In recent years, blockchain has experienced a sharp increase in both significance and appeal. Although it is primarily known for providing the technological foundation for well-known networks like Bitcoin and Ethereum, the fundamental concept is applicable to much more than just peer-to-peer financial transactions.
Blockchain technology has the potential to improve transparency and trust across a wide range of sector verticals, including real estate, entertainment, supply chains, and financial markets. Much of the enthusiasm stems from its ability to transform deeply ingrained transactional procedures completely.
But as is typically the case with new technology, there are still a lot of misconceptions and gray areas. Some see blockchain, for instance, as the solution to every inefficiency, a protocol just for tokens, non-performing, anonymous, etc. In an effort to dispel long-held misconceptions, this essay will examine the background of blockchain's entry into the mainstream market and distinguish between two very different uses of the technology: public and private blockchain networks.
It's likely that you have engaged in or heard a discussion along these lines if you work in the blockchain industry or spend time with others who do. Asking someone whether they've heard of blockchain is a good way to explain what you do.
The Public Blockchains
Bitcoin and Ethereum are the two public blockchains that are most frequently mentioned. Though each network has its own unique features (such as intrinsic tokens, balancing methods, and interoperability with smart contracts), they are all quite similar in terms of their fundamental design and how they come to consensus on state modifications.
What does "agree upon state updates" actually imply these days? To properly answer this idea, we must first examine the networks from above. Thousands of decentralized nodes, or computer resources, make up Ethereum and Bitcoin. Each node processes transactions in a block independently and keeps its copy of an "append-only" ledger. This ledger, often known as the blockchain, is essentially an endless audit log that contains a record of each transaction ever made on the network.
The fundamental duties of this consensus-based method are to safeguard the network's integrity and stop hostile actors from abusing the system. Proof of Work (PoW), a unique kind of consensus used by Ethereum and Bitcoin, is carried out by a dispersed group of network users known as mining nodes.
How Proof Of Work, Works
Participating mining nodes will concurrently compete to package pending transactions sent by decentralized applications (dApps) to the network and "mine" a block that is deemed legitimate. Blockchain orchestrations use binary Merkle trees to record transactions as hashes. One of the most important bits of metadata in a block header is the tree's root hash. The essential information that makes up a block, including the difficulty, version, timestamp, Merkle hash, and preceding block hash, is compiled into the block header. The use of hashing techniques, which are one-way cryptographic functions that reduce randomly sized data to a fixed size, in conjunction with block design, is a key factor in the chain's immutability.
The mining node has to find a distinct value, known as a nonce, that meets the network's difficulty threshold in order to generate a legitimate block. This nonce, which can only be obtained by pure brute force computing, is evidence of the mining node's enormous computational effort (i.e., labor).
Although the nonce is difficult to locate, the other nodes may easily confirm the legitimacy of the proposed block with a simple procedure. All they do is combine the nonce with the other numbers that make up the block header and run the resulting data through a hashing algorithm. They will accept the block and add it to their chain if the resultant output satisfies the difficulty parameter. It is outside the purview of this piece to discuss the specific details of Proof of Work (PoW) consensus, but let's say that creating a correctly designed block that the network will accept requires a lot of computation.
The Purpose Of Blockchain Mining
Mining operations need complex cooling systems, a lot of power, and expensive gear, namely graphics processing units. So why would anyone decide to take on the enormous expenses and upkeep duties that come with these intricate arrangements? The solution is easy to understand. A specific quantity of the intrinsic token (also known as incentivization) of the public network is awarded to nodes that mine valid blocks. Therefore, the operation is deemed economically feasible if the benefit that is obtained outweighs the effort required to mine a block.
Why Blockchain Mining Is So Difficult
Does constructing a well-formed block and deriving a valid nonce truly need billions of calculations? This is also a straightforward response. Since malevolent actors might join and engage in these "public" networks, there must be strong safeguards in place to ensure that approved transactions remain permanent.
Although the public networks' difficulty objective is subject to change, it is always closely related to the quantity of mining nodes and the network's associated "hash rate." Hashing rate may be understood as the total amount of processing power available to the network. The difficulty objective rises in proportion to the amount of mining nodes. The difficulty objective lowers as the number of mining nodes does. This guarantees a fair playing field, a regular timetable for state changes, and an equitable standard for everyone to strive for.
