Blockchain vs Distributed Ledger Part 1
On your blockchain journey, you will often hear some relative comparisons between:
- blockchain vs distributed ledger technology (“DLT”)
- public vs private blockchain
- permissioned vs permissionless blockchain In this article, we take a step-by-step approach in clarifying the classifications for you. Classification is important in two ways:
- It will clarify which blockchain technology suits your needs the most
- It provides an organised structure of knowledge and is essential for learning something as complex as the blockchain technology.
Distributed Ledger vs Blockchain
Breaking the definitions down one step at a time:
1. A ledger is defined here as a record of ownership and these can be:
- centralised (a single party like a bank owns and controls the records)
- distributed (shared control of records)
2. Looking deeper into distributed ledger, for simplification we can say it must have a) a ledger which b) multiple parties use and c) is stored across multiple locations.
3. A blockchain is one type of distributed ledger, where data is distributed across all public participants. Examples include the public bitcoin and the public Ethereum blockchain.
4. Another type of distributed ledger can have data not shared across all participants but instead only a selected private group. An example would be R3’s Corda. The difference is how much they share and with whom they share with.
Public vs private blockchains
We can look at a public (open) ledger as one which:
1. Allows anyone without permission granted by an authority, to write data
2. Allows anyone without permission granted by an authority, to read data
Alternatively, a private (closed) blockchain network is where those who can write and read data are participants that are known and trusted, for example, a group of subsidiary companies under a parent organisation.
From a technology perspective, private blockchain are more simple as many of the trust mechanisms are not needed — you have trust because there’s a legal or social contract which makes you behave in the right and expected manner so there’s no need for consensus mechanisms to align incentives.
Private blockchains are valuable for solving efficiency, security and fraud problems within traditional institutions, but most likely bringing incremental positive impact. Public blockchains holds the potential to replace traditional functions and roles with technology and fundamentally reshaping social and business models.
Public blockchains are considered less trusted environments due to the fact that anyone, including malicious participants, can join the network. As a result, an incentive mechanism that rewards hoenst behaviour among participants is employed with the aim of preserving the integrity of the network. An example of this is bitcoin, where miners are rewarded for their effort with a share in the profit of a transaction.
Another very simplistic comparison for illustrative purpose is that the public blockchain is like the internet and the private blockchain is like the intranet.
An summary of public vs private blockchain
Public blockchain has:
- Open access
- Pseudonymos or anonymous identity
- Slower speed
Private blockchain has:
- Permissioned access
- Known identity
- Faster speed
Permissioned vs Permissionless
While the public/private classification depends primarily on the identity of the relevant party, permissioned/permissionless networks are driven by the trust factor in the validators.
In a permissioned ledger, the member of the network are issued keys that are registered at the network level and part of the governance process of the network (for simplicity you can think of these as ‘membership cards’). In a permissioned network, you do not have to mine because the trust is already established and as such the speed of transaction is faster (for example Hyperledger Fabric can allow for thousands of transactions per second).
This is in contrast to permissionless networks where you require a mechanism in an anonymous environment to gain trust from its members (say for bitcoin, you give them hard cryptographic algorithms to solve and if they dedicate their resources to solve it they become trustworthy).
Going back to the first table, we can now classify different blockchain and distributed ledger technology applications as follows:
- Public permissionless network: Anyone can download the protocol and validate transactions e.g. Bitcoin (Proof of Work).
- Public permissioned network: Anyone who meets a pre-defined criteria can download the protocol and validate transactions e.g. Ethereum after Casper (Proof of Stake).
- Private permissionless network: Anyone within the control of the same organisation (network operators) can validate transactions (‘an internal blockchain’) e.g. Internal ledger shared between parent and subsidary, Federated Byzantine Agreement.
- Private permissioned network: Only members of a consortium or group can validate transactions e.g. Multiple companies operating a shared ledger.
If we look at the key factors of a distributed network, we can break it down as follows:
Public permissioned network has:
- High user anonymity
- Moderate immutability
- Moderate scalability
Public permissionless network has:
- High user anonymity
- High immutability
- Low scalability
Private permissionless network has:
- Low user anonymity
- Low immutability
- High scalability
Private permissionless network has:
- Moderate user anonymity
- Moderate immutability
- Moderate scalability
High anonymity and hence the requirement to ‘establish trust’ requires a higher degree of processing which slows down the network (lower transactions per second capacity) and reduces scalability.
(Source: Pavel Kravchenko)
