Everything You Need to Know About Public, Private, and Consortium Blockchain
Today, blockchain technology has drawn the attention of many individuals and corporations because of the advantages that blockchain technology provides such as privacy, security, and transparency. However, the sole reason for people to be interested in blockchain technology is cryptocurrency. Unfortunately, people use the word “blockchain” and “cryptocurrency” interchangeablly due to lack of knowledge in the fundamental concepts of blockchain technology. All we hear from people are the price of cryptocurrencies went up and down. Nevertheless, cryptocurrency is one of the use cases that blockchain technology provides. To understand blockchain technology in a nontechnical and simplified way, we need to discover some history of blockchain technology.
The Evolution of Blockchain Technology
In late 2008, Satoshi Nakamoto has first introduced Bitcoin that uses blockchain technology. In his paper, “Bitcoin Peer-to-Peer Electronic Cash System,” stated that the Bitcoin network uses blockchain technology to record transactions. Therefore, the blockchain is responsible for storing transactions on a trustless peer-to-peer or decentralized network. As Bitcoin becomes more popular, many developers contributed to enhance or develop new protocols (altcoins) that operate on separate blockchain networks. It is true that altcoins use different blockchain networks. However, altcoins use blockchain technology to achieve some of the advantages that we have mentioned earlier. Nevertheless, in 2013, Vitalk Buterin introduced the second generation of blockchain technology. In his Ethereum Whitepaper, Vitalk mentioned that instead of separate blockchain networks for different cryptocurrencies, he introduced a single programmable blockchain network that can be used to build different types of applications. These applications can be built on smart contracts, which can be built with high-level programming languages such as Solidity. Moreover, smart contracts can be deployed on Ethereum blockchain. Therefore, the second-generation blockchain technology can be used in building many types of applications such as supply chain, healthcare, IoT, land registry, and so on.
Now, we understand that cryptocurrency is not the only use case of blockchain technology, and cryptocurrency is not the blockchain itself. It is crucial to understand the types of blockchain technology that are used in each sort of applications.
Public Blockchain
A public blockchain is a distributed and public ledger, which maintains the records of all the transactions. A public blockchain network is a truly decentralized network, and it does not require a trusted central authority to authenticate transactions. Therefore, it establishes trust in a decentralized network through consensus mechanism rather than relying on central authority such as banks. This would make the transactions on the network immutable once it is stored on the network. The word “public” means that anyone can join the blockchain network with read and write access permission. An example of a public blockchain is cryptocurrency. Since anyone joins the network with read and write permission, all Bitcoin transactions are available to the public. You may see the sender’ address, balance, and amount that has been transferred to the recipient’ address. In fact, you may track Bitcoin transactions ever made.
Advantages of public blockchain:
Open Read and Write: anyone can participate by submitting transactions to the blockchain. Moreover, transactions can be viewed by the participant.
Immutability: Once transactions are stored into blocks, it cannot be altered, or deleted as long as a single entity does not control the majority of the computational power.
Security and Transparency: The consensus mechanism ensures that all nodes in the network agree on the same block to contain the official transactions. Also, anyone can view the transactions in the public blockchain network.
Scalability: The blockchain structure itself is replicated across the nodes. The computational power can scale up and down as miners join or leave the network.
Private Blockchain
Private blockchain has many similarities with public blockchain in terms of structure and mechanism. However, the purpose of a private blockchain is a bit different. Private blockchains are known as permission-based blockchains. The block with read and write access are controlled by an entity or organization and access permission is usually limited in this type of blockchain. Most often, organizations and individuals may not want their users to have access to the detail of every transaction. The owner of the private blockchain, it might be an organization, may wish to control who can read or write to the private blockchain. In order to achieve such mechanism, the owner requires to know the identity of their users because it becomes impossible to define the permission rules about what data can be committed to the ledger and what data can be retrieved from the ledger.
Unlike public blockchain such as Bitcoin and Ethereum, in which the platform provides maximum anonymity, a private blockchain is a permission-based blockchain, which requires the identity of users. It is essential to understand the users so that the owner can determine what information should be accessed or restricted. The reason that organizations use private blockchains is to avoid anonymity. Sometimes businesses are not willing to share their business information with everyone.
For instance, let’s suppose that Amazon would like to use blockchain technology for their platform, where users can buy products through cryptocurrencies. One of the advantages of a public blockchain is transparency, which means every information is exposed to the public. In this case, Amazon would not be interested in presenting their business model and business logic. Amazon would like to have some level of privacy where they can restrict users to access private information such as the original product prices. Therefore, private blockchain would be a perfect solution for organizations to adopt. Through private blockchain, organizations can identify the entity of the users and restrict them from accessing private data.
Public blockchains and private blockchains are the same in terms of technology, but with different roles. The value of public blockchain is transparency. However, a private blockchain is to prevent misuse of information
Advantages of Private blockchain:
Permissioned blockchain: single entity controls access to the blockchain.
Faster Transactions: Private blockchain has fewer nodes or miners, which makes transactions much faster to be confirmed.
Better Scalability: The organizations control the number of nodes. Nodes are added to the network based on demand.
Better Consensus: private blockchain has fewer nodes and usually have a different consensus algorithm such as BFT.
Consortium Blockchain
Consortium blockchain can be understood when it is compared with public and private blockchains. Sometimes it becomes a bit confusing when first hearing consortium blockchain. This type of blockchain is known as a semi-decentralized blockchain. A consortium blockchain is not granted to a single entity as a private blockchain; rather, it is granted to a group of approved individuals. Moreover, consortium blockchain is a group of pre-defined nodes on the network. Therefore, consortium blockchains provide security that is inherited from public blockchains. Meanwhile, it gives a significant degree over the network. Most often, consortium blockchains are associated with enterprise use, where a group of organizations collaborating to leverage blockchain technology to improve businesses. Nevertheless, this type of blockchain may allow certain participants to access or adopt a hybrid access method. For instance, the root hash and its Application Program Interface (API) may be open to the public. Therefore, external entities can use the API to make a certain number of inquiries and obtain certain information related to blockchain status. Examples for consortium blockchains would be Quorum, Hyperledger, and Corda.
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