What are Public, Private and Hybrid Blockchains?

Before we dive into different types of Blockchain, we need to know the difference between permissioned and permissionless Blockchain.

In a permissionless Blockchain, the consensus allows all nodes to have equal rights such as data access, creating transactions, validating transactions and producing new blocks.

In a permissioned blockchain, the consensus does not allow all nodes to have equal rights to access data, creating transactions, validating transactions and producing new blocks. For example, a permissioned chain might select a few nodes to produce new blocks only.

There are 3 types of blockchain implementations, ie public, private (managed) or hybrid.

A public Blockchain is one that allows anyone to join. They are usually permissionless. The assumption is that every node will be rewarded monetarily by being honest and performing its duty impartially. In the case of mining, the node that finds the next block will be rewarded with some of the chain’s cryptocurrency. Because the monetary incentive is good, it is assumed that most of the participants will not be malicious, thereby achieving high decentralisation.

However, as it is a trustless system, there still needs to be a defense mechanism (Byzantine Fault Tolerance) against malicious actors. Depending on the consensus, the requirement might be that certain percentage, for example more than 50% of the nodes must be honest in order for the blockchain to be functional.

There are many successful public blockchains such as Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Monero…etc.

It is also important to note that a public Blockchain can be permissioned. One example is EOS where there are only 21 block producers in the entire network.

A private Blockchain is a closed blockchain where privacy is important. Every participating node is pre-selected and vetted. Since it is a trusted network, the motivation behind the participating nodes might not necessarily be monetary. In most cases, for example, like in a consortium, the participating nodes are implemented compulsorily because of business collaborative requirements. In this scenario, Byzantine Fault Tolerance might not seem as critical when compared to a public Blockchain. This again is subjected to debate (to be discussed later).

Successful managed Blockchains include Hyperledger Fabric, Hyperledger Sawtooth, Quorum…etc.

It is possible to have permissionless private chains but most of them are usually permissioned with very clear segregation of duties. Take Hyperledger Fabric for example, there are clients, endorsing peers, committing peers and orderers.

Hybrid Blockchain

At the moment, a very decentralised (usually public) Blockchain has a very low transaction speed. The Ethereum mainnet for example averages about 12 tx/s. On the other hand, a less decentralised (usually private) Blockchain can support much faster transaction speed because the consensus finality is much faster. For example, a 7 node Quorum network averages up to 100 tx/s.

The result is clear. The Blockchain Trilemma says that a Blockchain cannot scale at the expense of decentralisation or security. Since decentralisation is key to providing a trustless system, how can we have a truly decentralised Blockchain that is also fast and secure?

A promising solution at the moment is a Hybrid between the private and public Blockchain. In a Hybrid Blockchain, every transaction can happen quickly in its own private chain and commit only to the public chain as and when necessary, for example when public verification is required. This will provide the immutable trust from the public Blockchain as well as the scaling from the private Blockchain. Layer 2 solutions and Side-chains are variations of this concept.

Use Cases

At the moment, a public Blockchain is absolutely necessary if we require full public participation to ensure decentralisation in order to achieve a fully trustless system. Some use cases include currency payments, certifying product authenticity, global identity management…etc.

If only a few closed parties and privacy are involved, we could achieve high throughput and locked down security using a private Blockchain. Some good use cases of private Blockchains include interbank settlement, supply chain traceability, medical and military records…etc.

Is it Justifiable to Use the Blockchain without Decentralisation?

One of the biggest argument against private Blockchains is whether one could trust the chain at all since it has little or no decentralisation. Some private Blockchains don’t even have BFT consensus. If that’s the case, many people argued that we should instead use a centralised database.

On the Concept of Decentralisation

Even the word “Decentralisation” is subjected to many definitions. So far, we have been referring it on the node (infrastructure) level. It makes sense to define decentralisation in a broader scope to include governance, developers, client codebase, exchanges…etc. For example, cryptocurrency like TRON was meant to be decentralised on the Ethereum network but yet its token contract was centralised. EOS is meant to be a decentralised public chain and yet the 21 block producers have the power to freeze accounts and form a cartel ring to vote for each other.