When blockchain is mentioned, the first thing that comes to mind is Bitcoin, the crypto currency reported to have about 16 million units in circulation, and of course, the illegal activity on the dark web associated with it (and crypto currency generally).
That blockchain is an ingenious invention is an understatement. It is described as the brainchild of a person or group of people known by the pseudonym, Satoshi Nakamoto who had presented the original idea in 2008. It has since evolved into a technology with enormous applications, beyond the stereotype P2P payment platform.
Like everything else, the dark side of the technology is discussed more than the good side. While blockchain technology has both good and well, “not so good uses”, it is important to highlight adoption of the good components in blockchain and controlling the bad.
Definition & Classifications
A blockchain facilitates secure online transactions. It is a decentralized digital ledger that records transactions across many computers in such a way that the registered transactions cannot be altered retroactively. It is also referred to as the best known type of Distributed Ledger Technology (DLT), so most people tend to use them interchangeably. A DLT or blockchain is a ledger that is shared amongst all the network participants and that records their transactions. The ledger is code protected, distributed and decentralized; and is updated by a consensus mechanism.
Vitalik Buterin, in a post on types of blockchain, identified three types; private, public or consortium.
- Public blockchains
Public blockchains are open-source and anyone can be part of them. Public blockchains are open peer-to-peer platforms where all transactions are decentralized and distributed amongst all participants, i.e. anyone in the world can explore the blockchain, send transactions or contracts, consult them and participate in the consensus process.
A public blockchain is most appropriate when a network needs to be decentralized (i.e. no need for a central authority), distributed (no central point of failure), highly secured and the participants have low trust amongst themselves.
Examples: Bitcoin, Ethereum, Stellar etc.
- Private blockchains
Unlike public blockchains that have no central authority, private blockchains are privately owned and managed and accessible to a closed group of users. In a private blockchain, permissions to update the blockchain are kept centralized to one organization. Read permissions may be public or restricted to an arbitrary extent.
In contrast to public blockchains, pure private blockchains are blockchains which are operated by an organisation which are only accessible to individuals or organisations which have been granted permission to use the blockchain by its operator. Private blockchains are essentially private databases which are structured as a distributed ledger.
For some companies, the private nature of a private blockchain is a key advantage, as it maintains the confidentiality of information concerning transactions made on the blockchain and prevents commercially sensitive information from being viewed by anyone with access to the internet. However, many supporters of the public blockchain argue that the confidential nature of private blockchains actually diminishes security, as blockchains might be manipulated without any of the users of the blockchains being aware of the manipulation due to the confidential nature of the transactions.
Examples: Monax, Multichain, Bankchain
- Consortium blockchains
Consortium blockchains are a hybrid of public and private blockchains that are formed by a number of institutions and give control to a “group” of users rather than a single controlling authority. In consortium blockchains, the consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 20 financial institutions, each of which operates a node and of which 15 must sign every block in order for the block to be valid. The right to read the blockchain may be public, or restricted to the participants.
Nonetheless, consortium blockchains requiring the collaboration of diverse institutions are difficult to implement. Consortiums need to have disciplined processes, persistence, patience, a tolerance for some politics and lots of maturity.
Example: R3, Hyperledger Foundation, China Ledger Alliance, Global Blockchain Council, Digital Asset Holdings, etc.
Applications of Blockchain
There are dozens of use cases for blockchain, and more novel applications are regularly evolving. Blockchain usage cuts across; Financial Services, Contracting (smart contracts), Government Records, Healthcare, Peer-to-Peer transactions to mention a few.
While many of these applications of blockchain technology are undergoing market development and testing, it’s clear that the next few years will be very interesting in this space. Blockchain is widely labeled as the next big technology revolution after the internet.
In our subsequent articles, we will delve deeper into blockchain use cases and related topics such as security, regulation, and a lot more.
Contributors to this article are; Dr. Olayinka David-West, Lagos Business School, and Tunde Ladipo, a Blockchain enthusiast.
