Differences, advantages, disadvantages: public and private blockchains
In 2014, database based on blockchains began to gain popularity in the financial sector. Banks are engaged in the development of concepts and prototypes based on this technology. For example, the NASDAQ Stock Exchange planned to use the Open Assets Protocol, based on colored coins (colored coins), to provide a full cycle of control over customers' securities.
The largest French bank BNP Paribas is exploring the possibility of introducing Bitcoin into the monetary system. Australian banks - Commonwealth Bank of Australia (CBA), Westpac Banking Corporation and the Australia and New Zealand Banking Group are also experimenting with payments based on the Ripple protocol.
In addition to working on the introduction of publicly available protocols, organizations are exploring the possibility of building their own private blockchains. For example, Citigroup has built three blockchains and an internal currency based on them in order to minimize risks when interacting with other banks. It turns out that both public and private blockchains are able to find application in the financial sector. Today we will see what is the difference between them and what advantages and disadvantages they have.
/ BTC Keychain / CC / Flickr /
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The main advantages of the blockchain are decentralization and minimization of assumptions about trust, as well as transparency of transactions. The decentralization of trust allows you to share assets without the participation of any authorities who store access keys. For example, as entrepreneur and author Andreas Antonopoulos says (Andreas Antonopoulos), in Bitcoin a model of “trust based on calculations” is implemented.
“Trust does not depend on the presence or absence of dishonest participants, because they cannot“ forge ”trust,” said Andreas. - They can not impersonate trusted participants, because there are simply no such people in the system. They cannot steal central keys because they are not there either. ”
As for the transparency of the transactions, the large shared FTP folder can serve as an analogy. You see all its contents, and you also know who downloaded files to which directories and to which directories. But at the same time, each user has different access rights. Someone can only view the list, and someone (the one to whom the file is intended) can download the data to himself.
Private blockchains are blockchains in which the creation of blocks is centralized and all rights to conduct such operations belong to the same organization. The “general public” can only read information — only trusted nodes are capable of conducting audits, managing databases and other applications.
At the same time, private blockchains have certain advantages. Firstly, this is a low transaction cost, since their validity is checked by trusted and high-performance nodes instead of tens of thousands of user devices, as is the case with public networks. Secondly, the blockchain can be configured in such a way that the TPS (TPS - transactions per second) indicator will be significantly higher than that of publicly available networks (at least in the near future). The only limitation in this case is the bandwidth of the weakest node in the network.
Another advantage of private blockchains may be greater control over the system by the company. The bottom line is that a private blockchain allows, for example, to quickly update functionality. Therefore, it is attractive for institutions working with registries and accounting systems, since it forms a controlled and predictable environment, compared to publicly available blockchains (which will be discussed below).
Moreover, the creation of blocks in a private blockchain often does not require a proof of work . An example is the block creation protocol used in BitShares. There is a fixed number of transaction processors N, each of which has a pair of keys — secret and public. The creators of the blocks are known and are determined by the digital signature in the header.
Operators form blocks in turn at specified time intervals. The order of block creation is either fixed or mixed after a full cycle (N blocks). If the operator failed to form a block in the time allotted to him, then he misses the round. If this behavior was the result of intruders, then the situation is investigated. Thus, if transaction handlers are the only consumers of blockchain data, you can build a robust block creation protocol (for example, by slightly complicating the above algorithm) that will not use proof of work.
Although private blockchains may not use proof of work, this protocol can still be connected to increase security, simplify auditing and, as a result, increase control over the system for end users. In fact, the proof of work translates the trust to the blockchain from the subjective (trust in the system is equivalent to trust in its controlling organization) to the objective (trust in the system arises from mathematical laws and guaranteed high economic cost of attacking the system, which does not depend on the attacker's identity).
“Private blockchains provide interesting business opportunities, allowing you to apply transparent technology for internal use,” said Dan Wasyluk, head of Syscoin. “If we work out contracts, technology can replace many centralized businesses that exist now.” That is, private blockchains can become the basis for blockchain-innovation in services using registries or financial accounting systems.
Public or public blockchains can be read by any user, each of whom has the right to form transactions. At the same time, operations are protected by cryptographic verification mechanisms, such as proof of performance or proof of stake .
