Blockchain Explained: Which Kind of Blockchain Should You Use?

Thinking about implementing your own blockchain solution? Here’s what you need to know about public, private and permissioned blockchains.

Written by
Ben Wald
on
November 6, 2017
Filed under:

If you’ve decided to pursue a blockchain project, the next step is to figure out what kind of blockchain you need: public, private, or permissioned. These blockchain types are distinguished by level of access — i.e., who is allowed to participate in the network, execute the consensus protocol, and maintain the shared ledger.

Public Blockchains

Public blockchains were developed as an alternative for centralized trust, and as a result, they’re completely open. Anyone can join and participate in the network, and there’s usually an incentive mechanism to encourage more people to join the network. Bitcoin is probably the most well-known example of a public blockchain. With public blockchains, anyone can read the chain, make legitimate changes, and write new blocks into the chain — if they follow the rules.

Public blockchains require a substantial amount of computational power to maintain a distributed ledger at scale. To achieve consensus, each node must solve a complex cryptographic problem called a “proof of work.”

If you’re looking to implement your own blockchain solution, it’s important to remember that public blockchains are (as the name implies) public. By its very nature, blockchain protects the integrity and availability of data. But, when it comes to confidentiality? It’s complicated. (Read this blog post to learn more).

If you’re in a highly regulated industry like healthcare, finance, or life sciences, you should think seriously about the privacy and compliance implications of using a public blockchain.

Private Blockchains

On the other end of the spectrum, private blockchain networks are invitation-only. New nodes must either be validated by the person or people who started the network or by a set of rules those people put in place.

The ability to write information and validate transactions is limited to one organization, and read permissions can be public or restricted. Private blockchains are best for applications that are internal to a single company.

Private blockchains like Hyperledger Fabric give companies a way to take advantage of blockchain technology by setting up groups and participants who can verify transactions internally. This puts you at the risk of security breaches — just like in a centralized system — as opposed to public blockchain, secured by incentive mechanisms. However, private blockchains have their use case, especially when it comes to scalability and compliance of data privacy rules and other regulatory issues.

Private blockchains can provide solutions to problems in highly regulated industries by complying with regulations like Health Insurance Portability and Accountability Act (HIPAA), know-your-customer (KYC), and anti-money laundering (AML) laws.

Many businesses that set up a private blockchain do so with the intention of creating a permissioned blockchain.

Permissioned (aka “Consortium” aka “Federated”) Blockchains

A permissioned blockchain is a type of private blockchain that serves as a hybrid between public and private blockchains. Instead of allowing anyone with an Internet connection to participate or allowing a single entity to have full control, a few nodes are predetermined.

This type of blockchain is also known as a consortium blockchain or a federated blockchain (the terminology is still in flux because this is such a disruptive emerging technology).

With this kind of blockchain, the consensus process is controlled by a preselected set of nodes. For example, a consortium of 20 financial institutions might come together to share data with each other, and they could create their own rules about how the blockchain operates. The right to read the blockchain can be public, or restricted to the participants.

So, which kind of blockchain is right for your business? The short answer: it depends on your use case. When we work with clients, we help them analyze both their technology requirements and their business requirements, so that together, we can make a decision that best fits their needs. You can also use this free decision tree to get a sense of which type of blockchain would be best for you.

which blockchain is right for you