Utilization of Distributed Technologies for Custom Solutions: Public, Private, and Hybrid Configuration Variations
Private, Public, and Hybrid Blockchain Platforms
The basic theory of blockchain seems to have been mastered by everyone in the cryptocurrency business market, yet the attitude toward blockchain among specialists is still mixed, with the number of its diverse application possibilities growing daily.
To understand the essence of the blockchain, it is important to see the diversity of this technology and its evolution. Originally, it was developed as an open platform (free access to the network, lack of identification of participants in the system, control exercised by an entire community of network participants). Nowadays, the emergence of new types of distributed-ledger technology (private, hybrid, or exclusive), with elements of centralization (full or partial) and control, is the general trend.
So, what is blockchain?
Blockchain is a distributed database that consists of a continuous and consecutive chain of blocks in which groups of transactions are recorded. Each block contains information about the previous block. This database is stored on different computers, is periodically synchronized, and does not belong to anyone specifically. Data that has been entered into the database cannot be changed or faked. The technology can be extended to any interconnected blocks of information.
One of the main advantages of using blockchain is the transparency of transactions. All operations are made in the same environment, and can be easily tracked by checking the relevant addresses. For instance, in the Bitcoin blockchain, in order to verify the reliability of a transaction, miners automatically “run” its content through a cryptographic algorithm, thereby verifying the correctness of the digital signature of each transaction’s sender. In this way, they confirm the transaction in terms of compliance with the conditions laid down in the consensus algorithm of each particular block.
This means that any user’s current transaction is protected by the entire history of all records in the blockchain. If someone wants to make a fraudulent transaction or change the balance, he or she must change one of the previous blocks (which contains several transactions) on all nodes that exist in the network. Blockchain is characterized by a distributed point of failure, which increases the severity of the system damage at times while increasing the security of data protection.
Some of blockchain’s other advantages are:
- It can improve the efficiency of financial systems and event-driven IT systems, ensuring their authentication and fostering administrative procedures. Efficiency will increase due to cost reduction of business-plan implementation through verification of the reliability of information.
- It is safer, and provides greater privacy for the user than existing database management systems, as all users and their activity are presented in an encrypted form which is also used in the most advanced systems related to digital signatures.
- It is more transparent: the information recorded in its registry block is publicly available, and can be checked at any time by any user.At the same time, it will remain unchanged. Such openness can also be considered a drawback, since that information can also be used for criminal purposes.
- It expands opportunities for the realization of human rights: the rights of all users are equal on blockchain, and its mathematical model is not affected by corruption or other human factors.
- It allows organization of self-government, eliminating the need for intermediaries and leading to decentralization.
The entire global ecosystem of blockchain can be divided into three large classes: public, private, and hybrid.
The public blockchain is a platform that allows anyone to read and make records while authenticating proof of the truthfulness of their actions. It is an open platform for all users. This type of technology is inextricably linked with the need to constantly prove the reliability and security of transactions. The users of the public blockchain have the opportunity to work on the platform, access to the records, and permission to make changes to the records.
It is believed that the public blockchain is a completely decentralized platform. All data on blockchain is open, though the personal information of all interacting participants can be hidden, as is done on the Bitcoin platform. Such openness has its advantages, including the ability to resist fraud (each participant sees all the balances on accounts and the passage of all operations). This also reduces the bandwidth of the system inside the network: a smaller amount of data is moved and it happens more slowly, as they all need to be duplicated by all parties.
In the public blockchain, all nodes must process each transaction. The system cannot perform calculations on a unified basis, which makes these complex, event-driven IT systems very expensive to use. In parallel, it does not have linear scalability. Even if you add an additional node to the network, its bandwidth will remain the same. The private blockchain has solved this problem. For example, BigChainDB already has linear scalability.
Here are a few known platforms of the public type:
- Bitcoin and its forks. Completely decentralized; allows you to work in different programming languages; doesn’t support Turing-complete smart contracts.
- Ethereum. Completely decentralized; allows you to work in different programming languages; based on Turing-complete smart-contract support; loyal to publishing distributed applications.
- Factom. More focused on working with securities. Basic functions: maintenance of documentation and registration of financial, commercial, legal, and other transactions. Interacts with state and business structures.
