There are different types of blockchains. The only true use case for a blockchain, at the current time, is Bitcoin. Nonetheless, many of these other blockchain models, still experiments, could power finance, and some experts believe relatively quickly.
Bitcoin, the first blockchain iteration, is a public blockchain.
A public blockchain is open source, and open to anybody to use. That means anyone can take part in the consensus mechanism, which, in the case of Bitcoin, is the miners. These blockchains are considered truly decentralized.
“A public chain is not gated or fenced in any way,” early Bitcoin developer Jeff Garzik, who now runs his own blockchain-as-a-service company, told Bitcoinist. “It’s an open, permissionless network and its an absolute requirement to have software that is compatible with open public networks taking the lessons learned from the Internet. You don’t want to create a Compuserve or a Prodigy – all of these little silos of walled gardens.”
Instead, “you want to create the large permissionless open public networks, and support that as your main focus, because that is where the developer energy is and technology interest is.”
Bitcoin serves as a great example of what Garzik terms a “decentralized autonomous organism.” These DAO’s – or online creation communities as they’re sometimes called – are powered by a concert of voluntary participants who contribute their energy and resources to an open-source project, either by gathering information, delivering code proposals or simply using an open-source technology. Through open collaboration efforts, seen in the blockchain space in R3 CEV, many of the world’s largest financial companies demonstrate how they see this as the most efficient way to develop.
Garzik believes all blockchains, even private chains, must be based on public technology: “And then from side chains, private chains, confederated chain perspective, use that same software and simply build a gate around that permissions who is going to use that system. So it’s absolutely critical that you use the same software and same protocol with private and public and confederated chains.”
“The confederated chain is a consortium of organizations that gather and create their own network,” Garzik explains. “ An example of that is where five or six banks get together to create an equity settlement network or a trading equities network.” A confederated or consortium chain could be a private or public blockchain.
“You sort of dive into semantics of terms,” Garzik said. “In terms of some people call a confederated chain a private chain, because it is not public.”
He explains how it’s done at Bloq: “So, definitionally, we say private chain is single organization chain and a confederated chain is multi-organization chain.”
Confederated blockchains are called by Vitalik Buterin consortium blockchains, which defines as “a blockchain where the consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which 10 must sign every block in order for the block to be valid.” How private – or public – a such blockchain is would be up to the creators of the confederated blockchain.
Private blockchains are internal to a single entity, most likely a corporation. Read permissions might be open to the public or they might be kept private for internal use only. Uses for private blockchains could be database management, auditing, and other functions for a private company.
Vitalik Buterin sees advantages: “The consortium or company running a private blockchain can easily, if desired, change the rules of a blockchain, revert transactions, modify balances, etc. In some cases, eg. national land registries, this functionality is necessary; there is no way a system would be allowed to exist where Dread Pirate Roberts can have legal ownership rights over a plainly visible piece of land, and so an attempt to create a government-uncontrollable land registry would in practice quickly devolve into one that is not recognized by the government itself.”
“Once the command has been replicated to a majority of nodes, the command is applied by the Leader and a response to the Client is issued. Followers also apply the final transfer command around this time. After all this is completed, it’s time to test resiliency of the network. As such, the Leader is terminated. Eventually a Follower calls for an election and is chosen as the new Leader.”
Since Bitcoin is the only use case, that leaves these other models, so far, largely theoretical. Still, there are many examples of efforts towards models other than the Bitcoin model. In a dichotomous way of looking at the problem, many people either side with private blockchains as useful for industry or public blockchains, like Ethereum and Bitcoin, as being the only innovative technology in this space, often calling private blockchains “distributed ledgers” to differentiate them as, simply, decentralized databases, and not blockchains at all.