The public blockchain “controls” the entire community of network participants at once — developers, users, service providers, miners — who ensure the integrity of the network and the convenience of working in it. Network performance is achieved through protocol updates that prevent harmful changes. That is why the system allows you to create decentralized applications with a minimum of maintenance costs.
They also provide a way to protect application users from developers, limiting the capabilities of the latter. In applications on a public blockchain, a developer cannot change the code or data by itself. As Thomas Schelling said : “Weakness can sometimes turn to advantage.”
In addition, public blockchains have network effects. The first users of applications built on a public blockchain are often users of other applications on the same blockchain, who have learned about them due to the effect of program interaction. For example, a mobile wallet running on a public blockchain can add a function for the interaction of this application with other distributed applications on the same blockchain, significantly expanding its user base.
It is worth noting that public blockchains allow to solve the problem of the transfer of "goods". For example, if User A wants to sell a domain to User B, then they face certain difficulties. If A transfers the domain first, he risks not getting the money, otherwise B risks not getting the “goods”. To solve this problem, intermediaries are used that charge interest for the transaction.
However, if the blockchain has a domain name system and currency, then costs are reduced to zero using a smart contract. The first sends the domain to the program, and the second - the money. There are no problems, since the program is trusted as it operates in the public blockchain.
Blockchain-based solutions form a secure and naturally decentralized framework for transaction processing. Bitcoin blockchain is currently the most secure public blockchain in terms of the cost of attacks on the system. In a publicly accessible environment, the cost of the attack is proportional to the remuneration of the creators of the blocks, which in the case of Bitcoin is approximately 2.1 million dollars daily. At the same time, the cost of maintaining security is relatively small and is formed due to two factors: transaction fees and controlled inflation of the money supply (about 7% per year in 2016).
One of the main advantages of blockchains compared to other models of distributed databases is the integration of information processing, tracking of correctness and security into a single protocol minimizing the influence of the human factor. Due to legal and technical reasons, institutions with financial accounting systems or registries may be interested in using blockchains with limited access to transaction processing in the medium term.
As for public blockchains, their advantages (in particular, their transparency and openness of basic technologies and protocols) can lead to the technology replacing many functions of traditional financial institutions, changing the way the financial system works.
The largest French bank BNP Paribas is exploring the possibility of introducing Bitcoin into the monetary system. Australian banks - Commonwealth Bank of Australia (CBA), Westpac Banking Corporation and the Australia and New Zealand Banking Group are also experimenting with payments based on the Ripple protocol.
In addition to working on the introduction of publicly available protocols, organizations are exploring the possibility of building their own private blockchains. For example, Citigroup has built three blockchains and an internal currency based on them in order to minimize risks when interacting with other banks. It turns out that both public and private blockchains are able to find application in the financial sector. Today we will see what is the difference between them and what advantages and disadvantages they have.
/ BTC Keychain / CC / Flickr /
')
The main advantages of the blockchain are decentralization and minimization of assumptions about trust, as well as transparency of transactions. The decentralization of trust allows you to share assets without the participation of any authorities who store access keys. For example, as entrepreneur and author Andreas Antonopoulos says (Andreas Antonopoulos), in Bitcoin a model of “trust based on calculations” is implemented.
“Trust does not depend on the presence or absence of dishonest participants, because they cannot“ forge ”trust,” said Andreas. - They can not impersonate trusted participants, because there are simply no such people in the system. They cannot steal central keys because they are not there either. ”
As for the transparency of the transactions, the large shared FTP folder can serve as an analogy. You see all its contents, and you also know who downloaded files to which directories and to which directories. But at the same time, each user has different access rights. Someone can only view the list, and someone (the one to whom the file is intended) can download the data to himself.
Private blockchains
Private blockchains are blockchains in which the creation of blocks is centralized and all rights to conduct such operations belong to the same organization. The “general public” can only read information — only trusted nodes are capable of conducting audits, managing databases and other applications.
At the same time, private blockchains have certain advantages. Firstly, this is a low transaction cost, since their validity is checked by trusted and high-performance nodes instead of tens of thousands of user devices, as is the case with public networks. Secondly, the blockchain can be configured in such a way that the TPS (TPS - transactions per second) indicator will be significantly higher than that of publicly available networks (at least in the near future). The only limitation in this case is the bandwidth of the weakest node in the network.
