With more than a decade under its belt, blockchain has evolved its technological offering, overgrowing its initial applicability as a framework for payments and transaction platforms, to encompass a wide range of use cases found throughout the enterprise sector.
Since its inception, giants of the tech industry, members of the tech community and savvy entrepreneurs have tinkered with the original concept, exploring numerous proofs of concepts in an attempt to uncover blockchain’s potential to achieve different ends. But blockchain is still used as a catch-all term, so to shed light on the subject, this article will delve into the different types of blockchains, exploring how they are different from each other, and what are the advantages and disadvantages of each type.
An analogy that often circulates in the blockchain community is the comparison between blockchain technology and the internet. Both of these technologies marked a historical turning point due to their wide range of potential applications and overall disruptive potential not only in the enterprise sector but also in daily life. Furthermore, much like with the internet in the early 1990s, there is currently a debate between the applicability and overall usefulness of public blockchains and private blockchains in the enterprise sector that perfectly mirrors the discussions concerning the internet and intranets. Compared to the internet which is a public network that is not owned by a single entity, intranets are networks owned by an organization where access is limited only to authorized individuals, based on complex access control mechanisms. This made intranets highly sought after not only by major enterprise players but also by governmental organizations that sought to control access to private or secret documents. Fast forward thirty years to 2020 and we find blockchain in a similar position, as the tech community is still debating which type of blockchain is better for the enterprise sector, and what blockchain model will stand the test of time.
Before delving into what types of blockchains are currently available on the market, their features, and applicability in the enterprise and business sector, it is imperative that we first outline what blockchain technology is.
Blockchain is a distributed incorruptible ledger of economic transactions that can be programmed to record not only financial transactions but virtually any type of data that has value. A type of distributed ledger technology (DLT), blockchain is a digitized, distributed database that records all the information introduced in a decentralized peer to peer network. The created database is then replicated and shared among the network participants. Due to this design choice, every member of the network has access to the information, which provides a highly transparent environment.
As an exercise in imagination, when talking about blockchain, one should envision an ordered list of blocks, where each block is identified by its cryptographic hash. Every block is arranged in such a way that it references the block that came before it, which leads to the creation of a chain of blocks (hence its name). When a new block is created and appended to the blockchain, all the information contained by the new block will be available to every member of the network. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires the collusion of the network majority, commonly referred to as a 51% attack.
Types of blockchain
The first type of blockchain that emerged is the public blockchain, which acts as the main infrastructure for the most popular cryptocurrencies Bitcoin and Ethereum. A public blockchain stores a single type of data – financial transactions, in the case of cryptocurrencies. Typically, this type of blockchain network has an inbuilt reward mechanism that encourages more participants to join and maintain the network.
From a permission standpoint, public blockchains are categorized as permissionless. A blockchain network can be considered public when virtually anybody can download a node that contains all the blockchain, namely the whole transaction database and openly see and analyze all the information. All the data stored on the blockchain network is public, transparent, every member of the network can see and interact with it. This is the best example of a truly decentralized network. In a public blockchain, anybody can take a node, become a member of the network and interact with the data, but the system as a whole isn’t governed by a single entity. This is the case for Bitcoin and Ethereum. Although this type of network can be used in other ways, it is mainly used on the market as a backbone for cryptocurrencies, as it enables every member to see the data, there is no central point of authority and it manages to achieve consensus between untrusted parties.
From a technical perspective, private blockchains are almost identical to public blockchains. The main difference stems from the logic behind it and its applicability in business. Although it’s similar from a technical perspective with public blockchains, individuals and companies outside the network require permission from the owner or the protocol to join. As such, private blockchains are primarily permissioned networks, in which network participants require special access to view the data, append and commit new information to the chain. For example, a company can build a mini private blockchain with 5-10 nodes and use it as a test net environment that can be accessed only by them.
The moment when the owner of the network decides to restrict access to outside parties, then the blockchain essentially becomes private. From a functional standpoint, it is similar to a public blockchain as it stores transaction-related data. The difference is that the organization that installed and configured the blockchain infrastructure decided to keep it private.
In order to join a private blockchain, you require an invitation and must be validated by either the creator of the network or by a set of rules put in place by him. This access control mechanism can vary, depending on the network: existing participants can decide future entrants, a regulatory authority can issue licenses for participation or only an elite group of the network decides who is able to enter.
Typically used in the business environment, the private blockchain infrastructure has a clearly defined purpose, and can act as the foundation for enterprise-grade software specially designed to operate on the blockchain. When a company decides to have a blockchain infrastructure, it means it wants to tap into what blockchain has to offer, data immutability and integrity, workload distribution, information traceability, and so on, but in order to protect its interests, a company won’t expose the nodes to the public. Information can be shared with business partners or clients to clarify a misunderstanding, but in general, it is limited only to the members of that company.
