With the global crypto market capitalization topping $2 trillion again, blockchain — the computer code and databases behind cryptocurrencies — has been receiving a lot of interest from institutions, tech-enthusiasts and increasingly, the general public.
Consequently, more industries are starting to recognize the possibilities of blockchain and how this nascent technology can streamline operations, supply chain and record keeping. But as blockchain use cases transcend cryptocurrencies, more types of blockchain infrastructure have emerged, each with its own characteristics, leading to confusion among those new to the crypto world.
So how many types of blockchain are there and how do they compare with one another? Here’s what you’ll learn in this Forkast.News explainer on private, public and permissioned blockchains.
- What is a permissioned blockchain?
- Key takeaways
1. Types of blockchain
Let’s start by differentiating between two main types of blockchain — private and public. Private blockchains operate in a closed network, while public blockchain is open to anyone with an internet connection. These are the two main types of infrastructure used for cryptocurrency networks.
Both public and private blockchains use consensus algorithms to validate transactions, and both store them on a distributed ledger that every participant has a synchronized copy of. The difference is that you need special permission to interact with a private blockchain, while anyone can freely enter a public network and see the history of transactions. This is why public infrastructure is often referred to as “permissionless” blockchain.
There is a third type of blockchain known as permissioned or consortium blockchain. Permissioned infrastructure can come in many different permutations as it is a hybrid between private and public blockchains.
As the name suggests, users require permission to use the network or participate in the consensus process. But private and permissioned infrastructure aren’t the same. While private blockchains operate in an isolated network, this isn’t necessarily the case for permissioned blockchain. A permissioned blockchain can also be a public network that only allows participation based on different access levels.
The participants are usually known by a permissioned blockchain network operator, while the transaction history is not publicly accessible. This is suitable for organizations that need to balance the need for internal transparency with a need to remain private to the external world.
Industry participants sometimes refer to a fourth type of network, known as “hybrid blockchain.” Hybrid blockchain is a broad term that can refer to any combination of private and public infrastructure that may also accommodate the features of permissioned networks. For the sake of simplicity, we’ll avoid diving into hybrid blockchains for this explainer.
The three main types of blockchain are all implementations of the same technology, developed to solve different problems, with each having its pros and cons. To better understand each, let’s separately explore public, private, and permissioned blockchains and their key features.
2. What is a public blockchain?
Today, most blockchains are built on public infrastructure. Public blockchain infrastructure is a network that anyone can freely join without needing permission. Moreover, all network participants can see the shared ledger and take part in the consensus process, by helping validate transactions.
Some of the most popular public networks include Bitcoin, the world’s first cryptocurrency; Ethereum, the world’s leading platform for decentralized applications (dApps); and Cardano, a third-generation, peer-reviewed blockchain network.
Since Bitcoin was the first-ever cryptocurrency, public infrastructure represents the foundation of the whole industry. A public blockchain is a great option if you need a completely open protocol, to which anyone can contribute. Open infrastructures give everyone access to the ongoing activities on the blockchain, making the network self-governed.
Public networks operate by incentivizing network participants, also known as miners, to validate on-chain transactions using their computational power in return for mining rewards. Typically public blockchains are built on a proof-of-work (PoW) consensus mechanism, used to validate transactions and secure the network. Since proof of work is supported exclusively by decentralized network participants throughout the world, it makes the network truly decentralized and immutable.
Public networks are usually the first choice for enterprises looking for a fully decentralized and open structure they can build upon without needing permission.
Advantages of public blockchains
Public blockchains are fully decentralized, meaning that no central party is in charge of the network, or has the power to override the distributed ledger.
All transactions are visible on a public network, meaning that anyone (even outside of the network) can view the entire record of transactions. Each network participant gets a copy of the distributed ledger containing all previous transactions, which is updated as transactions are executed on the network.
Public blockchains are censorship-resistant, meaning that no central party or authority can shut the network down or alter a transaction on the ledger.
Since there’s no permission required to participate, public blockchains are some of the most accessible networks, even more so than traditional banking services. All you need is a smartphone or laptop with internet access.
Disadvantages of public blockchains
One of the biggest downsides of PoW-powered public blockchains is their high energy consumption, which critics say is environmentally unsustainable. Newer blockchain networks are building on a proof-of-stake (PoS) consensus mechanism, which is more energy-efficient than proof of work.
While the identity of a public blockchain’s participants is anonymous, transactions are technically traceable. If for instance, the wallet address of a network participant gets linked to the user, others will be able to trace the amount of cryptocurrency and past transactions of the participant, since the distributed ledger is publicly available.
3. What is a private blockchain?
The main difference between public and private blockchains is that private networks are invitation-only, meaning that there is a central entity that controls who is allowed to participate in the network. This central entity can also assign roles to participants, like giving them mining rights and allowing them to transact on the network. This same entity can edit, delete and override existing transactions on the chain, which is known as the Achilles heel of private infrastructure — the lack of censorship resistance.
