I think you will be surprised to know that Bitcoin didn’t introduce blockchain to the world.
Blockchain existed before also but no one cared about it and neither it was known as ‘blockchain’ then.
The first use of something similar happened in Cipher block chaining in 1976, and later in 1997, a cryptography mailing list used the term “block chain” in a discussion about Hashcash (Bitcoin’s proof of work algorithm).
But note, it was not yet ‘the blockchain’ it was ‘block chain.’
Surprisingly, even Satoshi Nakamoto didn’t use the term ‘blockchain’ in the Bitcoin’s whitepaper, but later in 2008, Hal Finney started referring to the data structure defined by Satoshi as ‘Block Chain’ or ‘the blockchain.’ But it was not even then that this term of ‘blockchain’ started picking-up.
Later interesting enough that by 2015 also this term hadn’t got much traction but as Bitcoin started picking-up technologists started to dig in, and the virus of blockchain caught up.
Of course, Bitcoin is the world’s fully functional blockchain for the application called ‘Money,’ and that’s where it got its background.
But when people say, blockchain is the technology behind Bitcoin, well they are partially correct here because blockchain isn’t the only tech behind Bitcoin.
Bitcoin is made of 4 major technologies, namely:
- Proof of work
- Peer to peer network
But it is right to say that Bitcoin showed the world the recipe for applying blockchain and other pieces to the application of money.
And from there on people have applied blockchain and even trying now to various usecases.
Having said that, not all blockchains are made the same. If you see Bitcoin’s blockchain, it is an open, permissionless, decentralized, distributed, and borderless because the way other pieces of technologies have been combined together with it.
That’s why it highly depends on the other three technologies also, how your blockchain is going to be?
And this opens up another new world of different types of blockchain, and that’s what we are going to discuss in this article today.
So let’s get the ball rolling:
Types Of Blockchain Platforms
There are three significant types of blockchain that have become popular after Bitcoin started using blockchain under its architecture:
- Public Blockchain
- Private Blockchain
- Federated Blockchain
Apart from that, there are even more entangled types of blockchain such as public-permissioned blockchain, private-permissioned blockchain but for now, I will keep the discussion simple.
#1. Public Blockchain [Permissionless Blockchain]
A public blockchain as it appears from its name is open to the public. You can consider it as ‘for the people, by the people, & of the people.’
And with that said, the public holds power here, and no one is the in charge.
Anyone can join public blockchain and read/write/audit it because it is freely available in public. This brings the much need transparency of data or transactions happening on the blockchain because anyone can audit the blockchain.
For writing on the blockchain, of course, one needs to do some work, but there is nothing to stop you to join a public network and participate in it provided you adhere to the protocol rules.
So here, the code or protocol is the in-charge and not one person in particular, and this naturally invites a question, then how the public blockchain works?
Well, public blockchains have incentive systems built in which rewards fair behavior and punishes unfair behaviors.
- Example of public blockchain: Bitcoin or Ethereum
Bitcoin is a public blockchain where miners engaged in mining to write transactions or blocks on the chain. Any fair miner who abides by the rules and does mining by running a full node is rewarded by 12.5 BTC per successful block mined.
Whereas any fraudulent miner doesn’t get this plus he/she losses on the computational cost that he/she has put in to cheat the system.
Similarly, users use Bitcoin because it is a borderless and decentralized way to transfer value (money) for cheap and developers build it for the freedom.
Moreover, because of this mining or proof of work consensus built into the public blockchains, they are trustless. So you don’t need to trust the other party to pay you instead you need verify it on the blockchain.
- Anyone can run BTC/ETH full node and start mining to participate in consensus.
- Anyone can make transactions on BTC/ETH chain
- Anyone can review/audit the transaction on the blockchain.
#2. Private Blockchain [Permissioned Blockchain]
Whereas private blockchains are private as their name suggests.
An individual or an organization employ a private blockchain, and unlike the public blockchain, here there is an in charge.
You think of it is a DBA- Database administrator who gives access and rights to other people as for what they can and cannot do in a database.
Similarly, for private blockchains also you have an administrator who decides who will get what access.
And unlike the public blockchain, not all can participate here in consensus thus not all parties can write on the blockchain.
Forget about writing, the view or read access is also limited and not given to all.
Now, some of you would be thinking, for what this blockchain might be good?
Well, these types of blockchains are good for enterprise-grade where privacy and contractual obligations need to be respected.
But this type of blockchain brings much need internal transparency and quick audit abilities for enterprises.
And not only this, many parts of the business/operations can be automated through it, and the law of the land, i.e., business logic, as well as business regulations, can be encoded on such types of the blockchain.
Of course, this type of blockchain can also have a consensus mechanism, but it is generally centralized and can be called as proof of authority instead of proof of works where the in-charge just oversees and signs.
Therefore, there is no as such mining of transactions, and the blockchain explorer is not for everyone’s use.
Example of private blockchain: Multichain, Hyperledger’s applications
- Anyone can’t run a full node and start mining.
- Anyone can’t make transactions on the chain.
- Anyone can’t review/audit the blockchain in a Blockchain explorer.
#3. Federated Blockchain [Permissioned Blockchain]
But isn’t having one person or organization as in charge is fearful? Because a lot of power can be vested in just one entity’s hand.
So as a solution to that, federated blockchains have emerged. They are also called consortium blockchains that are run by a group of people or organizations.
In short, instead of having one person or entity now you have a group of people with similar powers running the network and making decisions in the best interest of the network.
The best way to understand this could be, let say we have a consortium of 10 banks who run a blockchain. These banks settle their transactions on the blockchain and keep adding new transactions to the blockchain/ledger if more than five people have voted/signed that block/transaction.
This way they can make a cost-effective historical ledger which only these ten parties control and to enforce any change you need to have a consensus of atleast 5 participants, protecting the network against single point failures.
In such type blockchain:
- Members of the consortium can run a full node and start mining.
- Members of the consortium can make transactions/decisions on the chain.
- Members of the consortium can review/audit the blockchain in a Blockchain explorer.
Conclusion: Which Blockchain Types You Would Like To Use For Your Business?
|Private Blockchain (Permissioned Blockchain)||Public Blockchain (Permissionless Blockchain)|
|Replace legacy systems and make them more efficient.||Disruption of centralized business models to welcome a decentralized model|
|Might require serves||No serves and no server cost|
|No mining, no expensive consensus||Energy-intensive mining|
|Highly scalable||Less scalable|
|Reduces transaction costs and data redundancies||Reduces transaction costs and remove censorship|
Before answering this question, let me tell you a bit more about the idea behind private and consortium blockchains.
Well, when people realized the potential of blockchain with Bitcoin and Ethereum, the private companies thought why not create private or permissioned blockchains/distributed ledgers for businesses where few entities will control the blockchain.
This way they thought that more efficiency, scalability, and automation could be brought to their businesses. And that’s how the idea of private blockchains was incubated.
The type of blockchain you should use really depends upon the kind of requirement you have:
- If you want decentralized and censorship-resistant blockchain, go for public blockchains.
- Or else if you want centralized or semi-centralized distributed ledger, go for private/consortium blockchain.
So that’s all from us today, and we hope this article will help you understand the difference between private and public blockchains.
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