collude.” In addition, an access control layer is built into the network by design.

Public blockchain vs Private/Federated Blockchain

Sources and further reading

On Public and Private Blockchains, Vitalik Buterin (2015)
Vitalik Buterin: On Public and Private Blockchains, Coindesk
Ok, I need a blockchain, but which one?, Pavel Kravchenko
IBM blockchain explained, Diego Alberto Tamayo
Blockchains What & Why, Gavin Wood