Some of the most popular private networks include the Morpheus Network, a supply chain, and logistics blockchain, Patientory, a medical supply chain app with a private implementation of Ethereum, and R3’s Corda, a blockchain network for highly regulated institutions.
Private blockchains are well-suited for corporations and other organizations that are looking for a protocol with limited access, where they can keep the transaction ledger from the eyes of the general public. Transactions executed on a private blockchain must also be validated by the network operators or a set of protocols implemented by them.
Private networks are usually the go-to choice of large enterprises that want an isolated data environment, where they can control who has access to the ledger.
Advantages of private blockchains
All private network participants require an invite by a central entity, which reduces the number of people with potentially malicious intent on the network. Combined with the fact that the main ledger is in a protected state, private networks are usually more secure.
Networks that don’t host millions of users and transactions are easier to scale than bigger blockchain networks. Private blockchains are run by a central authority that can easily implement changes and features without needing the vote of the community, as with public chains.
Private networks have limited access, hence they are usually much smaller than public blockchains. This leads to higher throughput and faster transactions due to more network availability.
As opposed to public blockchains, users on private networks aren’t anonymous, which increases the level of trust in these limited access blockchains. Every network participant can be identified.
Disadvantages of private blockchain
Lack of decentralization
One of the main disadvantages of private networks is that they aren’t decentralized. The shared ledger keeping track of transactions operates as a closed, central database, run by a single entity or organization.
Lack of immutability
Due to the inherent centralization of private networks, on-chain data and transactions can be altered by the network operator.
4. What is a permissioned blockchain?
There’s also a third category of blockchain infrastructure, known as permissioned blockchain, or consortium blockchain. As the name suggests, these networks require the permission of the operator to join and execute different functions. Permissioned blockchains aren’t private blockchains but have an additional access control layer as a security measure that allows only identifiable participants to execute certain on-chain actions. While private blockchains only allow known nodes to operate, any node can operate on a permissioned blockchain once allowed by the operator.
Some examples of permissioned networks include The Energy Web Chain, a blockchain platform for the energy industry, Ripple, a global payment platform, IBM Food Trust, a food supply chain verification system, and Nokia Data Marketplace, a data exchange marketplace secured by blockchain technology.
Permissioned blockchains aren’t as common as public or private ones. They’re the preferred type of blockchain for organizations looking for an additional layer of security, identity maintenance, and permission management features. Thus, permissioned blockchains are often the middle road between private and public infrastructure.
The most important element of a permissioned blockchain is the above-mentioned access control layer, which enables the network operator to limit the access of participants and assign different roles to each of them. For instance, this can enable the participation of a node or a miner, without giving them access to the whole record of transactions or additional functions.
As for the rest of the technical characteristics, permissioned blockchains have the same technology as the underlying blockchain protocol, except for the access control layer. They retain all the positive features of the original blockchain but vary greatly among each network. For example, if the network is using a Bitcoin implementation, the new network will be an open-source, proof-of-work-based blockchain just like Bitcoin, with the additional access control layer.
Based on the needs of the network operators, the level of decentralization, consensus architecture, and governance can be different for each implementation.
Advantages of permissioned blockchains
Since permissioned blockchains aren’t open to the public, they are usually much “lighter” than public blockchains — which means that there is much less on chain data clogging the network. And with less on-chain data there’s less strain on the network, which leads to faster transactions and improved overall performance.
Varying levels of decentralization
The network operator(s) of permissioned blockchains can choose the desired level of decentralization. They can be partly decentralized or fully centralized as well.
Out of the three blockchain categories, permissioned blockchains provide the most customizable infrastructure. The permission management feature enables the network operator to invite and give different roles to the participants.
Since they are operated by a central entity, permissioned blockchains usually don’t require community approval for hard forks. Meaning that updates can be implemented quickly and easily, according to the needs of the respective entity.
Disadvantages of permissioned blockchains
External data storage
Permissioned blockchains often require external storage space, but the decentralized storage methods used by public networks can’t be employed by some permissioned chains, depending on their degree of decentralization. This can put the integrity of on-chain data at risk.
Inconsistent level of security
The security of permissioned blockchains relies entirely on the chosen consensus algorithm and participants, which in case of bad actors, can compromise the entire network. Combined with the fact that these networks also require some type of central regulation, the potential for manipulation increases, in comparison to public infrastructure.
5. Key takeaways
The three main types of blockchain aren’t really in competition with each other, despite general belief. Each technology was developed to suit different needs and operations.
For instance, public blockchains are a popular choice for cryptocurrency and peer-to-peer transactions, while private infrastructure is more efficient for tasks like supply-chain management and record-keeping for companies with limited transaction requirements.
As for permissioned blockchains, their customizability positions them well for banks and other organizations that want to control who can participate in the network and their access levels.
Since the first-ever cryptocurrency, Bitcoin, was public blockchain-based, public infrastructure became the most popular choice, followed by private infrastructure. But permissioned blockchains are quickly emerging as a middle ground between the two, thanks to their access control layer and customizability.
With all three types of blockchain serving their specific purpose in the industry, the debate isn’t around the best type of blockchain, but which is the best suited for each use case and organization.