Introduction
Public, Private, Consortium, Hybrid, Permissioned, Permissionless…confused yet?
Keep reading and we’ll look at the different types of blockchains and break down some of their key characteristics.
All Blockchains are not created equal
Unfortunately it’s not as simple as saying one offers privacy and the other doesn’t. In fact, thinking in these terms adds confusion so we’ll use the words “public” and “private” loosely here. In reality, privacy should be thought of in terms of layers that can be applicable for any blockchain, be it public, private or consortium. More from Consensys on this here.
Let’s take a look at the different types of blockchains and compare them across a few important dimensions.
Permission
What we mean by permission is who has access to the blockchain. So, who can read and write data to the chain? With Public blockchains like Bitcoin and Ethereum, anybody can write data to the blockchain, and anybody else, anywhere in the world, can come and read that data after.
Private blockchains have permissioned networks that place restrictions on who is allowed to participate in the network. Consortium blockchains are also permissioned, partly private and semi-decentralized in that no one actor controls.
Ownership
Who owns and maintains the data?
Ownership almost always comes down to control. No single person or entity owns a public blockchain like Bitcoin and the data is maintained by the entire network. You could argue that the large mining pools control the Bitcoin network, but that’s a debate for another time. In this context, it’s fair to say that Bob with his node in Ireland has equal rights as Alice’s node in the US. Neither control or won the network.
Private blockchains on the other hand are maintained on company premises and behind a firewall. In a consortium blockchain a business network is established which has access to the data.
Trust
Trust is a key differentiation.
Trust (in validators) is a requirement for private, permissioned blockchains.
Many say that open, permissionless blockchains like Bitcoin are “trustless”. This isn’t entirely accurate as you need to have some degree of trust in the system to use it in the first place – a challenge for adoption. It is fair to say that open decentralized blockchains eliminate the need for trust in a central counterparty, but this trust is shifted to the network as a whole.
Anonymity
Public blockchains are typically designed around the principle of anonymity, whereas private blockchains use identity for membership and access privileges. Private blockchains like Hyperledger Fabric come with identity management tools and the idea of known identities is baked into the consensus mechanism.
Consensus
The word consensus is used a lot in the blockchain world. Consensus can be defined as: “a generally accepted opinion or decision among a group of people”
In blockchain terms we are looking for an accepted decision with regards to the state of the ledger. i.e what transactions are included in the blocks. So how is consensus reached?
Bitcoin uses the famous Proof of Work consensus protocol, which involves “mining”. Some other popular open blockchains make use of the popular Proof of Stake consensus. Ripple uses Federated Byzantine Agreement (FBA) which means trust is only extended to a limited group of other participants, not the entire network.
Hyperledger and Sawtooth Fabric are both designed to allow users to choose the consensus algorithm for their blockchain. For example, lottery based algorithms like Proof of Elapsed Time (PoET) or voting-based algorithms such as Redundant Byzantine Fault Tolerance (RBFT). Hyperledger Fabric uses a voting based mechanism to reach consensus and includes three phases of Endorsement, Ordering, and Validation. See this transaction flow for more.
In Corda, consensus is provided by notaries. More on that here.
It’s important to note that both public and private blockchains are designed to be Byzantine Fault Tolerant, but how they achieve this is very different. The assumption with all private blockchains is that there is partial trust in the “business network”.
Pros and Cons of Public Blockchains
- Decentralized decision making
- Completely removes the need for a middleman
- Anonymity
- Flexibility
- Built-in economic incentives
- Transaction throughput
- Scalability might be a concern
Pros and Cons of Private Blockchains
- Faster transactions
- Easier to scale
- Potentially more useful in a regulated world
- Members only club
- Not as decentralized as open blockchains
- Trust is required
- Not anonymous
Some examples of Public blockchains are Bitcoin, Ethereum, Litecoin and Cardano. Private and Consortium chains include Hyperledger, R3 Corda, Quorum, Ripple
Conclusion
Some mock the idea of a private blockchain and say that these permissioned blockchains offer nothing more than any traditional database can; in fact they’re slower and less efficient from a data storage perspective. A healthy dose of scepticism is good for debates. It’s true that private blockchains do not compare to that of open, decentralized, public blockchains. But it’s like comparing apples and oranges. The problem they solve and the use case they target is fundamentally different. Both can and will thrive.
With private blockchains, yes, you’re losing some of the the fundamental disruptive innovation that Bitcoin brought about. That isn’t to say that there’s no place for private or consortium chains. Things like privacy, confidentiality, speed, scalability and integration are essential for enterprise solutions. At the same time, there’s big benefits in areas like transparency, immutability and process efficiency that blockchain can bring to business.
Interested to know more about enterprise blockchain? or maybe you have a use case you think would be a good fit with blockchain technology? Let us know and we can arrange a no-cost consultation. After our discussion, you can decide if you’d like to move forward.
