On Public and Private Blockchains

Over the past year, the concept of “private blockchain” has become very popular in the broader blockchain technology discussion. Essentially, completely You can also use public, uncontrolled networks and state machines that are secured by cryptoeconomics (proof of work, proof of stake, etc.), but do not allow you to modify or read the state of the blockchain. It is also possible to create a system with tighter control over permissions. It targets a small number of users while still maintaining the various types of partial guarantees of reliability and decentralization that blockchain provides.Such systems are of primary interest to financial institutions, partly because such developments undermine the whole point of decentralization, or because they are a dinosaur trying to stay relevant. is an act of desperation on the part of intermediaries like Blockchains other than Bitcoin). But for those who are in this fight simply because they want to find a way to best serve humanity, or pursue the more modest goal of serving customers, this he What are the practical differences in style?

First, what exactly are the options at hand? To summarize, there are typically three categories of database applications like blockchain.

  • public blockchain: A public blockchain can be read by anyone in the world, anyone in the world can submit transactions and expect them to be included if valid, and anyone in the world can It is a blockchain that you can participate in. consensus process – The process of determining which blocks are added to the chain and what their current state is. Instead of centralized or semi-centralized trust, public blockchains are secured by cryptoeconomics. Cryptoeconomics is a combination of economic incentives and cryptographic verification using mechanisms such as proof of work and proof of stake, following the general principle of how much information someone can gain. Their influence in the agreement process is proportional to the amount of economic resources they can bring to bear. These blockchains are generally considered to be “fully decentralized.”
  • consortium blockchain: A consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes. For example, you might imagine a consortium of 15 financial institutions. Each financial institution operates a node, and 10 of them must sign every block for it to be valid. The right to read the blockchain can be public or restricted to participants, and hybrids such as APIs that expose the root hash of a block and allow members of the public to perform a limited number of queries There are also routes. Obtain cryptographic evidence of a piece of blockchain state. These blockchains may be considered “partially decentralized.”
  • Completely private blockchain: A fully private blockchain is one where write permissions are centralized and held by one organization. Read permissions can be public or restricted to any scope. In many cases, public readability is not required at all, perhaps because the application involves database management, auditing, etc. within a single company, but there are cases where public auditability is desired.

In general, the distinction between consortium blockchains and fully private blockchains has been important but not given much attention to date. The former offers a hybrid between “low trust” provided by public blockchains and “single highly trusted entity”. ” is a model for private blockchains, although the latter can be more accurately described as a traditional centralized system with some added cryptographic auditing capabilities. However, there are some reasons to focus on consortia over private. Aside from the functionality of replicated state machines, the fundamental value of blockchain in a completely private context is cryptographic authentication, and there is no reason to believe that optimal authentication is optimal. The form of such an authentication provision should consist of a series of hash-linked data packets containing the Merkle tree root. Generalized zero-knowledge proof technology offers a much wider range of exciting possibilities for the types of cryptographic guarantees that applications can offer to their users. In general, I would even argue that generalized zero-knowledge proofs are very useful in the world of corporate finance. underrated compared to private blockchains.

So for now, we’ll focus on the simpler “private vs. public” blockchain debate. In general, the idea that there is “one true way” to blockchain is completely wrong, and both categories have their own strengths and weaknesses.

First, private blockchain. It has many advantages compared to public blockchains, including:

