Types of Blockchain
As people began to understand how blockchain works, they started using it for other purposes and different types or categories of blockchain have emerged. There are public blockchains that everyone can access and update, private blockchains for just a limited group within an organization to be able to access and update, and consortium of blockchains that are used in collaboration with others.
A public blockchain (permissionless) is one that all are able to access and transact with; transactions that are included if and only if they are valid; a blockchain where everyone can contribute to the consensus process that determines what blocks get added to the chain and what the current state is.
On the public blockchain, instead of using a central server the blockchain is secured by cryptographic verification supported by incentives for the miners. Anyone can be a miner to aggregate and publish those transactions. In the public blockchain, because no user is implicitly trusted to verify transactions, all users follow an algorithm that verifies transactions by committing software and hardware resources to solving a mathematical problem. The miner who reaches the solution first is rewarded, and each new solution, along with the transactions that were used to verify it, forms the basis for the next problem to be solved. The verification concepts are proof-of-work or proof-of-stake.
Also named Permissioned Public. his is a distributed ledger where the consensus process is controlled by a preselected set of nodes. The right to read the blockchain may be public or restricted to the participants, and there are apps that allow members of the public to make a limited number of queries and get back cryptographic proofs of some parts of the blockchain. These sort of blockchains are distributed ledgers that may be considered “partially decentralized.”
A fully private permissioned blockchain is a blockchain where write permissions are kept centralized to one organization. Read permissions may be public or restricted. Likely applications include database management and auditing internal to a single company, so public readability may not be necessary in many cases at all, though in other cases public auditability is desired. Private blockchains could provide solutions to financial enterprise problems, including compliance agents for regulations such as anti–money laundering (AML), and know-your-customer (KYC) laws.
The distinction between these blockchains is important. As compared to public blockchains, private blockchains have a number of advantages. The private blockchain operator can change the rules of a blockchain. If it is a blockchain among financial partners, then where errors are discovered they will be able to change transactions. Likewise, they will be able to modify balances and generally undo anything. That said, there is a trail.
In some cases, this functionality is necessary, as with property registry if a mistaken transaction is issued or some nefarious type has gained access and made themselves the new owner.
On the private blockchain, transactions are less expensive, since they only need to be verified by a few nodes that can be trusted to have very high processing power. Public blockchains tend to have more expensive transaction fees, but this will change as scaling technologies emerge and bring costs down to create a more efficient system.
Private blockchain nodes can be trusted to be very well connected, and faults can quickly be fixed by manual intervention, allowing the use of consensus algorithms that offer finality after much shorter block times. Improvements in public blockchain technology can bring public blockchains much closer to the “instant confirmation” ideal. If read permissions are restricted, private blockchains can provide a greater level of privacy.
Given all of this, it may seem like private blockchains are a better choice for institutions. However, public blockchains value lies to a substantial degree in the virtues that have been promoting all along, among the chief of which are freedom, neutrality, and openness. The advantages of public blockchains generally fall into two major categories:
- Public blockchains provide a way to protect the users of an application from the developers, establishing that there are certain things that even the developers of an application have no authority to do.
- Public blockchains are open, and therefore used by many entities, This provides some networking effects. If we have asset-holding systems on a blockchain, and a currency on the same blockchain, then we can cut costs to near-zero with a smart contract.