Federated Blockchains / Consortium Blockchains
Consortium blockchains are also a type of private blockchains as they aren’t available to the public. Individuals and companies outside the network aren’t able to install a node and connect to the network. The difference is that consortium blockchains operate under the leadership of a group. Basically, they are private networks shared between multiple entities.
The best use case of a consortium blockchain can be seen in the banking sector. For example, all the banks from a country can decide to move the entire transaction infrastructure to a blockchain network. Blockchain is known for its disruptive potential, in this case, it will remove the need for third-party clearinghouses, but this is only the tip of the iceberg. If all the banks from a country would be connected to a blockchain network, all transaction data will be made readily available, easy to search, and access. Having access to a comprehensive and extensive database of operations will streamline backend and frontend operations, significantly reducing time and costs while providing increased levels of security and availability.
Without depending on a clearinghouse, the system can be considered decentralized, but at the same time private, as no external entity can connect to the network without permission. Trust is a fundamental virtue for the banking industry, and a consortium blockchain provides a good opportunity to strengthen this value. This type of system is maintained by every bank that has several nodes. Put together they form a private network which isn’t owned by a single entity, but by a consortium of companies.
Hybrid blockchain solutions
In the case of Bitcoin and Ethereum, information stored on the blockchain is relatively small. We are not referring to the total volume but to the type of data that is saved, namely transaction data. In a blockchain network the predominant data is related to transactions – from whom to whom, when, and how much, that’s about all. In turn, the second transaction will follow the same structure. All these transactions form a block and all the interconnected blocks compose the blockchain network.
Concerning this aspect, blockchain serves its purpose very well, as it gives users a clear view on every transaction. But when it comes to business, blockchain undoubtedly presents a series of advantages, but saving information on blockchain is one thing and storing information on a database is another.
It’s premature to say that any type of information can be stored on blockchain because it doesn’t make sense from a business and storage perspective. On one hand, blockchain is an architecture that permanently stores data, by default the level information stored on the blockchain will determine a significant increase in its volume, but with transaction data that isn’t necessarily relevant. If you think about it, a software product can’t be supported only with financial transactions; this is also valid for banks. Banks store a lot of information, but not all of it is related to financial transactions, they also process and store a lot of personal data, which if moved to a blockchain network could create problems. The General Data Protection Regulation doesn’t allow you to do this for example, and even if you are required to store personal data to provide services, you do it only for a limited timeframe, in the case of banks it can be 5 to 10 years, but certainly not forever.
Similarly, a software product requires numerous layers and types of data to function, but it would simply be redundant to store all the information on a blockchain. The idea is that enterprise software systems can’t run only on blockchain technology. When a company states that it moved its software to a blockchain infrastructure, everybody should understand that only a segment of the data is moved to the blockchain, data which makes sense to be stored on this type of network and that the rest of it will remain in a database.
When discussing the relationship between enterprise applications and blockchain technology, people must be aware that only a part of the information will be transposed to the blockchain. As such a system must function as a hybrid between blockchain and database to maintain an optimal business operational output, reduced levels of data redundancy, and ensure HIPAA, PCI DSS, and GDPR compliance.
Taking into consideration the above mentioned blockchain typology, it is important to highlight a series of common features and characteristics that private and public blockchain networks share:
- at their core, both structures are decentralized peer to peer networks, where each node contains a partial or full replica of a shared digital ledger of transactions;
- once a new block is appended to the chain, the network automatically synchronizes every node;
- both private and public networks provide a series of guarantees related to the integrity and immutability of the data introduced on the networks.
Public blockchains, an ideal foundation for enterprise software
From a structural and functionality perspective, both public and private blockchains derive their properties from the same technological nucleus that underpins what is generally expected of a blockchain infrastructure. From a high-level overview, we have already determined that the main differences between private and public blockchains stem from the method in which new members can join and participate in the network. Authentication and authorization are mandatory in private, permissioned blockchains, whereas virtually anybody can join a public, permissionless blockchain. To better understand the differences between public and private blockchain, and why the latter is more suitable for the enterprise sector, we need to delve deeper into the topic and focus on a series of functionalities that translate to tangible value in an enterprise and business environment.
In a business environment where data weighs more than gold, enterprises are constantly on the lookout for new methods and mechanisms for addressing privacy concerns. At its core, confidentiality is a metric that ensures that only certain approved entities can perform read and write operations on the data. By design, permissioned private blockchains are more suitable to ensure confidentiality as each member of the network is a known and trusted entity that has been carefully vetted before they entered the ecosystem. Even so, this does not completely mitigate the dangers posed by data breaches but paired together with smart data loss prevention practices, it can provide better transparency and accountability.
Advocates of public blockchain frameworks will most likely highlight the fact that public blockchains manage to ensure confidentiality by employing complex cryptographic algorithms and advanced zero-knowledge proof schemes. To a certain extent, this is true, but due to blockchain’s transparent nature, each member of the network will be able to see the number and rate of transactions between parties, which in some cases is enough to stimulate the competition to act.
