Skip to 0 minutes and 12 seconds So far, whenever we talked about blockchain, we were usually referring to public blockchains. However, it’s not the only type of blockchain out there. Depending on their characteristics, blockchains can be labeled as public, private, or hybrid, a group that can be called consortium blockchains. Let’s start from the beginning. What were the characteristics behind a public chain? Well in a public chain, everybody can download a copy of the blockchain, write transactions in the network and participate in the consensus. Secondly, the read and write access is not limited to a certain group, and all the users have the same rights. Bitcoin is a clear example of such a public chain.
Skip to 1 minute and 0 seconds However, it is possible to apply restrictions to some users while granting additional rights to one specific node. When this happens, we call that a private blockchain. This limitation can affect the reading access, the writing access or both. In these scenarios, only a central authority can take part in the validation process behind the transactions. But what’s the added value behind this? Well blockchain contains a whole spectrum of technologies and processes. It contains data storage, data distribution, digital signatures, consensus mechanisms, cryptography and digital identification, among others. As we know, this bundle of technologies comes with a price.
Skip to 1 minute and 50 seconds Blockchains consume huge amounts of energy on a daily basis, and the current supported number of transactions per second might not be enough for all purposes. Private chains come as a situational solution to these problems. Instead of dealing with disadvantages brought by features we don’t really need, wouldn’t it be better to use a slightly leaner blockchain version, custom tailored for specific applications? This is where private chains come in. Essentially, a private chain is a blockchain controlled by a single entity. For example, a blockchain operated within a company. In that case, the company operates the necessary servers, decides who gets access and is responsible for achieving the consensus.
Skip to 2 minutes and 40 seconds If we erase from the equation the tough process of reaching consensus between all the users, we speed up block-creation times and increase the maximum possible number of transactions
Skip to 2 minutes and 52 seconds Now you may think: if private blockchains require of a central authority… How is that any different from old organization systems? Well there’s still a long list of benefits. The most immediate ones are the increase in security and the immutability of the ledger, what makes private blockchains especially good for internal accounting. On top of that, companies can use private blockchains to run pilot tests and gain experience before executing a major migration of its activities to a public blockchain. It’s an easy way to gain experience in a low risk environment. Now let’s move to the third group, the so-called consortium chains.
Skip to 3 minutes and 39 seconds A consortium chain also applies restrictions to some of its users, but unlike private chains, its governance its split between two or more entities. Depending on the specific design of each case, consortium chains can be closer to a public or a private chain, but they have some common characteristics. The main of them, is that the consensus process is controlled by a set of pre-selected nodes. The most common case we can think of is a chain operated by a group of companies with interests in common. Let’s picture it with a real case. Imagine two companies that are very used to constantly trade with each other.
Skip to 4 minutes and 22 seconds They are used to the old way of doing things, so every time they execute a trade, they contact a broker that takes charge of the matching and clearing of the operation. At the end, this broker takes a big cut of the pie! However, these companies want to explore new and more efficient ways of doing things, so they decide to jointly set up a consortium chain. In this new scenario, each one of them will have the same voting rights for consensus on the ledger, and they can do it without any middleman. They just created an automated and safe way to trade between each other, all again, brought by the hand of blockchain.
Skip to 5 minutes and 5 seconds The set of rules for matching and clearing do not depend anymore on the broker. They are coded in the form of smart contracts. But what is a smart contract? This and many more questions will be answered in the next lesson, stay with us!
Types of blockchain
There are different types of protocols that can be applied to blockchain: public BC, consortium BC and private BC.
In this video you will learn about the gradual approach that many companies are taking, by running tests in private blockchains to gain experience while preparing for a major migration of their activities, and at the same time, avoiding some of the limitations that public blockchains have.
A lesson from Alexander Kaiser, Blockchain Developer at BlockInfinity.
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