With the crypto market touching over the $2 trillion mark, the underlying technology behind the cryptos i.e. blockchain is also continuing to gain traction. An increased number of industries are beginning to acknowledge the enormous scope of blockchain as to how this budding technology can transform their respective domains by bringing in increased efficiency, cost optimization benefits, streamlining operations, and also preventing cyber-attacks. Subsequently, it is not just the business organizations or the tech enthusiasts but also policymakers, regulators, legal centers, and the general public as a whole who have begun exploring the different facets of blockchain and its various applications and use cases. We will talk about Public, Private and Permissioned Blockchains in this article.
Blockchain technology is no longer limited to cryptocurrencies alone, and with it transcending the crypto boundaries, many types of blockchain infrastructure have emerged. Users can control the data stored on the nodes of the blockchains and the participant activities performed on the blockchain depending upon their configuration and build. Each type of blockchain comes with a unique set of characteristics and features and hence a detailed study of the existing varieties can ease the confusion among the new entrants in the crypto world.
In this blog piece, we would attempt to review the different types of blockchain present and also how they compare with one another.
Types of blockchains
There are two key categories of blockchains – public and private blockchains with substantial uses in numerous cryptocurrency networks. These two major blockchains have a few similarities but also have their set of distinguishing features which we would dive in deeply at the later stage of the blog. Another third type of blockchain exists – permissioned or consortium blockchain. Being a hybrid model between private and public blockchains, permissioned blockchain comes with different permutations.
Public, private, and permissioned blockchain are all applications of the same technology, designed to provide effective solutions to different problems, with each having its own set of advantages and disadvantages. Let’s talk about each of these types of blockchains to explore their key differentiators.
Public blockchain and its importance
Those with a preference to set up an open protocol that is accessible to anyone can choose to run their system on the public blockchain. Anyone and almost everyone can contribute to the open network and take part in the core activities on the blockchain. The ongoing activities on the blockchain could also be audited by any of the network participants, thus helping members to participate in the consensus process by validating the transactions.
The public network runs on an incentivizing scheme, wherein the network participants are provided incentives to validate transactions on the blockchain network leveraging their computational abilities in exchange for mining rewards. New participants are also encouraged to participate in the network, thus enhancing the agility of the network. Built on Proof-of-work, public blockchains are truly decentralized, democratized, and immutable. The use for this consensus mechanism comes from its support throughout a global community, which means there are no central points that are able to take control or manipulate transactions in any way!
The first-ever and also the highly popular public cryptocurrency – Bitcoin was first built using the public blockchain; Ethereum– a major platform for decentralized applications (dApps); and Cardano which is third generation blockchain also makes use of the public blockchain technology.
Advantages of public blockchain
✅ Decentralized: In a public blockchain, there is no single entity with complete control of the network or with authority to overrule the distributed ledger transactions, and hence it is completely decentralized.
✅ Transparency: Given the fact that the entire record on the public blockchain network is visible to everyone, there is complete transparency. Each member on the network possesses a copy of the transaction as executed on the network.
✅ Censorship resistance: No single entity or a centralized power can change a transaction or even shut down the network since it is completely decentralized.
✅ Highly accessible: As anyone is free to take part in the public blockchain, it is the most accessible of all networks. Anyone with internet access can join the public blockchain network.
Disadvantages of public blockchains
✅ Energy inefficiency: The proof-of-work (PoW) powered public blockchain consumes too much power and thus is not an environmentally sustainable model. They require high energy consumption to maintain the distributed ledger. However, the new networks built upon proof-of-stake (PoS) consensus mechanisms are less energy-consuming.
✅ Transaction traceability: Despite the network participants enjoying anonymity, transactions can be technically traceable. Others on the public blockchain network can trace the past transactions of the network participants given that the wallet address of the participant gets linked to the user, thus leading to privacy breaches. This also causes security concerns and the participant’s identity stands unprotected since the distributed ledger is publicly available.
✅ Easy access for fraudulent members: Going by the fact that anyone is free to join or participate in the public blockchain, it is highly possible for fraudulent members to misuse this feature and enter the network in order to corrupt it by partaking in the malicious activities such as hacking, stealing of tokens and choking the network.
Private blockchains and its importance
Private and closed networks are characterized by the presence of a central entity having controls on who can participate in the network. Only a few trusted and known members can audit or even overrule the record on the private blockchain. The central entity alone can assign roles to its network participants and also possess the authority to allow members to transact on the network. Thus it is the best choice for enterprises looking to safeguard their ledger and record books from the prying eyes of the general public. Network operators can validate the transactions executed on a private blockchain.