Throughput is directly related to the number of transactions processed in a set amount of time. In the context of blockchain technology, throughout indicates the average number of transactions appended to the blockchain per second.
Solutions built around relational databases are capable of achieving throughput speed ranging in tens of thousands of transactions per second. It is estimated that Visa is capable of performing around 24 000 transactions per second which completely dwarfs Bitcoin’s output of seven transactions per second. The reason for this sluggish, throughput is related to the design of public blockchain networks, the large number of users, and the consensus mechanism that requires an immense amount of processing power to solve complex computational puzzles that purposely increases block validation times.
Compared to public blockchains, private blockchains provide orders of magnitude higher throughput because their consensus design does not rely on a tokenized economy to incentivize miners to validate transactions. Furthermore, because each member of a private, enterprise-grade blockchain network is a known entity, the platform can employ a lighter consensus mechanism that isn’t resource demanding. From a scalability perspective, in an enterprise environment, it makes sense to focus more on throughput rather than the number of users/nodes. Even so, at the moment of writing private blockchains are still far behind the numbers achieved by Visa, but the lower performance seems to be an acceptable trade-off for the immutability, integrity, and traceability unlocked by blockchain.
Finality is the confirmation that a block of transactions has been successfully appended to the blockchain, becoming irreversible. It is quintessential for businesses to ensure that once they commit a set of transactions to the blockchain, no party can alter or change the transactions. In public blockchains, the user who validates a new block of transactions is determined by the type of consensus protocol employed. In Proof of Work, the user who solves a complex cryptographic puzzle gets to append the next block, while in Proof of Stake, a lottery-based algorithm is used to select the node that will propose the next block of transactions. The problem with these approaches is that they require a longer timeframe to achieve finality, which makes them unsuitable in an enterprise and business scenario.
To circumvent this issue, some private blockchains utilize a voting-based consensus algorithm in which a new block of transactions is finalized when a majority of nodes vote for it. In essence, this approach enables immediate finality in exchange for lower scalability as the consensus protocol requires the exchange of multiple messages to determine the number of votes. This does not necessarily impose a penalty, as private enterprise-grade blockchain platforms have a smaller user base than public blockchains.
Modex Blockchain Database (BCDB) enables enterprises to seamlessly integrate blockchain into their existing software
Modex BCDB is a software product designed to empower businesses by enabling them to develop and deploy blockchain software solutions. From a technical standpoint, Modex BCDB falls into the middleware category, as it positions itself between the client’s software application server and their database. What sets Modex BCDB apart from its competitors is its approach to handling data. From the start, the minds behind this new innovative take on blockchain technology decided to employ a minimally invasive approach, in the sense that companies and enterprises keep their database system intact.
A solution that is blockchain and database agnostic
Modex BCDB has a transformative property in the sense that it bestows all the advantages and inherent capabilities of blockchain technology, data distribution, immutability, as well as a real-time backup functionality. A core feature that distinguishes Modex BCDB is the fact that it is blockchain and database agnostic. This characteristic opens a new window of opportunities, as compatibility related issues become a thing of the past. Regardless of the type of database a company is employing, or the type of blockchain it wishes to connect to, our solution ensures a seamless connection between the two technologies. Modex BCDB doesn’t aim to replace the existing database but to improve it by adding a blockchain layer. By situating ourselves between the database component and the client’s software, we ensure a higher degree of security and trust, while giving access to a mechanism through which clients can create their infrastructure.
Inbuilt migration tool for database migration
Database migration is a sensitive topic for every enterprise, as any breach or data corruption could prove disastrous. Blockchain is a viable solution for improving database management and increasing tamper resistance, but it is surprisingly difficult to integrate an existing platform in a blockchain network. Besides the complexity involved, the process would also attract significant costs and a long time for implementation. Modex BCDB overcomes these issues with its migration tool, which allows developers to easily move a database to a blockchain framework. The only requirement is to understand and learn to operate with our solution. The migration tool does all the heavy lifting: it scans the database and replicates it in our middleware, it creates metadata for each record and uploads it to the blockchain to ensure immutability. Our approach to handling data differs, no record is deleted, and the whole structure is kept intact. The database migration is initiated only after minor changes are implemented on the client’s side. A minimally invasive approach brings a much-needed breath of fresh air to legacy systems where changes are difficult to implement. But by simply changing a few connectors a legacy system will benefit from everything blockchain has to offer.
To conclude, each type of blockchain has a different purpose, as such it is difficult to say that one is better than the other. Everything revolves around how companies make use of their chosen blockchain infrastructure to serve their business logic and increase annual turnover. Blockchain offers businesses and companies numerous benefits: data immutability, node distribution, workload distribution, transparency, traceability, security, and consensus – all of these are common points of every blockchain version. All these derivations have appeared over time as people find different uses for the same technology and it’s most likely that in the future, other derivations will appear as people will find ingenious ways to use blockchain to address different issues. With Modex BCDB companies always have the option to choose what blockchain is better suited for their business requirements.