What is the difference between an open, private and consortium blockchain?

Our CTO Jelle van der Ploeg will be answering this question

Blockchain technology has been around for about 10 years and has gained enterprise interest for about 6 years now. In those years many different blockchain protocols, blockchain networks and consortia have been created. Roughly these initiatives can be categorized as open, private and consortium blockchains, or better: permissionless and permissioned. It is also important to make a distinction in the technology being used, c.q. the blockchain protocol and the governance of a blockchain network when we talk about open, private and consortium or permissionless and permissioned.

The first permissionless blockchain network to come into existence is the bitcoin blockchain. It characterizes itself by being open, in the sense that anybody can transact on the network and can take part in how consensus is being reached on the network. This makes the bitcoin blockchain truly decentralized since the governance is embedded in the technology. The example of bitcoin was followed a few years later by Ethereum with a similar permissionless protocol allowing for an open blockchain network. The main contribution of Ethereum to blockchain technology, and its differentiator to bitcoin, was the introduction of smart contracts, which can be considered ‘rules’ to a transaction going over the blockchain network.

The concept of smart contracts triggered many enterprise technologists to explore blockchain further to better understand its applicability for managing transactions in business networks and across value chains. The key interest for business lies in making transactions with their suppliers, partners, clients and other stakeholders more efficient, less costly and less error-prone by improving how assets and data are transferred between them. Plus, the whole business network would interact with one single source of truth!

However, businesses require additional features from a blockchain network than what the permissionless and open blockchain networks, like Ethereum had to offer. Mostly, they were limited by the transaction volume, privacy and confidentiality features being offered by these networks. For example, with Ethereum businesses were limited with a transaction volume of 15 txns/second globally on a pseudo-anonymous network where it would be trivial for their competitors to find out how much business they are doing with whom.

Although these aspects have seen much improvements in permissionless blockchain protocols in recent years, it spawned the creation of alternative blockchain protocols for business networks. Good examples of these are the Hyperledger Project by the Linux Foundation or Corda from R3. These protocols are being used by business networks that want to digitize interactions between them, mainly around a specific process. A good example of this is the Komgo network which provides digitalization of requesting commodity trade financing in the oil & gas industry. The Komgo network consists of a consortium of banks, traders and energy companies that are stakeholders in the governing body. They interact with each other on a permissioned blockchain to which only the members of the consortium have access.

The term private blockchain is a bit of an odd one, but could be used to describe some forms of governance of a blockchain networks. In some scenarios blockchain technology is used to establish a means for a value chain to digitize their interactions with each other and to have one shared ledger. However, the governance of these networks are setup in such a way that only one participant in the network gets to decide on the consensus of the network. A practical example of this would be a monopolist in a particular industry kindly ‘demanding’ its suppliers to transact with them via a blockchain network. A benefit of applying blockchain over a centralized database could be that you do not have to establish security and identity schemes as blockchain protocols bring these out-of-the-box. However, in many private network cases blockchain is used as an excuse for digital transformation. What do you think? Leave a comment below!

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