Some of the private blockchain networks include Morpheus Network, a supply chain blockchain that uses Ethereum’s public Blockchain infrastructure; Patientory – an app with private implementation on top of ethereum designed specifically by healthcare professionals who want increased data integrity when interacting between providers/patients while also maintaining patient records protection through encryption technologies and R3’s Corda which provides financial institutions access into shadows.
✅ Enhanced security: Private networks are secure as only participants with an invite form the central authority could join and participate on the network. Hence, the possibility of fraudulent members with malicious intent joining in the private network is less. The ledger remains protected from activities like hacking, stealing and so on.
✅ Greater scalability: It is easier for private blockchain networks with a limited number of users and limited accessibility to transactions to scale. Any changes or alterations in the transactions can be executed without requiring the vote from all network participants as it is run by a central authority.
✅ Higher output: Private networks facilitate faster transactions since it comes with limited accessibility and hence there is more network availability given a smaller number of users in contrast to public blockchains.
✅ Higher levels of trust: Public blockchain networks promise anonymity for users and hence there is an increased degree of trust in networks with limited accessibility.
✅ Lack of decentralization: One downside of private blockchain networks is its centralized nature. In this closed network, only a single entity controls and keeps track of transactions.
✅ Absence of immutability: Given that the single entity has the controls, data and transactions on the private blockchain can be tampered or altered by the operator.
What are permissioned nodes?
One can join permissioned blockchain or consortium blockchain networks and execute different functions only with the permission of the network operator. Permissioned blockchains facilitate an additional access control layer, thus leading to enhanced security as only identifiable participants are allowed to perform certain on-chain actions. As opposed to the case of private blockchains where only trusted and known network participants can execute transactions, permissioned blockchain networks allow any node to operate on the network.
Permissioned blockchains are the best-suited type of blockchain network for enterprises in need of networks that come with additional security layers and permission management features. They are the cross between the public and the private infrastructures.
The Energy Web Chain – a blockchain platform for the energy industry has been deployed on the permissioned blockchain network. Apart from the use case of permissioned blockchain in the energy sector, the supply chain management sector such as the IBM Food trust also makes use of this hybrid blockchain technology. The data exchange marketplace chief – Nokia also secures its transactions and databases by using the permissioned blockchain.
Advantages of permissioned blockchains
✅ Improved performance: Permissioned blockchains are not open for anyone to join in as in the case of public blockchains. There is limited accessibility, thus there is less clogging on the network. With less strain, there is also improved performance and faster transactions.
✅ Different degrees of decentralization: Network operators on the permissioned blockchains have the privilege to choose the extent of decentralization – they can be fully centralized or partially decentralized.
✅ Customizable infrastructure: Permissioned blockchains facilitate peak customizability as it empowers the network operators to send invites to participants and also assigns roles to them.
✅ Governance: Community members in the permissioned blockchains are not required to give approval or validation for hard forks as the authority in such networks is placed in the hands of a central entity. Thus, there is less time spent on gathering validation from the community and hence they facilitate quicker implementation of updates.
Disadvantages of permissioned blockchains
External data storage: The integrity of on-chain data is at risk in this network since there is often a need for external storage space in permissioned blockchains but they cannot deploy the decentralized storage methods as used by public networks.
Inconsistent security level: The security in permissioned blockchains largely depends upon the desired consensus mechanism and network participants. The presence of network operators with malicious intent poses great security risk to the network. Scope for manipulation also pushes up in such networks if the central authority- which holds some degree of control – turns out to be fraudulent.
It would be wrong to assume that the three types of blockchain infrastructures have emerged to compete with each other as the general belief stands. In fact, each blockchain network is designed to cater to different requirements and enterprise operations. For example – public blockchains are well-suited for cryptocurrencies and those looking to have peer-to-peer transactions, while private blockchains are a popular choice for those looking to deploy networks for efficiency in supply-chain management and also wish to keep their records farther away from the general public. However, banks, financial institutions, and enterprises that need to have complete control over people who can participate in the network and their access levels should go for the permissioned blockchains.
The most popular and also the first-ever cryptocurrency in the world – Bitcoin was a public blockchain and hence the public infrastructure gained more popularity than the other two types of infrastructures. Permissioned chains have been around for some time now, but they’re still emerging as an exciting new development with their ability to offer both controls over who has access – or lack thereof- while also allowing customizability through different mechanisms like smart contracts!
All three types of blockchains – public, private, and permissioned have their specific use cases and serve specific purposes. The point of contention is not around the efficacy of these blockchains – as to which one is better than the others but the question that one needs to ponder over when choosing between these three main types is whether they would serve their business objective and is ideally suited for their use case.
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