Another advantage of private blockchains may be greater control over the system by the company. The bottom line is that a private blockchain allows, for example, to quickly update functionality. Therefore, it is attractive for institutions working with registries and accounting systems, since it forms a controlled and predictable environment, compared to publicly available blockchains (which will be discussed below).
Moreover, the creation of blocks in a private blockchain often does not require a proof of work . An example is the block creation protocol used in BitShares. There is a fixed number of transaction processors N, each of which has a pair of keys — secret and public. The creators of the blocks are known and are determined by the digital signature in the header.
Operators form blocks in turn at specified time intervals. The order of block creation is either fixed or mixed after a full cycle (N blocks). If the operator failed to form a block in the time allotted to him, then he misses the round. If this behavior was the result of intruders, then the situation is investigated. Thus, if transaction handlers are the only consumers of blockchain data, you can build a robust block creation protocol (for example, by slightly complicating the above algorithm) that will not use proof of work.
Although private blockchains may not use proof of work, this protocol can still be connected to increase security, simplify auditing and, as a result, increase control over the system for end users. In fact, the proof of work translates the trust to the blockchain from the subjective (trust in the system is equivalent to trust in its controlling organization) to the objective (trust in the system arises from mathematical laws and guaranteed high economic cost of attacking the system, which does not depend on the attacker's identity).
“Private blockchains provide interesting business opportunities, allowing you to apply transparent technology for internal use,” said Dan Wasyluk, head of Syscoin. “If we work out contracts, technology can replace many centralized businesses that exist now.” That is, private blockchains can become the basis for blockchain-innovation in services using registries or financial accounting systems.
Public blockchains
Public or public blockchains can be read by any user, each of whom has the right to form transactions. At the same time, operations are protected by cryptographic verification mechanisms, such as proof of performance or proof of stake .
The public blockchain “controls” the entire community of network participants at once — developers, users, service providers, miners — who ensure the integrity of the network and the convenience of working in it. Network performance is achieved through protocol updates that prevent harmful changes. That is why the system allows you to create decentralized applications with a minimum of maintenance costs.
They also provide a way to protect application users from developers, limiting the capabilities of the latter. In applications on a public blockchain, a developer cannot change the code or data by itself. As Thomas Schelling said : “Weakness can sometimes turn to advantage.”
In addition, public blockchains have network effects. The first users of applications built on a public blockchain are often users of other applications on the same blockchain, who have learned about them due to the effect of program interaction. For example, a mobile wallet running on a public blockchain can add a function for the interaction of this application with other distributed applications on the same blockchain, significantly expanding its user base.
It is worth noting that public blockchains allow to solve the problem of the transfer of "goods". For example, if User A wants to sell a domain to User B, then they face certain difficulties. If A transfers the domain first, he risks not getting the money, otherwise B risks not getting the “goods”. To solve this problem, intermediaries are used that charge interest for the transaction.
However, if the blockchain has a domain name system and currency, then costs are reduced to zero using a smart contract. The first sends the domain to the program, and the second - the money. There are no problems, since the program is trusted as it operates in the public blockchain.
Blockchain-based solutions form a secure and naturally decentralized framework for transaction processing. Bitcoin blockchain is currently the most secure public blockchain in terms of the cost of attacks on the system. In a publicly accessible environment, the cost of the attack is proportional to the remuneration of the creators of the blocks, which in the case of Bitcoin is approximately 2.1 million dollars daily. At the same time, the cost of maintaining security is relatively small and is formed due to two factors: transaction fees and controlled inflation of the money supply (about 7% per year in 2016).
One of the main advantages of blockchains compared to other models of distributed databases is the integration of information processing, tracking of correctness and security into a single protocol minimizing the influence of the human factor. Due to legal and technical reasons, institutions with financial accounting systems or registries may be interested in using blockchains with limited access to transaction processing in the medium term.
As for public blockchains, their advantages (in particular, their transparency and openness of basic technologies and protocols) can lead to the technology replacing many functions of traditional financial institutions, changing the way the financial system works.
Source: https://habr.com/ru/post/324458/
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