Learn About the Types of Blockchain Networks
After completing this unit, you’ll be able to:
- Identify the differences between public and private blockchain networks.
- Identify 3 things that separate blockchain designed for business from other networks.
Public vs. Private, Permissioned vs. Permissionless
There are several flavors of blockchain that have emerged in recent years. Public or Private typically refer to who can see the data. Permissioned and Permissionless typically refer to who can join the network and add blocks to the blockchain.
The biggest difference between public and private blockchains is related to who is allowed to view the ledger. A public blockchain network is completely open for members of the public. Bitcoin was the first attempt to create a public blockchain network—anyone can view entries including who sent Bitcoin to whom and in what amount.
Ledgers in a private blockchain are not visible to the public. In fact the existence of the network itself may be hidden. Viewing data on a private blockchain requires that users know about the network, have access to the network, and also typically requires that users have received the encryption keys necessary to view the data.
These permissions control who is allowed to participate and may limit which transactions they are allowed to view and post.
Access control in a private blockchain can vary:
- Existing participants decide who joins
- A regulatory authority issues licenses for participation
- Or a consortium makes the decision
Permissioned blockchain is the most important type of blockchain for businesses. In order to participate in a permissioned blockchain, users need to be invited. This step helps prevent anonymous participants.
For legitimate business use of blockchain, anti-money laundering laws require that businesses know whom they are doing business with. A permissioned blockchain supports this by design. The Linux Foundation’s Hyperledger Fabric is an example of a permissioned blockchain. It has been designed from the ground up to cater to enterprise needs. It allows users to build either a public or private, permissioned blockchain network.
Permissionless blockchains allow anyone to join and update the network. This can be a strength or a weakness. Allowing anyone to join typically means there are no identity requirements, so users often attempt to be anonymous using pseudonyms. Bitcoin is an example of a permissionless public blockchain. In order to make an update to the Bitcoin ledger, miners have to perform resource intensive computations to earn the right to be the one to designate the next valid block.
Blockchain for Business
There are three main things that separate blockchain designed for business from other networks.
- Assets over Cryptocurrency. Blockchain can be used for more than just cryptocurrency. Physical assets such as cars, real estate, and food, as well as other things such as bonds, private equity, and stock are all fair game.
- Identity over Anonymity. Businesses have customer and anti-money laundering rules that require them to know exactly whom they’re dealing with. So, participants in business networks usually require privacy instead.
- Selective Endorsement over Proof of Work. Consensus in a blockchain for business is not normally achieved through mining, but more often through a process called selective endorsement. If you transfer money to a third party, then your bank, the recipient’s bank, and possibly a payments provider would verify the transaction. Selective endorsement is about being able to control exactly who verifies transactions.
On to Better Blockchain
You’re doing great! You now know the basics of blockchain and how blockchain can work in business. Let’s get the open source point of view in the next unit. See you after the quiz.