For those who have recently started exploring the blockchain, it may appear that it is a single framework from which all decentralised applications operate. Like another Internet. This is however not the case. The public blockchain requires the Internet as a baseline technology to function.
The Internet supports various network services. These include the World Wide Web, email, online games, mobile apps, file sharing services, the Dark Web, and also the blockchain.
The first blockchain was designed by a person or group of persons with the moniker, Satoshi Nakamoto, in 2008. As if prompted by the Global Financial Crisis, the bitcoin cryptocurrency specified in a White Paper prepared by the said Satoshi launched in 2009 as the first public blockchain.
The original design intent was for the blockchain to be an open, public, permanent, decentralized, distributed, trustless and permissionless network based on the Internet. However, since its creation, several variations of the blockchain have arisen. Let’s review the variations that are sometimes referred to as alternative blockchains or altchains.
A key reason for the rise of alternative blockchains came from the realization that the blockchain, a distributed ledger technology, could be used to support the transfer of value or enshrine agreements. Bitcoin was designed to transfer value in the form of peer-to-peer (P2P) payments and receipts. Ethereum was designed to effect agreements in the form of Smart Contracts.
The disintermediation of many industries by eliminating the middlemen to reduce transaction costs, improve security and increase personal sovereignty is one of the key goals of the blockchain. Consequently, many large companies have been concerned about the corrosive impact of the blockchain on their current business models.
However, as soon as these companies and industry groups started to understand the core aspects of the blockchain, they coopted features that they liked and began to build private blockchains. These permissioned private or consortium blockchains are only open to their ‘members’ or pre-approved participants. These private blockchains are built to reduce the costs of settlements between entities in an ecosystem like banking, reduce exposure to fraud from improved transaction traceability, and better system security from improved identity validation.
Private blockchains also tend to be faster than public blockchains, since the consensus validation scope is reduced. Pre-approved participants, whose identities are known, are typically allowed to create and update transactions related to the underlying assets.
Public blockchains, on the other hand, tend to be slower due to the onerous completion of the consensus algorithm by a distributed army of anonymous miners who can openly create and update blocks as long as they do not invalidate the cryptographic process.
Some better known examples of private blockchains include: R3 (financial product innovation for a group of banks based on distributed ledger technology) and Hyperledger (a business blockchain framework from the Linux Foundation). Private blockchains are also now being offered as a SaaS (Software as a Service) solution; as in the case of Microsoft Azure.
The blockchain framework is inspiring tremendous innovation as individuals and companies find new ways to tap into this technology to improve performance and the human experience. Keep tabs on this phenomenon so that you can also benefit from upcoming innovations.
Thanks to Natalie Devan for editing this post.
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