Part 2: Blockchain Technology - Types of Blockchain Network
March 15, 2018
In Part 2 of this multipart series on blockchain technology, we will discuss the different types of blockchain networks and the pros/cons of the design. Let's get started!
Bitcoin and Etherum are examples of public blockchains. These are permissionless blockchain networks where any one can participate. The degree of participation can vary from conducting transactions (e.g., sending currency or payment from self to another) to participating in the consensus process – the process for determining the blockchain current state and what blocks get added to the chain. Many public blockchains due to their trustless nature rely on Proof of Work (PoW) consensus algorithms to validate and verify transactions in the network. Public blockchains challenge the traditional networks by a) eliminating intermediaries or the middlemen, and b) require no infrastructure costs for creating, maintaining or running decentralized applications (dApps). A significant downside of public blockchain network is the higher power consumption of the hardware/software utilized by the participants in the consensus process to prove (verify and validate) transactions recorded on the network.
Federated or consortium blockchains are permissioned blockchains where the participants across multiple organizations are known to each other. Federated blockchains run faster (e.g., higher degree of scalability) and provides transaction privacy to the members. Consensus algorithms are either based on voting or multi-party consensus, where the majority gets the decision. Examples of Federated blockchains include R3 (Corda) and Ripple for financial institutions. Other possible applications of Federate blockchains also extend to logistic management or sourcing/tracking of commodities and assembled products across the various suppliers. Federated blockchains do not disrupt the intermediaries but reduce transaction costs and data redundancies by simplifying data handling and compliance mechanisms of interconnected systems for the participants.
Private blockchains are kept within the organizations and allow for groups and participants within an organization to verify transactions internally based on voting or multi-party consensus. Private blockchains are highly scalable and best suited for situations where compliance to data privacy rules and other regulatory requirements is needed. Private blockchains are ideal for governmental information including, but not limited to, procurement, credentials such as visas, passports, birth certificates, and Federal workforce data.
Starting with Part 3, we will discuss the fundamental elements of blockchain technology that you need to understand to manage or facilitate this technology conversation for your organization.