Blockchain Semantics Insights
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What are the different types of Blockchain?By Swati Keswani | July 31, 2018, 10:24 a.m. GMT
Blockchain came to limelight because of Bitcoin. Since then several companies, governments, and banks have been trying to use the Blockchain. But what is the difference between different popular Blockchains like Bitcoin, Ethereum, and Hyperledger?
There are mainly three types of Blockchains:
- Public Blockchain
- Private Blockchain
- Consortium Blockchain or Federated Blockchain
In this article, we will cover Public Blockchain and Private Blockchain. The consortium or federated Blockchain which is a bit of a hybrid of the two will be covered in a separate article.
Here are the three things you need to remember that define a public Blockchain.
(1) Anyone can download the code and start running a public node on their local device, validating transactions in the Blockchain network and participating in the consensus process of the Blockchain. This gives anyone the right to participate in the process that determines which blocks get added to the chain and what the current shape and size of the Blockchain is.
(2) Anyone can transact in the Blockchain network. The transactions should go through as long as they are valid.
(3) Anyone can access and read transactions using a block explorer. Transactions are transparent but anonymous.
Several state-of-the-art public Blockchain protocols based on Proof-of-Work consensus algorithms are open source and not permission. It simply implies that anyone can participate, without permission. Examples of Public Blockchain includes Bitcoin, Ethereum, Monero, Dash, Litecoin, etc.
This nature of the public Blockchain has two major implications.
- Everyone bears the potential to disrupt current business models through disintermediation.
- Distributed infrastructure costs: No need to maintain servers or system admins radically reduces the costs of creating and running decentralized applications DApps.
Think of a private Blockchain as lacking the characteristics we just described for public Blockchains. In a private Blockchain, write permissions are kept centralized to one organization. Read permissions may be public or restricted to any degree.
Example applications of Private Blockchain include database management, auditing, etc. which are internal to a single company, and so public readability may be undesirable. Private Blockchains are a way of taking advantage of Blockchain technology by setting up groups and participants who can verify transactions internally. Does this increase security risks? Yes. A private Blockchain runs the risk of security breaches just like in a centralized system.
However, private Blockchains have their use cases too- they may scale better and comply better with governmental data security and privacy regulations. Thus, Private Blockchain have certain security advantages, and other security disadvantages (as stated before). Some would argue that such a system cannot be defined as a Blockchain.
Remember, Blockchain is still in its early stages. It is unclear how the Blockchain technology will pan out and will be adopted. Many believe that private Blockchains will evolve just the way private LANs or WANs did in the 1990s. They eventually ceased to exist in favor of the more broad-based, public Internet.
Just like we recounted for public Blockchains, here are the key implications of the implicit nature and characteristics of private Blockchains.
- Reduction in transaction costs and data redundancies
- Simplified data-handling and more automated compliance mechanisms
The chart below does a great job of helping you understand the key characteristics of a Public Blockchain, a Private Blockchain and everything in between.