What type of blockchain would be most beneficial for your business?
If you are starting to think about how your business can best take advantage of blockchain technology, you are probably asking yourself which type of blockchain is right for you and your company. While enthusiasm for blockchain and the decentralized applications it supports is now widespread, there is still a great deal of uncertainty over the specifics of different types of chains and their best uses. This article aims to help business leaders understand which form of blockchain technology might better suit their specific needs.
The following paragraphs will outline the key differences between permissioned and permissionless chains, as well as explain the key BSN innovation of the open permissioned blockchain.
What is a permissionless blockchain?
Starting this survey of blockchain types and the business applications they can have with so-called permissionless or public chains is sensible from the point of view that this is the most familiar and widely known approach to blockchain.
This is because cryptocurrencies rely on and are almost always based on permissionless chains. This means that anyone who has some familiarity with Bitcoin or other major cryptocurrencies already has some understanding of permissionless chains and how they work.
As the name suggests, a permissionless chain is a fully open system that allows anyone to become part of the network in return for contributing their processing power to this network. In effect, this means people connect to the network and use their processing power to maintain the decentralized ledger, which records and verifies all the network transactions.
Permissionless chains, therefore, have the following characteristics:
1. They provide anonymity to their users, who do not have to give any personal information that could identify them outside of the network unless they choose to.
2. They are transparent because all data within the ledger is publicly available to network participants.
3. They are decentralized, both in the sense that the data is not stored in a single location but is distributed across all nodes of the network and in the sense that there is no central authority or system admin who can alter network protocols or edit the ledger.
4. Finally, permissionless chains often use tokens to incentivize participation in the network. Cryptocurrencies and other digital assets are simple tokens distributed to network participants to give them a reason to continue maintaining the network and offering their processing power.
While much of the initial excitement over blockchain was due to the popularity of permissionless blockchains and the cryptocurrencies launched on them, permissionless chains may not be the best form of blockchain for many enterprise uses for reasons explored below.
How are permissioned chains different?
Permissioned chains, sometimes referred to as private blockchains, have been of much more interest to businesses trying to solve concrete problems.
This is because permissioned chains allow for the benefits of storing and transmitting data via a decentralized ledger but crucially allow for more oversight and easier network administration. In a permissioned blockchain, would-be participants need to have permission granted by the network owner, enabling much greater scrutiny of who the participants are.
This reduction in anonymity allows businesses to be confident that they are dealing with who they think they are dealing with, making fraud and criminal activity much easier to detect. By having well-defined governance structures for the network, businesses can interact with both their customers and their suppliers with a higher degree of confidence and trust than would be the case in a fully open and permissionless setting.
The governance structures agreed by the network members can specify the exact degree of decentralization, as well as which information is available, to who, and when. Thus, private blockchains can replicate many of the advantages of public chains but with added customizability and a more remarkable ability to monitor and oversee the network.
What is a 'hybrid' blockchain?
A new type of blockchain attempts to combine private and public features of permissioned and permissionless networks. Such networks are commonly called hybrid blockchains, one of the most prominent of which is provided by the BSN.
The BSN Open Permissioned Blockchain (OPB) adapts public chains in two ways: it allows for some permissioned controls to be introduced, and the OPB allows payments between participants in the network to be made in fiat money than in cryptocurrencies.
These two changes have a hugely significant result: they make applications running on permissionless chains compliant with Chinese regulations and legal to use for consumers and businesses within China. More details on this aspect of the OPB project can be read here.
From a business point of view, the OPB has several features that make it very attractive.
1. Firstly, the ability to design a bespoke validation mechanism means groups of companies can deal with each other through the network with total confidence that transactions are secure and only accessible to those who have been granted the correct permissions. Banks and other financial institutions, for example, highly prize this ability.
2. However, unlike private chains, with the OPB, a consortium of companies would not have to build and maintain their private ledger. Still, it can simply use a modified version of a public chain such as Ethereum. An OPB version of Ethereum is already available, along with a further range of chains, with more being added in the coming months.
3. Finally, by harnessing the utility of public chains and adding in some private features via the BSN technical architecture, OPB networks can be accessed at a much-reduced cost to participants, both in terms of the time required to build and deploy applications as well as in terms of the monetary cost. This has enormously lowered the barrier to entry facing new entrants to the blockchain world, thus enhancing the opportunities to take advantage of blockchain technology for SMEs.
Which is right for your business?
This survey has introduced the three main types of blockchain available to commercial clients today. Each type of network has its strengths and weaknesses, and each might suit a different kind of business usage best.
For example, an entrepreneur looking to launch a cryptocurrency would undoubtedly be best to select a permissionless, public chain on which to do so.
However, public chains may not be the most suitable approach for a wider range of business uses.
Inevitably, most businesses will require a certain degree of privacy and control over their networks. This is true because companies have a responsibility to protect their systems from outside hackers and ensure the smooth functioning of the network; some centralized permissions are essential to prevent random and potentially hostile access to the system.
This suggests private networks are best suited to most business purposes. The fact that private networks are generally more efficient due to fewer participants further reinforces this notion.
However, the hybrid approach may be an equally valid way for many businesses to go, because the hybrid approach can marry the best of both public and private chains and provide superior outcomes for businesses large and small.
Key advantages of the OPB approach
A network with both public and private components can achieve superior interoperability than either fully private or fully public networks. Chains can communicate with each other through the OPB network, allowing much more flexibility at both the network level and for the individual participants within the network to design and run their internal company chains if they so wish.
A further advantage is provided when we consider scalability. Because the OPB network integrates multiple chains based on familiar public chains like Ethereum, there is much more potential to scale the network up. Within the OPB network, faster transaction speeds can be achieved without compromising the cryptographic validation of every transaction on the chain.
Finally, the cost savings from the OPB hybrid approach are substantial and will inevitably be a significant factor in the pace at which the new entrants to the sector integrate blockchain solutions into their current IT architecture. BSN has achieved a market-leading position in hybrid blockchain development and the technical infrastructure required to keep such networks running smoothly. In this way, BSN can offer cutting-edge technology at low fees relative to the broader market.
Ultimately, the choice of a type of chain will come down to the business's priorities in question, but there is an emerging consensus that many business uses will be best served through a hybrid approach such as the OPB.