Public vs Private vs Permissioned Blockchain Network
Blockchain implies unlimited opportunities for various industries, not only financial but also food, logistics, and real estate. In order to better understand how such networks operate, we have gathered up classifications, representing the main types of blockchain.
Blockchain networks can be fundamentally divided into three main types: public, private and permissioned blockchains. As you may have already understood, each one of them has its pros and cons.
Public networks are completely open and transparent, and any user in the world can access them. The Bitcoin, Ethereum, Waves and Ripple blockchains are the brightest examples of such networks.
Main features of open blockchains:
- Decentralization: the blockchain is managed by its participants, who have equal rights;
- Transparency: all network participants have direct access to information;
- Equality: all participants have equal access to the data posted in blockchain, and also participate in the consensus process.
Public blockchain participants can deploy smart-contracts — create transactions with no need of resorting to the services of intermediaries (for example, financial institutions). Such transactions are absolutely transparent, they are easy to track and verify: all participants in an open network have access to information. They are recorded in the form of a code and contain all the conditions of the agreement between the parties, information on obligations and sanctions for violation of the agreement. Smart contracts automatically ensure compliance with all contract terms.
Public blockchains main advantages:
- high level of decentralization;
- equal relationships between network participants.
However, there are also disadvantages. Open blockchain is not a good solution for solving business problems. To exchange large amounts of data, a high transaction processing speed is required, which the public blockchain cannot always provide. In addition, companies prefer to keep trade secrets and share information only with trusted partners and contractors.
Open blockchains are at the so-called «51% attack» risk. This type of attack occurs when the attacker has a «control amount» of computing power (hashrate). Attackers gain control over the network and the transactions occurring in it.
Inside the private blockchain, certain agreements exist between the limited participants: on levels of access to information, rules for making entries and verifying data.
The important advantages of private blockchains are as follows:
- the ability to create a network to optimize a specific business process;
- high speed of execution of smart contracts.
In private blockchain networks, you can also conclude smart contracts. Here they provide transparency of transactions, increase their speed, and in addition, reduce the volume of the paper workflow.
However, private blockchains also have their limitations:
- risk of centralization;
- the confidentiality of information — the data remains inside the system and is available only to network participants.
Permissioned blockchain is a public network, connection to which is possible subject to restrictions and rules. Only a limited number of persons established in advance can make changes to the register. The same circle of people has the authority to configure rights and distribute access levels, as well as coordinate the accession of new participants to the system.
Permissioned blockchains have certain alikeness with the private ones.
Like a private blockchain, permissioned blockchain solves the specific tasks of network participants. However, all operations are carried out through certain nodes.
Drawbacks of permissioned blockchains are pretty much the same as in the case of private ones. The main one of them is obviously centralization.
Regardless of classifications, a potential customer should understand one thing clear: any division into types is based only on the degree of openness and closeness of the blockchain.
The customer should also clearly realize the necessity of using this or that type of blockchain in business to get the maximum return on investment.