There are high chances that you might have come across the word blockchain and you gravitated to this book to have a better understanding of what it is. Simply put, a blockchain is a ledger or a database consisting of a record of transactions that are also referred to as blocks. These blocks have time markers on it and can be joined to a previous block leading to the formation of a chain of blocks, thus Blockchain. These lists of transactions are distributed in a peer to peer network, through which the entire blocks are validated.
So what makes the blockchain technology so special. By its own nature, the blockchain permits digital information to be shared and distributed within the aforementioned peer to peer network but prevents this same data from being duplicated or modified. Once a block is added to the blockchain, it cannot be changed without the changing of the subsequent blocks which then would require a consensus from the whole peer to peer network, a herculean task. This made it possible for transactions to be easily verifiable and the audits to be conducted at the fraction of the cost and time.
As a result of its nature, blockchains would be considered highly secure and impermeable to individual edits. This is due to the fact that it allows for the decentralization of coming to a consensus within the network making it ideal for a number of functions such as managing records, processing of transactions and even in the documentation of events.
The blockchain technology that came to birth in the year 2008 was the brainchild of the individual that goes by the pseudonym of Satoshi Nakamoto. Following its conceptualization, it later became a core part of the cryptocurrency, Bitcoin, affirming its place in the mainstream. It acted as the public ledger through which bitcoin transactions were maintained. Through the peer to peer network and the timestamping of these blocks, the blockchain technology single-handedly solved the double spending problem of currencies without the use of a regulator managing the transaction.
With the growing popularity of the blockchain technology in the maintenance of records of data and verification of databases, this led to the development of the modified uses of blockchains. Modifications in respect to those that have access to different ledgers and those allowed to run a node on a blockchain (A computer that hosts and validates blockchain transactions is known as a node). This leads us to the different types of blockchains, public and private blockchains.
As the name suggests, a public blockchain allows anyone to run a node on the network and be a user of the blockchain. In this network, anyone can send transactions to the blockchain and will be able to see if and when their transaction is validated and added to the blockchain. Any individual can participate in the maintenance activities of the blockchain ledger. This participation is secured through crypto economics which ensures that the influence that an individual may have on the blockchain is at a cost through the use of economic incentives and use of cryptographic verification mechanisms. A blockchain that operates under these principles is considered a fully decentralized one.
On the other hand, we have private blockchains. Private blockchains are defined as a blockchain ledger that restricts read and write access to it, allowing only a constrained group of persons to have access to it and in the verification of its transactions. The rights to these blockchains can be owned by a singular entity, which in this case would be referred to as a fully private blockchain or be only open to a group of entities with rights to verify and add to the blockchain in a hybrid of the two to be referred to as a consortium blockchain. This type of blockchain may also be considered as “partially decentralized”.
There has been a minimal emphasis on the differentiation of fully private blockchains and the consortium blockchains. It is, however, vital to note that the latter brings together the best of both worlds in a hybrid that gives the advantages of the lowly trusted public blockchain merging it with the pros of the highly trusted single entity private blockchains. This platform would be an ideal fit for improved and a more efficient collaboration between organizations.
Private blockchains play host to a number of advantages over the public blockchains which we shall have a look at. First, the validators of a private blockchain are known thus in case of a situation where the integrity of the blockchain is compromised, it is easier to first investigate those with access to it rather than a random hacker from a different part of the world. Private blockchains offer a higher level of privacy as a result of the restricted permissions. Similarly, nodes are well connected and this helps in the quick fixing of faults through manual intervention. With the use of consensus algorithms, we are able to achieve finality in shorter block times. This means that improvements in the technology of public blockchain technology can lead to a more desired idealist state of instant verification and confirmation of transactions on the blockchain. Granted that private blockchains will still be faster in their verification of transactions.
Furthermore, being that transactions are now being verified by fewer nodes as compared to millions in the public network, transaction costs will drop. This is as a result of the lessened processing power required for the verification subsequently leading to a reduced usage of power by the running nodes. As part of the developing blockchain ecosystem, reduction of the transaction cost is a huge concern, especially for the public blockchains. We are, however, hopeful with the continued increasing use and advancements of the blockchain technology, this tale might change for the better with the achievement of greater scalability of the technology. This would promise lower costs of greater magnitudes of transactions within an optimized private blockchain network.
Last but not least, a blockchain being run privately through a single entity or a consortium of entities can with ease change the rules the blockchain. This can also give them the authority to modify balances and revert transactions. This may be of great function to government bodies where its use in maintaining various government registries can be controlled thus have it trusted and recognized by the government as a true account of the registries. This is an ideal situation as compared to a public blockchain maintaining the registry that would be susceptible to erroneous data entries into blockchain.
At this point, it seemingly appears like private blockchains are the better and more preferred option when it comes to the use of blockchain technology. However, this is not entirely true since there is an incredible value that the public blockchain has to offer. This still holds water when dealing with institutions using the blockchain technology. This value is embodied in the philosophical virtues that public blockchains advocate for. Some examples would be transparency and openness, freedom and unbiasedness. We can also group the main advantages of public blockchains into two major classifications.
Public blockchains seek to protect users of an application using that technology from the developers. This affirms the position that the developers of these applications also have restricted access to some more sensitive aspects of the technology. You may be wondering why a developer of an application may be interested in doing that is the first place. This can have an effect where it may lead to increased faith in you as the developer from the users as their fear that certain things may happen to them is mitigated. Similarly, in an unfortunate situation where you are being coerced by another then you lack the technical know-how or ability to cave into their demands. This, in turn, would discourage such parties from engaging in such activities as there is a higher probability that their efforts will bear no fruit. This, for example, may be pressures that may come from governments in the efforts to increase censorship of certain matters.
Owing to their public nature, these blockchains are certainly going to gain some network effects. One such example is through the emergence of centralized escrow intermediaries. These intermediaries are advantageous in business transactions where a party A may want to purchase an item from party B. so if A sends payment first, there is the chance that B might not send the item and if B sends the item first, there is also the possibility that A might not send due payment. However, if this transaction is being transacted on the same blockchain, they can utilize smart contracts. Hereupon sending of the payment of party A, the item held in escrow by party B is sent to party A. Only downside to this arrangement is the fees that the centralized escrow intermediaries will charge for their service.
There are clear benefits to using one variation of the blockchain as compared to another, therefore, depending on the needs of the user, one is able to customize whichever services they require that will prove optimal to them and that which they are using the technology for.