3 Types of Blockchain
A Blockchain is a peer-to-peer network, and this time I’m choosing to spare you the Napster/Backstreet Boys analogy I made in a recent post. Basically, a peer-to-peer network infers that all participants transact with one another on a platform without the need of an intermediary.
The latter has contributed to create a few misconceptions about what Blockchain truly brings to the table. When I say “intermediary,” what comes first to your mind? Government? Bank? Law firm? Real estate broker? Yes, you’re right on target. Those are examples of intermediaries, who are usually involved in contractual agreements. Thanks to Blockchain technology, they’re not required any longer. And this frightens quite a few folks out there.
Bitcoin, which is one cryptocurrency traded on top of a Blockchain, has been the currency of choice for all forms of illegal transactions staged on the dark net for years. I saw it with my own eyes, while shooting a documentary about the trade of illegal content a few years ago. Utterly staggering. It’s not rare to read about drug cartels and other mafias using Blockchain to launder their dirty money. That’s a reality. But it has absolutely nothing to do with the potency that Blockchain offers for all sorts of B2B exchanges and transactions. And this is the kind of Blockchain that interests me, my employer, and an exponentially growing number of businesses around the world.
This is why I need to share with you what the three different types of Blockchain are.
A public Blockchain is... for the public. You, me, anyone else. In a nutshell, a public Blockchain is able to receive and send transactions from anyone, which means that it’s been a network of choice for money launderers. But don’t assume that it’s a walk in the park to engage into illegal activities on a public Blockchain. And don’t think my goal is to share with you the ins and outs of money laundering on a Blockchain.
Take the example of Bitcoins, which are traded on such peer-to-peer networks. This cryptocurrency can be quite practical when the idea is to dissimulate criminal activities, since it’s virtual, meaning that it can travel across borders in a seemingly anonymous way. “Seemingly” because we cannot discard what the benefits of a Blockchain, public or not, are: Every single transaction is recorded across all nodes of the network, which provides a complete transaction history accessible by anybody. Now, it’s not a routing number and a bank account number that are recorded but rather an (unusable because just made-up) ID like this one: 1BsghtSLRHtKNngkdBEengR76b53CHAtpyT. The trick is then to convert Bitcoins into fiat currencies since it must be done via a centralized exchange platform like Coinbase. And transactions from Coinbase to a bank account can be flagged.
Every transaction on a public Blockchain must be validated by each of its nodes. Each node has as much transmission power as another, which makes a public Blockchain a fully distributed network. This process is done via mining, which consists in having tens of thousands of computers solve an algorithm also called “consensus.” Once the transaction validated, a block is added to the chain to reflect this validation. The problem with public Blockchain is that those countless computers are in competition with one another to solve the algorithms, which implies that public Blockchain is expensive in hardware cost and energy (electricity) consumed.
Lastly, the fact that there is transparency when referring to all transactions stored inside a public Blockchain doesn’t mean that the platform isn’t hackable. Having said that, any hacker will certainly assess the arbitrage between the hardware/energy costs of hacking even just one node versus the potential financial reward. And this arbitrage often deters hackers from going any further with their enterprise. This is why the word out there is that Blockchain is incorruptible. In reality, as you just read this is not 100 percent true. It’s just expensive to hack it.
Fully Private or Permission Blockchain
As opposed to a public Blockchain, a fully private Blockchain or Permission Blockchain is a network, where write permissions are kept centralized to one organization and read permissions are possible on a permission basis. Is a private Blockchain decentralized? Not really since write permissions are centralized, however it is fully distributed because each node stores the same information. A permission Blockchain is faster and cheaper to run because there is no need for computers to compete with one another to reach consensus in order to validate a transaction. Only one entity that has a significant stake in the network is pre-selected to solve the algorithm.
A private Blockchain is not for the public. It is geared towards corporations. For example, Amalto is about to release a Blockchain called Platform 6. On Platform 6, developers will be able to access “ready-for-use” modules to develop Blockchain-based solutions that address specific business needs, then package all required components and configuration into their decentralized application, before distributing the finished outputs to clients. The Platform 6 team will have write permission on this platform. Ondiflo, a home-grown decentralized application for the Oil & Gas industry will run on Platform 6. Ondiflo and its clients will have read permission that pertains solely to their own transactions.
Consortium or Federated Blockchain
Finally, the third and last type of Blockchain network is a consortium or federated Blockchain. It’s a network, where the consensus process (mining process) is controlled by a pre-selected set of nodes, or in other words by a pre-selected number of stakeholders. Let’s take an Oil & Gas consortium made of twenty companies for example. Each company operates one node on the network. In a consortium Blockchain, a percentage of the consortium’s participants must sign every block in the chain before the block can be validated. So, it could be ten or fifteen companies required to validate a transaction, before the same transaction is validated throughout the network for all participants. A federated Blockchain is less decentralized than a public Blockchain and less centralized than a private Blockchain in regard to write permissions.
Which Blockchain Makes Your Heart Sing?
Naturally the answer is, “Well it all depends on your needs.” What is absolutely fascinating is the speed with which Blockchain as a technology continues to evolve. Solutions or possibilities that didn’t exist at the end of last year are now being seriously considered and will potentially be brought to market before the end of this year. Twelve months from now, I’ll be excited to share with you what has become of the three types of Blockchain I’ve described in this blog post along with, maybe, new ones.