The blockchain concept is at the heart of Ethereum, Bitcoin, and other cryptocurrencies, but there is more than one type of blockchain. It is crucial for investors, traders and users to understand the distinctions between these kinds of blockchain, and how those differences may impact the way they do business.
One of the most important distinctions to understand is the difference between public and permissioned blockchains. Both types of blockchains are in use in the business world and the world of cryptocurrency investment, so it is essential to have a good understanding of how these technologies differ – and what they have in common.
Regardless of terminology, all blockchains make use of three distinct technologies – namely the use of cryptographic keys, the distributed network and the use of network servicing protocols.
In Bitcoin, everyone can use cryptographic keys. Every Bitcoin user can be a node and join the distributed network. Just as importantly, anyone can become a Bitcoin miner, using their computing power to service the network and seek a cryptocurrency reward.
Those miners can walk away from their status as a node at any time. When they leave, they can get a full accounting of all of their network activity. That transparency is at the heart of the Bitcoin community, and many feel it is at least partially responsible for the success of the popular cryptocurrency.
The fact that virtually anyone can read the chain, make legitimate changes to it and write a new block means that Bitcoin uses a public blockchain. As long as they follow the rules, anyone can read, write and change the chain. This decentralized nature is important to Bitcoin users, and that is the definition of the public blockchain.
At the other end of the spectrum is the permissioned blockchain, and it represents a whole different way of doing business. Unlike the public blockchain, which is open to everyone, the permissioned blockchain places limits on who can transact on the chain, and who can read the ledger.
Ripple is an excellent example of a permissioned blockchain. This popular startup sets limits on who can validate transactions on their network. Ripple also includes CGI, Microsoft, and MIT as transaction validators, in addition to building its own nodes in distributed locations around the globe.
Deciding Between the Two
When establishing a new cryptocurrency, a blockchain developer can choose to make the chain public, as Bitcoin has chosen to do. The developer may also select the permissioned blockchain model, retaining control over who may read, write and otherwise interact with the chain. In some cases, developers have chosen a hybrid approach, leaving some parts of the blockchain open while restricting access to other types of transactions.
When it comes to permissioned blockchains, the developer may or may not include so-called proof of work from the nodes. This can sometimes be a political decision since some feel that private blockchains that lack “proof of work”, i.e., blockchains with no mining capabilities, are not real blockchains. Some in the cryptocurrency community refer to these no-mining private blockchains simply as shared ledgers, and they refuse to use the blockchain term to describe them.
The world of cryptocurrency is a complicated place, with many terms, acronyms and definitions to absorb and understand. If you are new to the world of cryptocurrency, it is important to understand the distinction between the public and permissioned blockchain concept – a difference that can be important in many ways.
Some people feel that the public blockchain is more robust and that the ability of users to read and write to the chain is essential. Others assert that the public blockchain is inherently insecure and that problems on the distributed network could quickly spread.
Others worry that the permissioned blockchain can mean a lack of anonymity, negating one of the most significant benefits of the cryptocurrency market. Those permissioned blockchain critics also fear that the incompetence of deliberate misbehavior of a validator could have devastating consequences for the entire network.
While the two sides fight it out, the best thing average cryptocurrency users can do is educate themselves. The more you know about the differences between public and permissioned blockchains, the easier it will be to work within this unique world.