The 4 Types of Blockchain Networks Explained
One of the questions I commonly get asked is what is the difference between public and private blockchains. It is easy to see why people get confused as public and private blockchains have many similarities.
- Both are decentralized peer-to-peer networks, where each participant maintains a replica of a shared append-only ledger of digitally signed transactions.
- Both maintain the replicas in sync through a protocol referred to as consensus.
- Both provide certain guarantees on the immutability of the ledger, even when some participants are faulty or malicious.
There are two other types of blockchain networks being introduced – consortium and semi-private blockchains.
Semi-private blockchains are run by a single company who grants access to any user who qualifies, and they typically target business-to-business users. They will be similarly managed as a company would manage private web applications. Examples of semi-private blockchains could include ones for government entities for record-keeping, land titles, public records, etc.
- Launching a semi-private blockchain more closely resembles how a company runs a website.
- The business case is typically well planned ahead of implementation, and supports existing business, thus lowering the risk of failure.
- Companies can more easily integrate blockchain features into this article, I will provide a short explanation on how each blockchain network works, along with what are the advantages of each network.
A consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes, for example, a consortium of 15 financial institutions, each of which operates a node and of which 10 must sign every block in order for the block to be valid. The right to read the blockchain may be public, or restricted to the participants. Some examples of consortium blockchains include R3 (banks) and EWF (Energy). Consortium blockchains are also referred to as federated blockchains.
- Reduces transaction costs and data redundancies
- Replaces legacy systems, simplifying document handling and getting rid of semi manual compliance mechanisms
A public blockchain is a blockchain that anyone in the world can read, send transactions too and expect to see them included if they are valid, and anyone can participate in the consensus process – the process for determining what blocks get added to the chain and what the current stat is.
Public blockchains are secured by cryptoeconomics – the combination of economic incentives and cryptographic verification using mechanisms such as proof of work (Bitcoin) or proof of stake (Ethereum). These blockchains are generally considered to be “fully decentralized.” One of the drawbacks is the substantial amount of computational power necessary to maintain a distributed ledger at a large scale.
- Public blockchains provide a way to protect the users of an application from the developers, establishing there are certain things that even the developers of an application have no authority to do.
- Because public blockchains are open, they are likely to be used by very many entities, with no third-party verification necessary.
A fully private blockchain is a blockchain where write permissions are kept to one organization. Read permissions may be public or restricted to certain participants.
- The consortium or company running a private blockchain can easily change the rules of a blockchain, revert transactions, modify balances, etc. For example, in some case, such as national land registries, this functionality is necessary.
- The validators are known, so any risk of a 51% attack from some miner collusion does not apply.
- Transactions are cheaper, since they only need to be verified by a few nodes that can be trusted to have very high processing power with no need to be verified by 10,000 nodes.
- Since read permissions are restricted, private blockchains provide a greater level of privacy.