This week I will attempt to differentiate between the three different varieties of Blockchain structures – namely: Public; Consortium and (Fully) Private.
[easy-tweet tweet=”The Public type of #Blockchains can be accessed and read by virtually anybody” hashtags=”Bitcoin, Cryptocurrency, FinTech”]
Let’s begin with the Public kind. As currently envisioned, these are Blockchains that virtually anybody can access and read. Further, virtually anybody could send transactions and expect to see them get included in the chain (at least if they are real/valid transactions.)
Finally, virtually anybody can choose to participate in the verification process (called the Consensus process) to assist in determining which transactions get added and for verifying what current form and status the Blockchain is currently in.
In an effort to suppress and hopefully prevent any cheating – these Public Blockchains are encrypted and require significant economic resources to compute the trustworthiness of the data. Thus the trustworthiness of the chain is not considered as being centralised.
Financial incentives are provided to those participants in the Consensus process.
Consortium Blockchains, however, only permit the Consensus process to be controlled and performed by a select number of nodes. As a possible example, consider a Central Bank which allows only specified, trusted Banks to provide the necessary calculations and thus verify transactions before adding them to the block. Furthermore, any rights to read the Blockchain can also be restricted (or if desired – made public) – most often via the use of certain approved API’s. Consequently, this variety is often known as a partially-decentralised Blockchain.
The final category – (Fully) Private Blockchains – are the kind where only one organisation is permitted to write (create/input) new transactions. The read permissions however may still be made public – or restricted to only a certain select few. It is envisioned that such environments will be used where (say) management/auditors etc., need to view the activities which are internal to a company and where public read access does not apply.
The Private Blockchain is by far the easiest to control and/or modify. There is no need to get involved in protracted discussions with other companies/individuals whenever changes need to be made.
However, as the number of “trusted” participants increases it becomes more difficult to agree upon and then test any changes needed.
Some argue that with truly Public Blockchain approaches, the system is generally more secure – since even programmers may lack the necessary permissions to engineer spurious transactions.
Whichever “variety” businesses opt for will to a great extent depend upon their respective needs to satisfy any disclosure or transparency requirements as demanded by their regulators and/or by law.
[easy-tweet tweet=”The #Blockchain variety that businesses opt for will depend upon their respective transparency needs” hashtags=”FinTech”]
In the next article I’ll be writing about how the Consensus process and Smart Contracts are actually performed – as well as providing some examples of where Blockchain is (potentially) a great fit – and also where it most definitely is not.
Kevin J. Davis, Researcher & Analyst, Compare the Cloud
Kevin has worked continuously in the Financial Services Industry (primarily on the IT side) for over thirty years.
During this time he has worked first-hand on major Industry Initiatives both in the U.K. and the USA – such as TALISMAN, TAURUS, CREST, (the Bank of England’s) CGO, Counterparty/Client/Settlement Risk Reporting, CHAPS, Model A and B type Clearing, Intra-Day Payment Netting, Capital Gains Tax Reporting, Regulatory Reporting, Trading Interfaces (from DOT through to FIX API’s and beyond), Multi-Instrument and Multi-Currency systems, Direct Market Access and Custodian Services.
As a result, Kevin boasts a wealth of experience and knowledge regarding the latest FinTech innovations.