Do You Prefer Being Private or Public?
• 5 min
• 5 min
We’ve come a long way from our first Weekly BS that explains what a blockchain is, and today we’ll be discussing the different types of blockchains.
There are two types of blockchains: Public and Private.
Public blockchains are characterized as decentralized and open to anyone (permissionless). You may have heard of Bitcoin and Ethereum, two cryptocurrencies that live on a public blockchain.
Public vs Private:
Have nodes that are generally spread throughout the world; Each node has access to all information living on the blockchain; No central computer controls a public blockchain; Anyone with a computer and some basic technical skills can “operate” a node; "Operate" means anyone can review data (read data), mine/validate transactions (write data), and participate in activities on the network (creating smart contracts and decentralized applications (DApps)).
Require permission from a controlling authority for a participant to function as a node and/or to participate on the network; The controlling authority has the ability to control how participants interact with the blockchain thus are centralized to some degree; Sometimes called enterprise blockchains; Companies use enterprise blockchains for business purposes that require information/data transparency thus holding node operators accountable for their actions; Relevant to regulated industries like securities, banking and insurance. Private blockchains are an obvious choice for blockchain securities because regulation requires certain entities to guarantee that participants on the blockchain are verified (anti-money laundering and know your customer), information about the person operating a node is available and documented, and that all participants are located in a jurisdiction that holds them accountable for wrongdoings. These regulatory measures are required to protect the investor...you!
A Dual Chain Approach
This is where things get a little crazy - certain companies use both public and private blockchains to achieve their business needs. As explained above, blockchain securities function in a regulated universe requiring a permissioned blockchain. But what happens when someone wants to move their blockchain securities outside of this regulated (permissioned) world for use as a means of value? This is where a public blockchain is connected to a permissioned blockchain, so investors can transfer blockchain securities between a regulated (permissioned) blockchain to a more flexible (public) blockchain.
Hope we have helped explain the distinctions between public and private blockchains.
Tune in next week as we build your blockchain securities knowledge. Until next time…