by JAMES PEYTON

When you think about blockchain you probably don’t initially realize that there are a number of different types of blockchain. Specifically, there are three broad types of blockchains: Public, private, and permissioned blockchains. And all three are widely used. Lets take a look at them in more detail.

PUBLIC BLOCKCHAIN

Public blockchains are the most widely-known type of blockchain. Most, but not all, peer-to-peer cryptocurrencies are run on public blockchains. Currently, cryptocurrencies are the main use for public blockchains, but there are lots of decentralized apps (dApps) running on the Ethereum network from video games and gambling to social media. In the future, there will almost certainly be other uses potentially in the public sector and healthcare. Anyone with a computer or smart phone can join a public blockchain by downloading its program. Here, there is no centralized data; all of the data can be on any number of computers. Public blockchains also have native currencies that incentivize users to keep the program running. This would be Bitcoin for the Bitcoin network, and Ether for the Ethereum network. The best features of public blockchains are security, openness, anonymity, and lack of regulations.

Let’s start with security. Without a central authority, public blockchains are nearly impossible to hack, especially for blockchains with a large number of nodes like Bitcoin or Ethereum. When trying to compromise a bank, a hacker needs only to get through that bank’s cyber defenses. If you equate the entire Bitcoin network to a bank, there is no way to steal from the Bitcoin network. A hacker can go after smaller scales like individuals and banks if they keep their cryptos on “hot-wallets” (crypto storage connected to the internet) like with Japanese based Coincheck.  Side note: if you are holding a crypto long-term, I would highly suggest keeping it in cold storage in a safe. An aspiring thief would need to physically steal the cold storage device.

The openness refers to the ability of anyone with an internet connection to join the network. This means you can transact with anyone anywhere in the world also connected to the internet.

Anonymity is not absolute in the world of public blockchains, just as on the internet someone could trace your cyber-trail back to you. Some cryptocurrencies, called privacy coins, like Monero (XMR) or Piratechain (ARR) are specifically gear towards anonymity, and they have special security features masking both wallet addresses and transactions. Otherwise, most cryptocurrencies at least grant pseudonymity, where an individual has an address assigned to them. Whenever that individual transacts, there unique address is listed in that transaction in its respective block.

Finally, lack of regulations allows public blockchains to operate however its users want for better or for worse. Because of their decentralized natures, public blockchains can’t be regulated. The only route to regulation for cryptocurrencies would be to regulate exchanges which most people buy crypto through, but even then, regulators will not be able to change the actual blockchain.

PRIVATE BLOCKCHAIN

The similarities between public and private blockchains are that they are both a data structure utilizing cryptography and are distributed ledgers. Unfortunately, that is where the similarities end. Private blockchains are essentially just special databases. A network operator will have full control over the blockchain and can make changes as deemed fit. This means that most of the benefits enjoyed through public blockchains are lost on private blockchains. Any new computer added will need to be invited and verified. Different permissions can be granted to various computers. The consensus protocol here will typically be proof of authority, so a computer with permission to verify transactions will do all the verifying. It is a totally centralized blockchain where only one computer is the network operator with total control, and for this reason, consensus protocol is nearly superfluous as the verifying will be done by a trusted node. Due to their centralization, private blockchains would only be viable operating as a database for a small business. Even then, there does not appear to be a benefit to using a private blockchain over a traditional database.

PERMISSIONED BLOCKCHAIN

The last type of blockchain is the permissioned blockchain, and it is often listed as a sub-group of a private blockchain. It is very similar to the private blockchain except there is not a single network operator with total control, so it ends up being a sort of hybrid between public and private blockchains. On other websites, you may see these referred to as consortium, hybrid, or federated blockchains as well.

Permissioned blockchains are more decentralized than private blockchains, and multiple nodes will have the ability to verify transactions. The consensus protocol will again typically be proof of authority. Basically, the main nodes can use a digital signature to verify transactions. Whenever a change is needed to the structure of the blockchain, just a majority of the main nodes will need to agree.

In permissioned blockchains, different authorizations can be given to different nodes determining what any person can view or do like in private ones. This also creates a system with multiple ledgers in that one company can hide some confidential information from the other companies on the network.

Permissioned blockchains keep the privacy aspect of private blockchains while retaining the security and transparency aspects of public blockchain. Other major benefits include scalability and cost effectiveness. With fewer nodes required to verify transactions, less electricity is used, and transactions can be processed quicker. Regarding security, any main node can rewrite the history of the blockchain’s transactions, but it becomes obvious to the other users on the network when one ledger is different from the others. Thus, permissioned blockchain take a tampering-evident approach to security.

Some examples of permissioned blockchain are IBM’s Hyperledger Fabric and R3’s Corda. Hyperledger Fabric was adopted by Walmart back in 2018 to track its agricultural supply chain to limit damage from E. coli outbreaks. It allows Walmart to track where all of its products came from and where they went. Currently, Corda is largely used by banks and other financial institutions. The banks are using Corda to account for interbank transactions, so that each bank need not have a separate ledger.