Why, then, is it so hard? These public networks' nodes are configured to operate against the canonical chain, which is the longest version of the blockchain. This implies that anybody would need to surpass the canonical chain with their version in order to effectively hack the network, reverse transactions, or double-spend assets. A malicious actor would need to account for more than 50% of the network's hash rate in order to regularly create and maintain their own canonical chain that the network would trust, as the hash rate is closely correlated with the computing power in the network. This computer capability is beyond comprehension. For instance, the hash rate for Ethereum is 130 TH/s as of this writing. Therefore, to control the network, a group of computer resources would have to produce more than 65 trillion hashes every second.
Constraints Of Public Blockchains
Because of the Proof mentioned above of Work consensus, public networks provide exceptional resistance to data modifications once a certain number of blocks have been added. However, they also come with a number of limits. First of all, being a vital mining node is quite expensive. Second, the consensus technique that is used will determine how scalable and performant the system is. Thus, it might take a while for submitted transactions to be added to the chain. Thirdly, in exchange for the computational resources used by the nodes to mine blocks, several networks impose service fees (such as Ethereum's gas charges). And third, anonymity and secrecy become much more difficult because of the chain's extensive dissemination across thousands of nodes.
Many initiatives and plans are in the works to find a solution for some of these issues. One especially intriguing area of research is the introduction of side chains, which provide simpler scalability and quicker transaction processing.
Read More: Unlocking the Future: How Blockchain Technology Can Make You Smarter and Safer
Private (Or Permissioned) Blockchains
Blockchain technology appeals to a wide range of stakeholders, including small companies, NGOs, government agencies, and enterprises, since it provides shared access to data, immutability of added transactions, and increased transparency. They also see it as a means of streamlining and digitizing many of the established and archaic paper-intensive procedures that are still in use today, as well as removing expensive third parties that are typically necessary for bilateral confidence in different transactional processes.
But when considering blockchain from an organizational perspective, it's clear that the drawbacks mentioned above of public chains are unsustainable. First-class factors like identification, governance, privacy, throughput, and configurability need to be included in the blockchain's architecture. These companies are thus lured to private or "permissioned" blockchain orchestrations, in which network access is restricted to those who have been invited and verified.
There are two key differences between public and private blockchains: consensus techniques and authentication. Block headers, Merkle trees, timestamps, hashing algorithms, and other fundamental components of the blockchain remain the same, but because of these two distinctions, there is a significant increase in the functionality that is accessible. Ethereum, in particular, can support these two essential aspects.
Controlling Participation Through Node Authentication
The first - and maybe most noticeable - difference is that transaction execution and state agreements will only be accessible to nodes that have been granted permission to join the network. Usually, a reliable entity that has been granted access to the network owns and runs these nodes; nevertheless, on occasion, a reliable counterparty charged with overseeing the network on behalf of its fellow participants may be in charge of them.
The network is only isolated to the nodes that have been granted access, regardless of the ownership schema. Because of this, private networks often include a small number of nodes that are all immediately mappable to a commercial entity that is involved.
How Public And Private Blockchains Work Together
Even though they have historically operated separately, there are some situations in which combining these public and private domains might be beneficial. Due to an alternative class of consensus algorithms, private networks, as previously mentioned, offer exceptional performance while removing many of the drawbacks of public chains. However, because these techniques depend on digital signatures from validating nodes, the private signing keys are essential components of the consensus mechanism as a whole. Therefore, it is possible to rebuild the chain if the integrity of these keys was compromised by a malevolent actor or a supermajority of players looking to collude (keep in mind that mining blocks in a private network is not a computationally demanding task).
Therefore, it becomes appropriate to pin collectively agreed state proofs to a public network, where Proof of Work protects the immutability of transactions in order to guarantee the historical correctness of an isolated ledger by providing a Public Ethereum Tether service for shared usage inside a private blockchain environment.
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Conclusion
This essay sought to clarify public versus private blockchain networks and eliminate certain misconceptions and ambiguities around blockchain technology in general. Public chains don't require strict authentication procedures to function and are available to everyone. Public chains rely on Proof of Work, a powerful and computationally demanding consensus method that safeguards the network's integrity by rendering attempted transaction reversals unfeasible.
Public chain nodes that are successful in "mining" blocks are rewarded with the intrinsic cryptocurrency of the network (such as Ether or Bitcoin). Instead of requiring the idea of a local currency, private chains rely on robust permissions and authentication systems, as well as quick consensus algorithms supported by digital signature security. To offer enterprise-grade solutions, private chains require extra capabilities related to identity integration, smart contracts, governance, etc.
