Altcoins Talks - Cryptocurrency Forum
Crypto Discussion Forum => Cryptocurrency discussions => Topic started by: CoinEx on August 12, 2022, 03:39:19 PM
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During our previous articles, we presented a rough introduction to blockchain technology and stressed that decentralization is the most important feature of blockchains. However, not all blockchains are decentralized, and some are partially decentralized or even centralized. Based on how decentralized they are, blockchains can be roughly put into three categories: public chain, private chain, and consortium chain.
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A public chain is a blockchain system in which everyone can read and send transactions as participants of the consensus process. The behaviors on a public chain are completely open and transparent, and participants are not controlled by any person or institution. Furthermore, public chains are not owned by any individual or entity. Instead, they are “fully decentralized”. The best-recognized blockchains, such as Bitcoin and Ethereum, are all public chains. When introducing the features and consensus mechanisms of blockchains in our previous articles, we already covered all the features of a public chain. You can find out for yourself if you’re interested, and we will not go into the specifics here.
As its name implies, private chains are the opposite of public chains. They are blockchains privately owned by a person or entity.
Normally, a private chain is controlled by a single organization or institution that decides who can read the blockchain data, send transactions to the blockchain, and participate in the consensus process. This central authority could even determine the read authorization of the participants. Regarding the level of decentralization, private chains are almost 100% centralized. For instance, Smith and his friends have built a private chain. One day, he has an argument with Jane, and he could cancel her permission if he wants to.
On the face of it, private chains are not that different from centralized databases that we use in our everyday lives. In The Features of Blockchain: How Blockchain Reshapes the World, we introduced the major blockchain features, and even though private chains lack the most essential feature (decentralization), they are still immutable and traceable. Compared with centralized databases, private chains prevent a single node in an organization from concealing or tampering with data. Moreover, in a private chain network, even if an error occurs, the root cause can be soon identified.
For example, platforms with supply chain demands like Amazon and Walmart could benefit the most from the deployment of a private chain because it improves the efficiency of collaboration between employees in different regions from a wide range of aspects, such as warehousing, transportation, and traceability.
There have been some practical private chain applications. MUFG Bank, Japan’s largest bank, issued a digital currency called MUFG coins, making it the first large financial institution in the world to develop and deploy its own digital currency. Employees of the bank can use MUFG coins for payment at the company cafeteria, convenience store, etc.
Meanwhile, digital currencies like CBDC (Central Bank Digital Currency) and DCEP (Digital Currency Electronic Payment), which are the targets of central banks around the world, will likely be a type of private chain: users are not randomly joining the network; different users have different read permissions; only the specified users could read the full data or write data into the network. Of course, both CBDC and DCEP are still going through their trial period, and it is not clear what specific technologies are adopted and whether they are implemented as private chains.
A consortium chain is a blockchain jointly managed and maintained by several organizations or institutions. Each of these entities runs one or multiple nodes, and only several authorized entities could read/write and send the on-chain data that’s jointly recorded by such authorized entities.
Consortium chains are essentially a type of private chain. The difference is that a consortium chain is not controlled by one central authority but by a “consortium”, which makes it more decentralized. Compared with public chains, consortium chains provide higher throughput and enhanced performance at the expense of decentralization.
Let’s explain what a consortium chain looks like via the example below:
Company A, Company B, and Company C are the top three players in the real estate industry. Of the three, A has a much larger market share than that of B and C. Though B and C would like to cooperate and prevent Company A from dominating the market, the two do not fully trust each other due to past disputes. At this point, they could build a consortium chain and send all cooperation records onto the chain, so that these records would be traceable and immutable. Plus, no one would be able to check the on-chain data other than the employees of B and C. In this way, the adoption of a consortium chain solves the trust issue between B and C, without disclosing the cooperation records to A.
Consortium chains have a wide range of potential application scenarios that involve all aspects of our lives, covering finance, banking, insurance, health, logistics, etc. For example, many companies, including IBM, Walmart, Nestle, and Unilever, are building consortium chain ecosystems.
There is no best choice among public chains, private chains, and consortium chains, and each has its own pros and cons. When choosing a type of blockchain, we should account for the application scenario and the scope of the chain.