The concept of blockchain has been made famous since the inception of bitcoin. Looking at bitcoin and other cryptocurrencies, it is assumed that blockchains can be easily accessed by anyone, and anyone can participate in the network by adding new blocks to the chain. The blockchain underlying bitcoin is called a public blockchain. What makes
The concept of blockchain has been made famous since the inception of bitcoin. Looking at bitcoin and other cryptocurrencies, it is assumed that blockchains can be easily accessed by anyone, and anyone can participate in the network by adding new blocks to the chain.
The blockchain underlying bitcoin is called a public blockchain. What makes it public?
Well, anyone can read the blockchain, be a part of the execution of the consensus protocol and add new blocks to the network by being a miner and earn rewards for the same.
All information such as the number of transactions happening on the bitcoin blockchain and the addresses between which funds are being transferred can be seen by anyone.
Just like the bitcoin blockchain awards the miners to validate new blocks, all public blockchains usually have an incentivizing mechanism to encourage users to join the network as a node.
However, contrary to popular belief, there is another type of blockchain which can be really useful for businesses in order to have additional features such as improved security through the blockchain.
These are known as permissioned blockchains. In this case, the blockchain is not open for all to join or read. The users can only be a part of the network if they have been invited by the creator or on the basis of a set of rules laid down by the creator. Once the user (individual or company) joins the network, he has the authority to maintain the blockchain.
The main basis of the distinction between the public and the permissioned blockchain is who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger.
One of the best examples of permissioned blockchain is Ripple. Ripple limits the entities who can validate transactions on their network. In addition to building its own nodes around the world, it has added CGI, MIT, and Microsoft as transaction validators.
A great analogy to understand public and permissioned blockchains is that of the Internet and the Intranet. Public Blockchains, open to anyone, is like the Internet whereas permissioned blockchains, open only to a specific set of people, are like the Intranet.
According to IBM, there are three similarities between the public and the permissioned blockchain:
- Both are decentralized peer-to-peer networks, where each participant maintains a replica of a shared append-only ledger of digitally signed transactions.
- Both maintain the replicas in sync through a protocol referred to as consensus.
- Both provide certain guarantees on the immutability of the ledger, even when some participants are faulty or malicious.
While permissioned blockchains are criticised by some people as being nothing more than a database, it has its own advantages.
As, there are less number of stakeholders responsible for managing the blockchain, new innovations can be done at a faster pace as compared to a public blockchain wherein we have to go through a time-consuming process of a soft fork or a hard fork
Permissioned blockchains usually have better transaction performance as with public blockchains, the TPS (transactions per second) is limited due to the size of a bloc and the time taken to mine a new block.
Last but not the least, permissioned blockchains are much more secure as the access is not open to all which gives freedom to the entity to store confidential information in the blockchain without the fear of it getting misused.
Public blockchains, on the other hand, embody the vision of true decentralization and can also be beneficial for businesses in some cases. As they are accessible by every user, the company may want to integrate them to explore partnership opportunities with unknown business partners and also reduce the cost of integrating new business partners.
While both the blockchains have their own set of pros and cons, the usage and adoption of a particular blockchain depend upon the requirements of the entity.