Here’s what you need to know about public, private, and federated/consortium blockchains and how these three differ from one another
Blockchain technology has greatly evolved since Bitcoin’s debut in 2008. Bitcoin’s promise of decentralization, transparency, and immutability has gained the attention of many technology enthusiasts, and since then, many discoveries were made—from the base blockchain technology itself down to the flourishing of new blockchain-based applications.
In spite of blockchain’s promise of decentralization, private institutions including banks have come to realize that they can leverage the core idea behind the blockchain and apply it to improve their legacy systems. This is where permissioned blockchain—private blockchain and federated/consortium blockchain—came to be.
Each of these blockchain networks, or Distributed Ledger Technologies (DLT), have their own set of delineating features and advantages over one another. But few people find it hard to distinguish each type of blockchain network.
Here we’ll cover a brief introduction on public, private, and federated/consortium blockchain.
A public blockchain is the standard blockchain network we all know and love as introduced by Bitcoin. As the name suggests, the network is open to all and there is no centralized management.
The system works like this: Anyone can access the network and participate in reading, writing, and audit the blockchain, as it is a fully decentralized, permissionless, and open-source system. Anyone can also create, validate, and view transactions at a given point. To validate transactions, decision making happens through a consensus algorithm such as Proof of Work (PoW) or Proof of Stake (PoS).
Although the network is open to the public, the identity of the participants is pseudonymous. The anonymity of participants, however, is both the boon and bane of this type of network, as such might involve malicious transactions and can be a threat to the reputation of the system.
A private blockchain is a permissioned and closed system which is owned by an individual or an organization.
In this type of system, only the sole in-charge of the network can read, write, and audit the blockchain. The central in-charge can also provide permissioned access to selected nodes to make, validate, and view transactions at specified points only. As it is essentially private, consensus is achieved at the discretion of the in-charge, or through a voting or multi-party consensus algorithm. Private blockchain networks are usually applied to internal systems of a single private company, such as database management and auditing.
Critics have mixed reactions on considering private blockchain as a blockchain-based technology. With its centralized and exclusive nature, it fundamentally defeats the purpose of the original blockchain technology where decentralization is its core offering. However, private blockchain networks are only centralized in a sense that permissions are vested in a central trusted entity.
Private blockchains offer the advantage of cryptographic auditing and known identities. The nature of this type of system also makes it hard to tamper with data but easier to validate transactions, making the system faster and more cost-effective.
A federated or consortium blockchain is a permissioned and group-owned system where sole autonomy is removed, and instead, permissions are vested in a group of companies or individuals.
In this type of system, there is more than one central in-charge who will provide access to pre-selected nodes to read, write, and audit the blockchain. Only members of the consortium can make, validate, and review transactions. Consensus is achieved through a voting or multi-party consensus algorithm whose rules depend on the the agreement of the participants. For example, in a consortium of 20 financial institutions, a transaction is only added to the blockchain if more than 15 institutions have validated the transaction.
Federated/consortium blockchains offer the same benefits offered by private blockchains—that is, efficiency and privacy of transactions. However, it provides the added benefit of removing the consolidation of power to only one company. This type of blockchain network is ideal for organizational collaboration.
Summary: Public vs. Private vs. Federated Blockchain
Private and federated/consortium blockchain networks both offer an advantage over public blockchains with regard to transaction speed. However, these networks also have its own sets of limitations, such as accountability and overall direction. What these newer types of blockchain networks offer are alternative options for rights and access management while still using the original blockchain framework.
Where openness and censorship resistance are required, public blockchains are ideal. Where privacy and some sense of control are called for, private and federated/consortium blockchains are the better options.
– Article written by Tinny
Tags: bitcoin, blockchain networks, censorship resistance, consortium blockchain, cryptographic auditing, distributed ledger technologies, dlt, ethereum, federated blockchain, immutability, litecoin, pos, private blockchain, proof of stake, public blockchain, transparency