Blockchain – the technology underpinning Bitcoin and Ethereum – is widely associated with decentralization. It is seen by many as means to eliminate banks (and other intermediaries) from transactions. And it’s believed to, one day, reshape completely the way our financial system works.
However, there’s much more to blockchains than one might think. The technology, famous for providing anonymity and protection for the common folk, can be of value for corporations as well. Although, in a slightly different fashion.
JPMorgan and Microsoft, have already thrown their multi-million dollar hats into the private blockchain ring.
JPMorgan and Microsoft, have already thrown their multi-million dollar hats into the private…
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Today, we are going to talk about private blockchains and how, when applied properly, they can streamline business processes and save money for companies in various industries.
Let’s get started.
As of now, all existing blockchains can be divided into three categories:
The key distinction between these networks lies in the way they are governed. Or rather, whom they are governed by.
Public blockchains (the likes of Bitcoin and Ethereum) are essentially everyone’s to control. They put out no entry restrictions. They permit everybody, save for those not connected to the web, to access and even manage the networks, provided that the validators deposit some internal or external resources into securing them.
What public chains prohibit, however, is one’s complete authority. No single entity can write to such a network’s history unless the nodes, who participate in the consensus process, decide the entry is valid.
The security, which public chains are most praised for, is achieved by clever application of crypto economics. They use algorithms such as Proof of Work and Proof of Stake to prevent malicious activities and offer financial incentives for miners (validators) willing to establish the protection.
They concern themselves above all with providing transparency and anonymity. They regard efficiency (and scalability) as features of secondary importance.
Consortium and private blockchains have a slightly different focus. They’re designed not to expose to the whole world the record of transactions which they store. And they are managed, much more effectively than their public counterparts, by a limited number of nodes.
Consortium and private blockchains are only different in one way. The former are governed by a group of corporations (say a consortium of banks), while the latter are maintained by a single firm. The purpose of these chains, unlike that of public ones, is not to reinvent the existing business processes, but to complement them.
Financial institutions and large-scale corporations alike can exchange assets using the blockchains technology, thus not having to pay an intermediary and having these transactions settled within seconds. They also might monitor the private peer-to-peer networks in real time, whenever they need to.