  1. A consortium or company running a private blockchain can easily change the blockchain’s rules, reverse transactions, and change balances as needed. This feature is necessary for the National Land Register. There is no way a system could exist that would allow Dread Pirate Roberts to have legal title to clearly visible land. Therefore, any attempt to create a land registry that the government cannot control will in fact quickly turn into a land registry that it cannot control. recognized by the government itself. Of course, some will argue that this can be done on a public blockchain by giving the government a backdoor key to the contract. The counterargument to this is that such an approach is essentially a Rube Goldbergian alternative to the more efficient route of having a private blockchain. However, there is a partial counterargument to this, which I will discuss later.
  2. Since the validators are known, the risk of a 51% attack due to collusion of some Chinese miners does not apply.
  3. It is cheaper because transactions only need to be verified by a small number of nodes that are trusted to have very high processing power, and not by 10,000 laptops. It is important to note that transaction fees on public blockchains tend to exceed $0.01 per send, so while this is a very important concern at the moment, this may change over the long term. Scalable blockchain technology It promises to reduce the cost of public blockchains to within one to two orders of magnitude compared to optimally efficient private blockchain systems.
  4. Nodes can be trusted to be very well connected, and failures can be quickly corrected by manual intervention, allowing the use of consensus algorithms that provide finality after much shorter blocking times. Improvements in public blockchain technology, such as Ethereum 1.0’s Uncle concept and subsequent proof-of-stake, allow public blockchains to move much closer to the ideal of “instant confirmation” (e.g. 99.9999% finality after 2 seconds). (e.g. providing full finality after 15 seconds rather than a few hours like Bitcoin), but still private blockchains will always be faster, and unfortunately the speed of light will slow down every two years due to Moore’s Law. It’s not a 2x increase, so the latency difference never disappears.
  5. Private blockchains can provide a higher level of privacy if read permissions are limited.

Considering all this, it may seem that a private blockchain is definitely a better choice for institutions. But even in an institutional context, public blockchains still have a lot of value, and in fact, this value lies in large part in the philosophical virtues that proponents of public blockchains have long promoted. Among these things is freedom. Neutrality and openness. The benefits of public blockchains generally fall into two main categories.

  1. A public blockchain provides a way to protect the users of an application from the developer, establishing that there are certain things that even the application’s developer does not have authority over. From a naive point of view, it can be difficult to understand why application developers would want to voluntarily give up privileges and limit themselves. But more sophisticated economic analysis reveals two reasons why weakness can be a strength, to paraphrase Thomas Schelling. First, when you make it clear that you will make it more difficult or impossible for yourself to do certain things, others will be convinced that such things are less likely to happen to them, so they will They will be more likely to trust and interact with you. Second, if you are personally being forced or pressured by another being to say, “Even if I wanted to, I don’t have the authority to do it.” This becomes an important negotiation material. Doing so will deter the entity from trying to force it on you. “Resistance to censorship” is strongly tied to this type of discussion, as the main category of pressure and coercion that application developers are exposed to is from governments.
  2. Because public blockchains are open, they can be used by a large number of entities and have the potential for network effects. As a specific example, consider the case of domain name escrow. Now, if A wants to sell a domain to B, there are standard counterparty risk issues that need to be resolved. This means that if A sends money first, B may not be able to send it, and if B sends money first, A may not be able to send the domain. To resolve this issue, centralized escrow intermediarybut these are paid Fees range from 3% to 6%. However, if there is a domain name system and currency on the blockchain, same blockchainSecond, smart contracts can be used to reduce costs to almost zero. A can send a domain to the program, and the program will immediately send it to the first person to send money to the program. The program is trusted because it runs on a public blockchain. Note that for this to work efficiently, two completely disparate asset classes from completely different industries must exist on the same database. This situation simply does not occur with private ledgers. Another similar example in this category is land registry and title insurance. However, it is important to note that another route to interoperability is to have a private chain that the public chain can verify. btcrelay styleexecute transactions cross-chain.

In some cases these benefits are unnecessary, but in others they are very powerful. It is so powerful that it makes the confirmation time 3 times longer and is worth paying for. 0.03fahrbetrbensbectIahn(ahr,ahncescbeIbebIIItytechnahIahgycahmetersesIntahpIbey,0.03 for transactions (or as scalability technologies are introduced) 0.0003 for transactions). Note that various types of hybrid combinations of these properties can be achieved by creating privately managed smart contracts on top of public blockchains, or cross-chain exchange layers between public and private blockchains. please. The best solution for a particular industry will largely depend on the exact industry. In some cases, public is clearly better. You may also want some degree of private control. As is often the case in the real world, it depends.

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