- Blockstream. This is a platform that allows fans to experiment with blockchain technology. The main direction is the expansion of Bitcoin capabilities.
Improvements to blockchain technology, such as the concept of Ethereum and others, can bring public platforms closer to the idea of “instant confirmation” (for example, making it possible to complete a block in 15 seconds).
The private blockchain gives the owner the exclusive right to make any changes. Access to records is issued by a central organization (for example, a central bank), but permission for reading may be open or limited. This concept may be of interest to financial institutions and larger companies, as it allows the building of large systems and the reduction of costs while improving efficiency. A consortium or company that manages a private blockchain may, if desired, easily set new rules, cancel transactions, correct balances, etc.
The private blockchain is more reliable in performance and has more functions than traditional databases, mainly due to its architecture. It allows, for example, unification of a consortium of 20 banks into a single database to save a huge amount of money. And this is only one of the possible use cases. In many ways, the private blockchain outperforms public blockchain in terms of speed. This is due to the fact that such a network can trust each of its nodes, without the need to run a proof-of-work mechanism for each transaction.
It is also cheaper in operational expenses. This is extremely important right now, as public blockchains are charging significant commissions for transactions.
In the private blockchain, an administrator makes a change, thereby informing all other network members about it. Consequently, participants have two options: to agree with the changes, or to disagree and leave the database, creating their own new network. From this point of view, the high cost of public platforms can be justified, as it ensures that database history remains unchanged and that transactions are not editable.
Editing of a database by an administrator in the private blockchain becomes possible, as there is no evidence mechanism that exists, for example, in the Bitcoin blockchain. If someone tries to change even one detail in a transaction that occurred a year ago, the system will allow it, but the block’s authentication hash will be completely changed and will not match the evidence, which is the hash checks that confirmed the legitimacy of the transaction a year ago. Thus, the whole data chain will be broken. To restore it, one needs to recalculate all the operations that have passed through the entire network during this period of time, which is impossible.
The hybrid blockchain (the so-called blockchain consortium) is a combination of the two previous types, public and private. The right to read and write records here can be extended to a certain number of people/nodes. In this case, they will receive restricted access to the database, work on their decisions, and support intellectual property rights within the consortium.
Examples of Public, Private, and Hybrid Platform Implementation
The trend of recent times is private blockchains under the order of Deloitte (with Rubix), Eris Industries, and AlphaPoint (with StreamCore) who sell ready-made solutions for business. Also, Microsoft, which began to offer “blockchain as a service” (BaaS) and private blockchain nodes. These were formed as quick-launch templates in the Azure cloud service. Finally, there is the option of the private blockchain, which simply unfolds on the desktop of a computer through MultiChain.
Public and private platforms can be connected, and this does not carry any risk from the point of view of information security for financial organizations. There are two associations that are able to change almost everything. They are the HyperLedger Project, which was created on the Linux Foundation platform, and Open Blockchain, in which IBM is engaged. The software of one is made in accordance with the Bitcoin model (UTXO), and the other is based upon another architecture, which provides storage of information about the balance of each account, as on Ethereum.
In fact, the HyperLedger Project, which is already in full-swing creation of its own privatized database, is vertically integrated, holding about 20–30 organizations. For them, blockchain is a real opportunity to make processes more orderly and transparent, while at the same time improving the effectiveness of IT systems.
Hyperledger is an open-source project that was born in December 2015. This project was implemented by the Linux Foundation, which intends to join forces in creating blockchain technology and distributed registry technologies that meet the specific needs of certain firms. Each participant (or, more correctly, each consortium) will be able to build their own platform in accordance with their needs. When creating them, they usually determine by themselves all the characteristics of the distributed registry: the type of automatically-executed records or contracts, the verification of criteria, and the consensus mechanism, privacy standards, access methods, etc.
There are also hybrid solutions on the market: for example, Ripple or Stellar. On the one hand, Ripple is a private blockchain in its purest form, administered by Ripple Labs. At the same time, it has its own token, which is called XRP. XRP, however, has only two functions. The first is to protect the system from spam: for posting an entry, an authorized user must pay a certain number of XRP tokens. And the second: the token acts as a unit of payment for the exchange of any national currencies within the system. Ripple Labs has also developed the Interledger protocol to connect block systems to a distributed register system, allowing payments through various networks using conditional deposits to process the flow of funds between two separate ledgers.
