As the hype for cryptocurrencies has returned, it is important to not forget about the evolving platforms around blockchain technology. In 2019, game-changing platforms entered the market with viable solutions such as Corda and Hyperledger. Moving forward, emerging leaders will have unique combinations of features based on the blockchain trilemma.
The Blockchain Trilemma refers to a network’s trade-off between scalability, decentralization, and security, where any two will succeed at the expense of the third. Balancing these three characteristics is a considerable challenge for blockchain solutions providers but also for their customers. Blockchain solutions are being constantly developed in a diverse set of industries, ranging from supply chain to energy.
But what are the features of these solutions and what is the best fit for enterprise use-case solutions? Current trends show a shift towards hybrid solutions, but let’s first discuss the features of the following categories: public vs private, and permissionless vs permissioned.
In a public blockchain, it is possible for anyone to join and participate in the core activities of the blockchain network. The most well-known example is Bitcoin, which allows anyone and everyone to join and contribute to the network. Participants can read, write, and audit ongoing activities and transactions, which is how a public blockchain maintains its self-governed nature. Additionally, there are incentives for new participants to join, but also for existing ones to continue their activities. Essentially, public blockchains are a valuable solution for a truly democratized, decentralized, and authority-free operation. However, limitations exist with the main one being that a public distributed ledger requires excessive amounts of power consumption to operate, which is also Bitcoin’s biggest issue.
On the other hand, a private blockchain is where the operator has the right to override, edit, or delete necessary information or entities, and allows only selected, verified participants to enter. In other words, a participant can join only via a verified and authenticated invitation, while validation is also necessary by the operator or by the network’s protocol. Essentially, not all participants can run a full node on a private blockchain network nor make/validate transactions.
Therefore, the main difference between public and private is that the latter controls who can participate, execute the consensus protocol and maintain the ledger. However, this means that it is not decentralized and instead operates as a secure but closed database.
As a result, it is not possible to have private networks that are permissionless, as it is futile considering the features of a private network. However, public networks that are permissionless do exist, and as discussed earlier the most well-known example is Bitcoin. Such networks are hosted on public servers, allow access to anyone, and are anonymous and highly secure. However, the main limitation is that they suffer from low scalability, based on the blockchain trilemma.
A solution for this is what is known as permissioned networks because they improve scalability issues while maintaining some control of who participates and how. In essence, the permissioned blockchain offers a middle ground solution between public and private, which is why it is increasingly preferred by enterprises. Permissioned blockchains involve a mixture of public and private features and as such, are customizable. Permission is granted to each participant, which allows for greater control.
Hybrid Blockchain Networks
Essentially, we are talking about the rise of hybrid blockchain networks, which combine the best features of both public and private blockchain networks. Specifically, hybrid networks are much more secure for users, have increased scalability, and better speed as transactions are approved faster.
So, in a public-permissioned blockchain network, such as Ripple, scalability is improved and anyone can be granted access to join and read, but only authorized and known participants can write and commit.
Moreover, in a private-permissioned blockchain network, only authorized participants can join and read. The network operator and other authorized nodes can write and commit, while scalability is high for this type of network. Well-known examples include Corda and Hyperledger. According to a report by Deloitte 2020, the vast majority of enterprise use-cases involve a private and permissioned blockchain network, as it usually is the best fit for an organization’s needs.
In the future, hybrid blockchain networks will dominate enterprise solutions and the most competitive ones will have ideal combinations between decentralization, scalability, and security.
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