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:
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 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.
- 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 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
- 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:
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