On public and private Blockchain

Over the past year, the concept of “private blockchains” has become very popular in the broader discussion of blockchain technology. Basically, instead of getting completely A public, uncensored network and a state machine secured by the crypto-economy (e.g., proof-of-work, proof-of-stake), it is also possible to create a system in which access permissions are more tightly controlled, with the rights to modify or even read the state of the blockchain restricted to a few. of users, while maintaining many of the types of partial guarantees of authenticity and decentralization that blockchain technology provides. Such systems have been a primary focus of interest on the part of financial institutions, and have in part led to a backlash from those who see such developments as either detrimental to the whole point of decentralization or as a desperate act of dinosaur brokers trying to stay relevant (or simply committing Crime of use Blockchain other than Bitcoin). However, for those who fight this battle simply because they want to know how best to serve humanity, or even pursue the more modest goal of serving their customers, what are the practical differences between the two approaches?

First, what exactly are the options available? To summarize, there are generally three categories of blockchain-like database applications:

• Public blockchains: A public blockchain is a blockchain that anyone in the world can read, anyone in the world can send transactions to and expect to see them listed if they are valid, and anyone in the world can participate in Consensus process – The process of determining which blocks will be added to the chain and what their current state is. As an alternative to centralized or semi-centralized trust, public blockchains are secured by cryptoeconomics – a combination of economic incentives and cryptographic verification using mechanisms such as proof of work or proof of stake, following the general principle that the degree to which someone can influence the process of Consensus is proportional to the amount of economic resources they can achieve. These blockchains are generally considered “fully decentralized.”
• blockchain consortium: A consortium blockchain is a blockchain where the consensus process is controlled by a pre-defined group of nodes; For example, one could imagine a consortium of 15 financial institutions, each of which runs a node and 10 of which must sign each block for the block to be valid. The right to read the blockchain may be public, or restricted to participants, and there are also hybrid methods such as root hashing of blocks that are public with an Application Programming Interface (API) that allows members of the public to make a limited number of queries and retrieve cryptographic evidence of some parts of the blockchain state. These blockchains can be considered “partially decentralized.”
• Completely private blockchains: A fully private blockchain is a blockchain where write permissions are held centrally in a single organization. Read permissions may be general or arbitrarily restricted. Possible applications include database management, auditing, etc. internal to a single company, so global readability may not be necessary in many cases at all, although global auditability is required in others.

In general, there has been little focus so far on the distinction between consortium blockchains and entirely private blockchains, despite its importance: the former provides a mix between the “low trust” provided by public blockchains and the “high trust single entity.” model of private blockchains, while the latter could be more accurately described as a traditional centralized system with a degree of cryptographic auditability attached. However, to some extent, there is good reason to focus on consortiums rather than privately: the fundamental value of blockchains in A completely special context, apart from the functionality of the replicated state machine, is cryptographic authentication, and there is no reason to believe that the optimal solution for this authentication provisioning format should consist of a series of hash-linked data packets containing the roots of a Merkle tree; Generalized zero-knowledge proof technology It offers a much wider range of exciting possibilities around the types of cryptographic guarantees applications can provide to their users. In general, I would argue that, in the world of financial companies, generalized zero-knowledge proofs are fairly common. clumsy Compared to private blockchains.

For now, I’ll focus on the simpler “private vs public” blockchain discussion. In general, the idea that there is “one true way” to use blockchain technology is completely false, and both categories have their own advantages and disadvantages.

