Table of contents
Public blockchain
Private blockchain
Consortium blockchain
Which type of blockchain is more advantageous?
Summarize
When Bitcoin came into being, it also laid the foundation for the development of the underlying technology of its underlying protocol, which is blockchain. People who are eager to innovate have now discovered the potential of this technology and are exploring possible applications of blockchain technology in every industry.
Bitcoin is a so-called cryptocurrency, a form of digital cash that is not controlled by anyone. Unlike other technologies, it combines distributed database technology, economic incentives, and encryption to form a broad ecosystem without a leader or administrator.
In the more than a decade since the creation of the Bitcoin network, the data structure it uses has gained widespread traction across industries, and now blockchain technology is being experimented with in a wide range of industries, from finance and supply chains to legal systems and government.
In case you missed our beginner's guide to blockchain technology: A blockchain is a simple data structure that cannot be modified but can be expanded. It may help to think of it as a spreadsheet, where each cell points to the previous one, so any changes to the previous cell are immediately visible. Typically, blockchains store information about financial transactions, but it can be used with any type of electronic data.
To keep with our spreadsheet analogy, let’s assume that the document can be modified by multiple parties. Each person can run specialized software on their device and can connect with other devices, so that all participants have access to the latest database.
There is no central authority to get information from (the network is distributed). This means that information travels slower, but it makes the network very powerful in terms of security and redundancy.
Below, we will examine three types of blockchains: private, public, and consortium. Before we do so, let’s reiterate what these three types of blockchains have in common and some key features:
Append-only ledger – To be a blockchain, the system needs to follow a chain of blocks, where each block is linked to the previous one. If our blockchain is a collection of cells in a spreadsheet, a block is a single cell.
Peer-to-peer network – Each participant on the network has a copy of the blockchain’s data. These participants are called nodes and they interact in a peer-to-peer manner.
Consensus Mechanism – There must be a mechanism for nodes to agree on the correctness of transactions propagated across the network to ensure that false data is not written to the blockchain.
The following table summarizes some of the key differences.
Public blockchain
If you’ve used cryptocurrency recently, you’ve most likely interacted with a public blockchain. This type of blockchain encompasses the vast majority of distributed ledgers in existence today. We call them “public” because anyone can view the transactions that take place, and can join in simply by downloading the necessary software.
We also often use the term "entry restriction" in public. There is no regulatory party that can prevent participation, and anyone can participate in the consensus mechanism (for example, through mining or staking). Since anyone can join freely and be rewarded according to the role they play in reaching consensus, we expect to see a highly distributed topology on public chain networks.
Likewise, we expect public blockchains to be more audit-resistant than private (or semi-private) ones. Since anyone can join the network, the protocol must include some mechanism to prevent malicious actors from gaining anonymity and gaining an advantage.
However, public chains also make trade-offs in terms of security and performance. Many servers on public chains encounter expansion bottlenecks and have relatively weak throughput. In addition, it can be challenging to push changes to the network without splitting the network, as it is less likely that all participants will agree on a proposal at the same time.
Private blockchain
In stark contrast to the permissionless nature of public blockchains, private blockchains establish access rules for who can view and write to the blockchain (they are permissioned environments). Private chains are also not decentralized systems, as there is a clear hierarchy in terms of control. However, they are distributed, and many nodes still maintain a copy of the blockchain on their computers.
Private chains are more suitable for enterprise maintenance because enterprises hope to enjoy the advantages of blockchain without allowing external networks to access them.
In some private chains, proof of work is redundant in the context of the security model. However, it turns out that proof of work is necessary for an open environment. In private blockchains, not using PoW does not pose a serious threat because the identity of each participant is known and managed manually.
In this case, a more efficient algorithm is to use designated validators, which are nodes that are selected to perform certain functions for the purpose of performing transaction verification. Generally speaking, this includes nodes that must sign on each block. If a node has malicious behavior, it can be quickly discovered and removed from the network. With this top-down control of the blockchain, it is much easier to coordinate the entire system.
Consortium blockchain
Consortium blockchain is between public and private chains, combining the characteristics of both. In terms of consensus, we can observe the most significant difference between consortium chains and private and public chains. Consortium chains treat a small number of participants with equal power as validators, rather than an open system like public chains, where anyone can verify blocks, or a closed system like private chains, where only one entity is allowed to appoint block producers.
From here, the rules of the system are very flexible: visibility of the chain can be limited to validators, authorized personnel, or visible to everyone. Modifications can be easily made as long as consensus is reached with the validators. As for the functioning of the blockchain, if these participants can act honestly according to the preset threshold, the system will not have any problems.
In an environment where multiple organizations operating in the same industry need a common infrastructure to conduct transactions or relay information, a consortium chain will be the best choice. Joining such a consortium chain is also very beneficial for organizations because it will enable them to share insights into the industry with other participants.
Which type of blockchain is more advantageous?
In essence, public, private, and consortium chains are not contradictory, they just use different technologies:
Well-designed public blockchains tend to be more audit-resistant, but at the expense of lower speed and throughput. These are the best options for providing security guarantees for transaction settlement (or smart contracts).
A private chain can prioritize the speed of the system because it does not have to worry about core failures like a public blockchain. Ideally, a private chain is deployed in a situation where an individual or organization has control and information is kept confidential.
Consortium chains mitigate counterparty risk in private chains (by eliminating centralized control), and the smaller number of nodes generally enables them to operate more efficiently than public chains. Consortium chains are suitable for organizations that need to communicate with each other.
Summarize
There are a plethora of blockchain options for individuals and businesses engaged in a variety of activities. Even within public, private, and consortium blockchains, there are many different user experiences depending on the complexity. Depending on the actual use case, users can choose the product that best suits their goals.