Different types of Blockchains
There are many different types of distributed, decentralized databases. The following is a summary of what these are and how they are related. The Distributed Ledger Taxonomy provides an overview here.
An article by Raphael Iten and Severin Kranz
Blockchain vs. Central Databases
A classic database typically uses a client-server network architecture. A user (client) with privileges associated with his account can modify entries stored on a central server. When a user accesses a database from their computer, they receive the updated version of the database record. Control of the database remains with the administrators. A distinction can be made between central databases (e.g. MySQL) and decentral databases (e.g. NoSQL), whereby the latter store data multiple and distributed for reasons of stability and redundancy.
In contrast to classical databases, new entries of a Blockchain are maintained, calculated and updated by the participants themselves. All nodes work together to ensure that they all come to the same conclusions and thus offer integrated security for the network. Of particular interest in this context is the fact that only the Blockchain has managed to combine existing concepts such as P2P, cryptography, consensus procedures and smart contracts to design all incentives in a way that collaboration always remains the most attractive alternative and no one can benefit at the expense of the other. A Blockchain in its function as a transaction register thus enables a trustless form of collaboration. The high degree of decentralization results in efficiency losses, which are reflected in network speed and energy consumption. Centralized databases thus remain more powerful for other functions. To counteract this, there are now different types of distributed ledger technologies, some of which can no longer be described as Blockchains in the technical sense.
Private vs. Public
The different types of Blockchains are based on one question:
Who is allowed to participate in the network and the consensus protocol and keep its transaction register?
This leads to the distinction between public vs. private (who) and permissionless vs. permissioned (what). In addition, there are now different hybrid forms between public and private Blockchains. An example is when a private Blockchain is secured on a public Blockchain.
Public Blockchains (who) such as Bitcoin or Ethereum are, as the name suggests, based on public network structures. In principle, every participant may participate in this network and in the consensus procedure for the validation of transactions. In addition, the Blockchain is managed at all participating network nodes and is characterized as a completely decentralized and democratized network solution.
Private Blockchains (who) are not public and participation requires an invitation and verification to participate in the network. These participants then determine as a group what the consensus procedure looks like and also operate it within the network. As a result, such private networks continue to be distributed network concepts that take up the cryptographic advantages of a Blockchain and can thus be assigned to Distributed Ledger Technologies. However, they are not completely decentralized, since the framework is defined by the participants.
Permissioned Blockchain (what/what) combine the two concepts of private and public. Participants do not need a special invitation but can participate in the network based on defined criteria. In addition, clear permissions and functions of a participant can be linked to the participation criteria via such constructs. Permissioned Blockchains are currently little used.
Currently, public and private Blockchains dominate the market, with public Blockchains such as Bitcoin and Ethereum embodying the original properties of a Blockchain and the idea of decentralization. Despite this, private Blockchains such as Hyperledger Fabric and Corda are now gaining acceptance in the corporate environment. The latter is backed, for example, by the international R3 consortium. The reasons for this are that public Blockchains still have scalability problems. In addition, it remains unclear to what extent public Blockchains can ensure data protection. Even though private Blockchains, unlike public Blockchains, do not pursue the goal of replacing intermediaries through complete decentralization, they still offer many advantages. Compared to central databases, cryptographic encryption and smart contracts can be used to create trust between different parties and benefit from low transaction costs. For example, in the banking environment, an international payment network can be set up for the first time that does not provide for a central administrator but leaves control over transactions to the participating authorities. Similar approaches, which use private Blockchains, can also be found in the area of supply chain or the Internet of Things.
Today a consolidation in the market is increasingly observable.
mm1 supports you all the way from the generation of ideas via the choice of technology and partners to the realisation of your Blockchain initiatives. Contact our Blockchain team and work with us on your Way of Success.
This article is part of an article series on blockchain technology. Read more articles from our blockchain team:
1. Blockchain in 100 words
2. 6 Myths about blockchain
3. Distributed ledger taxonomy
4. The token economy
5. Application areas of blockchain technology
6. mm1 blockchain use case assessment
7. Blockchain in the mobility sector
8. mm1 roadmap for blockchain initiatives
Raphael Iten is an experienced entrepreneur in sustainability management. Through his experience as a consultant in the insurance sector and platform construction for telcos, he considers and combines different approaches to solutions. In his academic career at the University of St. Gallen, he examines success factors of active Blockchain projects in the insurance industry.
Severin Kranz has worked for several years as a consultant in the fintech sector and in asset management. Since 2015 he has also been intensively involved with crypto currencies and distributed ledger technologies. Through his Master in Business Innovation at the University of St. Gallen, he has specialized in business model innovations as well as human-centered innovations through design thinking.
