The blockchain is regulated by a peer-to- peer network and they are associated with a protocol to get validation of new blocks.
Depending on who can access the ecosystem and who can participate in the process, by large, blockchains can be categorized into any among the three types.
Before proceeding with these three types, you must understand the concept of Permissioned Blockchain and Permissionless Blockchain and the difference that exist between them.
Understanding and Comparing Permissioned Blockchain and Permissionless Blockchain
Permissionless Blockchains are those where any one can choose to join and participate in the consensus process. There is no barrier or restriction when it comes to reading, writing or auditing the block.
Permissionless blockchains are public owned, slower when it comes to transaction approval or block addition, open and transparent.
In case of Permissioned Blockchains, there is a restriction on who can be a part of the network and/or who can perform certain actions on the network. For example, there can be a restriction where everyone can read but only the central authority can write a block.
Permissioned blockchains are managed, faster when it comes to approval of transactions and block addition and is restricted. The network is trusted unlike Permissionless Blockchains which is trustless.
Understanding Public, Private and Consortium Blockchain
The three types are Public Blockchain, Private Blockchain and Consortium Blockchain.
Public blockchains are also known as permissionless blockchain.
These are the real democratic systems – for the people, by the people and of the people. Everyone gets to participate in the process without having to reveal sensitive information.
A blockchain ecosystem is considered to be public when any user with an internet connection can connect to it and participate in the process. Any individual from any corner of the world can connect and participate.
Anyone can read and send transactions to such a type of blockchain and can participate in the consensus process. Similarly, anyone can audit the blockchain at any given time.
No particular individual or node is in charge of reading/writing the blocks.
The first public blockchain is the bitcoin. This was followed by Ethereum and since then we have seen many being launched by startups.
If you are thinking that public blockchains are not secure because of it’s open source nature, that is not correct. Blockchain uses consensus protocols and cryptography which makes them highly secure.
Public blockchain has the potential to interrupt the current business models by removing the third party or middlemen from businesses. Disintermediation will lead to reducing costs of business operations.
Secondly there is no infrastructure costs. Add to that there is no need to maintain servers and system admins which further reduces cost of operations.
This is a type of Permissioned Blockchain.
Now blockchains of this type cannot be accessed by anyone and anybody. These are restricted through strict permissions. Mostly you would find this blockchain type in organizations that wanted to have their own currency for example.
Private blockchain lets the middle man back in to some extent. The company writes and verifies every single transaction. This allows greater efficiency and faster operations when it comes to transactions.
To a large extent you can consider a private blockchain to a simple distributed database. This is because the blockchain ecosystem in case of a private blockchain is not decentralized.
Organizations do this for two reasons.
Firstly, organizations have privacy requirements and need to maintain compliance.
Secondly, this approach adds features like known identities and cryptographic auditing to internal process systems.
Multichain, BankChain and BlockStack are a few examples of private blockchains.
Private blockchains replace legacy systems and decrease the cost of transactions. They also help reduce data redundancy.
Blockchains that are private can solve many of the problems faced during governance. For example, voting can be made secure and transparent on a private blockchain.
This is another type of Permissioned Blockchain.
Also called Federated Blockchain, the blockchain is powered by the members of a consortium. Here the consensus process is controlled by a set of pre-defined nodes and the type of access to the blockchain ecosystem is defined.
Some participants have read only access, while some can write, for example.
Ripple and R3 are examples of consortium blockchains.
For example, imagine a consortium of 20 banks. Each of these 20 banks operates a node. In order for the block to be considered as valid, 12 banks must sign it. This makes the entire process faster.
Reading this blockchain ecosystem may be public or just restricted to the participants. However, hybrid models are a possibility too where the root hashes of the blocks are public and an API can allow members of the public to get cryptographic proofs of the blockchain state by making a limited number of queries.
Confusion Between Private and Consortium Blockchain
Now there has been a confusion between private and consortium blockchains.
Consortium blockchains provide many of the same benefits like their private counterparts when it comes to efficiency and privacy but does away with consolidating power into the hands of only one company.
Well to understand this let me provide a very practical example. Imagine an organization where all the decisions are taken by one single leader. That is similar to how a private blockchain functions – the leadership is entrusted in a single entity.
However there can be an organization where the decisions are taken by a group of individuals. This is what a consortium blockchain works – the blockchain operates under the leadership of a council of members unlike a single entity in case of a private blockchain.