First, private blockchains. Compared to public blockchains, they have a number of advantages:

1. The consortium or company managing a private blockchain can, if desired, easily change the rules of the blockchain, rewind transactions, modify balances, etc. In some cases, e.g. National Land Registries, this function is essential; There is no way to allow for a system in which the fearsome pirate Roberts could have legal property rights over a clearly visible piece of land, so the attempt to create a land registry that could not be controlled by the government would quickly turn in practice into an uncontrollable registry. Recognized by the government itself. Of course, one could argue that it is possible to do this on a public blockchain network by giving the government a backkey 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, although there is a partial counterargument to that which I will describe later.
2. The validators are known, so any risk of a 51% attack caused by the collusion of some miners in China does not apply.
3. Transactions are cheaper, because they only need to be verified by a few nodes that can be trusted to have very high processing power, and do not need to be validated by ten thousand laptops. This is a critical concern at the moment, as public blockchains tend to charge transaction fees exceeding $0.01 per TX, but it is important to note that it may change in the long term as… Blockchain technology is scalable Which promises to reduce public blockchain costs by one or two orders of magnitude compared to an optimally efficient private blockchain system.
4. Nodes can be trusted to be very well connected, and errors can be quickly fixed by manual intervention, allowing the use of consensus algorithms that provide finality after much shorter blocking times. Improvements in public blockchain technology, such as the concept of Ethereum 1.0 and later Proof of Stake, could bring public blockchains much closer to the ideal of “instant confirmation” (e.g. providing full finality after 15 seconds, rather than 99.9999% finality after 2 seconds). hours as with Bitcoin), but even private blockchains will always be faster and the latency difference will never go away, as the speed of light unfortunately does not increase by 2x every two years under Moore’s Law.
5. If read permissions are restricted, private blockchains can provide a greater level of privacy.

Given all this, it might seem that private blockchains are undoubtedly a better option for organizations. However, even in an institutional context, public blockchains still have great value, and in fact this value lies largely in the philosophical virtues that advocates of public blockchains have been touting all along, the most important of which are freedom, neutrality and openness. The advantages of public blockchains generally fall into two main categories:

1. Public blockchains provide a way to protect app users from developers, proving that there are certain things even app developers don’t have the authority to do. From a naive point of view, it may be difficult to understand why an app developer would want to voluntarily give up power and be obstructed. However, more advanced economic analysis offers two reasons why weakness, in the words of Thomas Schelling, is a source of strength. First, if you make it difficult or impossible for yourself to do certain things, others are more likely to trust you and interact with you, because they are confident that those things are less likely to happen to them. Second, if you personally are being coerced or pressured by another entity, saying “I don’t have the ability to do this even if I wanted to” is an important bargaining chip, because it discourages that entity from trying to force you to do it. One of the main categories of pressure or coercion that app developers are exposed to is pressure from governments, so “resistance to censorship” relates strongly to this type of argument.
2. Public blockchains are open and therefore potentially used by many entities and gain some network effects. To give a specific example, consider the case of a domain name escrow. Currently, if A wants to sell a domain to B, there is a standard counterparty risk problem that needs to be solved: if A sends first, B may not send the funds, and if B sends first, B may not send the money. A does not send the domain. To solve this problem, we have Central security brokersbut this charge Fees range from three to six percent. However, if we have a domain name system on the blockchain, the currency is up and running Same as blockchain,We can then reduce costs to nearly zero with a smart contract: A can send the domain to a program that immediately sends it to the first person to send the program money, and the program is trusted because it runs on a public blockchain. Note that for this to work efficiently, there would need to be two very heterogeneous asset classes from completely different industries in the same database – a situation that can easily happen with private ledgers. Another similar example in this category is land registries and title insurance, although it is important to note that another path to interoperability is to have a private chain that the public chain can verify, btcrelay-styleAnd execute cross-chain transactions.

In some cases, these benefits are unnecessary, but in others they are very powerful – powerful enough to be worth 3x longer confirmation and payment times $0.03 per transaction (or, once scalability technology came along,$0.0003 per transaction). Note that by creating privately managed smart contracts on public blockchains, or cross-chain exchange layers between public and private blockchains, one can achieve many types of hybrid combinations of these properties. The optimal solution for a particular industry depends largely on what exactly your industry is. In some cases, the audience is clearly better; In other cases, a certain degree of special control is simply necessary. As is often the case in the real world, it depends.