There is also a nice solution available with NEM blockchain, which is fast enough due to its reputational proof-of-stake consensus and easy to implement, as it was written in Java. The modular system of smart assets developed by NEM allows companies to create incredible opportunities for using applications in the real world. Using the built-in NEM functions to determine your intellectual assets and their associations, you can represent virtually any business transaction system on blockchain. The private blockchain option from NEM allows you to fully control the internal confidentiality of data.
NEM projects include:
- The Apostille tool, which is used to identify events by defining and fixing the time for corresponding files.
- The LuxTag solution, which is a real-time authentication solution to prevent forgery and theft (proof of ownership).
- NEMPay, which is an application for sending assets directly from mobile devices using the NEM Blockchain.
- The NEM Key Recovery Service, which is a way to create a private key for the NEC blockchain. This can be restored if you lose your key.
- NEMid, which is a secure way to enter the system. Using secure public-key cryptography, NEMid can sign you into compatible websites and applications with just an NEM account through a separate application.
- The NEM voting platform, which allows the creation of polls and voting capability on Blockchain NEM.
- NEM Microwallet, an extension in the Chrome browser that allows the user to quickly and easily use NEM wallet functions
- The Woocommerce payment plugin, which allows you to automatically accept payments from XEM from customers.
The Ethereum blockchain is mostly popular for its ability to create dApps on the public platform and for ICO operations, but it also has another means of blockchain-based application development. Ethereum allows the creation of a private chain called the Consortium chain. The main idea is to deploy the Ethereum network with controllable nodes, which means that the rules of smart-contract execution are defined by a consortium of node owners. This allows avoidance of high Gas fees for smart-contract execution of the public mainnet, and allows one to run a private version of a proven blockchain without the need to fork it. The key limitation is the speed of execution and reliance on the number of nodes, but it’s protected by the Gas and Solidity libraries, which are, in turn, protected by the public blockchain with its tens of thousands of nodes. Limitations of speed may be solved when the Casper protocol is deployed, but this is a question of time and testing. To ease the process of Ethereum consortium deployment, there are the Strato and Etheremint/Tendermint solutions.
As for Bitcoin, it is built on the public blockchain platform. All accumulated transactions within its system are packed in a block. Then, based upon all transaction data in the block, a “hash” is calculated. The hash is a sequence of letters and numbers, and is a guarantee that if just one thing is changed in a data block, each node will quickly learn about the attempt to falsify the transaction history. The Bitcoin blockchain uses the SHA-256 encryption algorithm. Each block in the system consists of a transaction, and must necessarily contain information about the previous block in order to be “accepted” by the system. This is how a payment transaction is accomplished. A message contains three elements: the sender’s address, the amount of money that is transferred from one digital wallet to another, and the recipient’s address. The user sends the entire contents of the electronic wallet every time: one part to the recipient, the rest to him- or herself. The sender appeals to the system with the application, and signs in with a private key. The message enters the system and queues up. Network nodes check the transaction, then confirm it, and it becomes part of one of the blockchain blocks. Once the block is formed, the system generates a unique hash. Having completed the creation of a new block in the chain, the miner receives a reward.
The beAchain blockchain is simultaneously private, public, and hybrid, depending upon the protocols used. For example, it can be used for production (cars, energy, inventory management, product tracking), online services (insurance, transfers, account tracking), organizations’ events in the media (pay-per-view), transport (VTC, packing materials, ticketing services), contracting between objects (property division/establishment of ownership and verification of authenticity of STL files), or as a platform for exchange.
The beAchain is a blockchain currently under development that allows its users to develop their own secure, peer-to-peer applications, even for those who are not computer technology specialists.
Blockchain is socially oriented. There is no administrative body in which this technology could not optimize the processes of data storage and communication. It will reduce expenses for the maintenance and operation of server equipment, and bring a new type of interaction between citizens, without mediators and regulators with their rules and commissions.
Companies that implement blockchain technology can reduce costs, improve the reliability and security of their databases, optimize and accelerate exchanges with third parties, provide instant payments for a small fee, and offer new services. They can also improve and rationalize their internal activities — the processes they have with customers and suppliers. As a result, they can independently transform their activities, completely or partially, into a “chain of blocks.”