the introduction

When Bitcoin was launched, it was the starting point for laying the foundations for a field based entirely on this protocol-based technology: Blockchain. Over time, innovators interested in this field were able to explore the potential of this technology, and currently they are seeking to discover ways to benefit from it in every field where the appropriate qualifications are available.

Bitcoin is what is called a digital currency - a form of digital money that is not subject to the control of any single entity, but uses a combination of distributed database technologies, financial incentives, and encryption technologies to enable a large-scale system to coordinate its operations without the need for leaders or administrators. .

The data structure used by the Bitcoin network has been very popular in more than 10 years since its inception. Currently, blockchain technology is being tested in various sectors including the financial sector, supply chains, legal systems, and government systems.

In case you missed our article titled A Beginner's Guide to Blockchain Technology, a blockchain is a simple data structure whose entries cannot be modified, but can only be added to. To simplify the matter, the blockchain can be imagined as a spreadsheet, in which each cell is linked to the previous cell, so that any attempt to modify a previous cell can be detected immediately. In general, the blockchain stores information about financial transactions, however it can be used with any type of digital data.

In our spreadsheet example, multiple parties have copies of the same document. Each party has a special program on its device that links to other devices via this program, so that all participants have an up-to-date database at their disposal.

There is no central source from which participants obtain data (as the network is distributed). Therefore, the dissemination of information occurs slowly, but the network performance is efficient in terms of security and redundancy.

In this article, we will review three types of blockchains – private chains, public chains, and blockchain federations. But before we begin, we will discuss some of the most important features that the three types have in common:

• An appendable-only record – In order for a record to become a blockchain, the system must be able to trace the chain of block structure that connects each block to the next. If the blockchain is the set of cells in a spreadsheet, then the blocks are the cells themselves.

• Peer network – each participant in the network has a copy of the blockchain. These participants are called nodes, and interaction between them takes place in a P2P manner.

• Consensus mechanism – There must be a mechanism for nodes to be able to agree on the validity of transactions published on the network, in order to ensure that no fake data is written to the chain.

The following table contains some of the most important differences.

Public blockchains

If you have used a cryptocurrency recently, you have probably been dealing with the blockchain in general. These public chains contain the majority of distributed records that currently exist. They are known as public chains because anyone can see existing transactions, and joining them only requires downloading the software that allows them to be used.

The term "open" is also often used in conjunction with "public". No one has the authority to obstruct the participation process, as anyone can participate in the consensus mechanism (for example by mining or storing). Since anyone can participate and receive rewards for the role they play within the consensus mechanism, we expect to design a decentralized scheme for a network created on a public chain,

We also expect public blockchains to emerge more resistant to censorship than private (or semi-private) chains. Since anyone can join the network, the protocol must include mechanisms to prevent unidentified actors who pose a threat to the network's security from infiltrating it.

In contrast, the security-enhanced approach to public chains has performance vulnerabilities. Many users face scalability issues and poor productivity. In addition, it is not easy to introduce changes to the network without dividing it into categories, as it is rare for all participants to agree on the proposed changes.

Private blockchains

Unlike public chains, which are essentially chains open to the public, private blockchains set rules that determine who is allowed to view and write on chain data (they are environments that are not open to the public). This type of chain does not fall under decentralized systems, as there is a clear hierarchy of control. These chains are distributed, but many nodes keep a copy of the chain on their machines.

Private chains are a suitable option for enterprise systems because organizations seek to take advantage of the advantages of the blockchain without risking third parties infiltrating their networks.

Proof of Work (PoW) is not sufficient in this case, but it has proven effective when used in an open environment, consistent with the security model for that environment. In private blockchains, although the threats addressed by the proof of work are not as severe – the identity of each participant is known, and governance plays an active role.

A more efficient algorithm could be used in this case, which is based on specific validators, which are nodes tasked with performing specific functions in relation to auditing transactions. Generally, this process involves sharing a group of nodes that must register on each block. If any node behaves suspiciously, it is quickly identified and excluded from the network. Given the hierarchical nature of blockchain governance, this will be easy to fix.

Blockchain Consortium

The Blockchain Consortium occupies an intermediate position between public and private blockchains, incorporating elements from both categories. The most obvious differences between these systems are the differences at the level of the consensus mechanism. Unlike an open system that allows anyone to audit blocks, or a closed system that has one entity identifying the block creators, the Blockchain Consortium considers a group of participating parties with the same powers as auditors.

In this sense, the rules of the system are flexible: access to chain data can be restricted to auditors, authorized persons, or made available to everyone. After the auditors reach consensus, changes can be easily implemented. As for the performance of the blockchain chain, if a certain percentage of those entities that perform their role properly is reached, the system will not face any problems.

The maximum benefit from blockchain federation can be achieved in an environment that includes several institutions operating in the same sector, and requires common foundations on which to conduct transactions or exchange information between them. The institution may benefit from joining a union of this type, as it will allow it to exchange visions with other institutions working in the same sector.

What is the best option?

In principle, there is no conflict between public and private blockchains and blockchain federation – they are different technologies:

• Well-designed public chains are uncensored, at the expense of speed and throughput, and are best suited to achieve the highest level of security when settling transactions (or smart contracts).

• Private chains prioritize system speed as they do not care about central points of failure as much as public blockchains do. It is the most suitable option for individuals or organizations that want to have complete control and maintain the confidentiality of information.

• As for the blockchain federation, it works to reduce some of the counterparty risks of private chains (by excluding central control), and the small number of nodes usually allows them to perform their functions more efficiently than public chains. Blockchain federation is often the best choice for organizations that want a common ecosystem to communicate with each other effectively.

Concluding thoughts

A variety of blockchain system options are available to individuals and organizations in many industries. The categories of public and private blockchains and blockchain federation have a number of different options as required by the user experience. Depending on the use case, the user will have to choose the most appropriate system to achieve his goals.