Blockchain Types: Can We Come To a Permissioned Consensus?

Intro
Typically, when Blockchain is mentioned, it is compared to regular database methods. However, that is just one aspect of the technology. What about distributed consensus? Shouldn’t the consensus facet be at least as interesting, if not more? What is the role of consensus in different types?

What is a blockchain?

First off, for unfamiliar readers, I would like to start with a small introduction to what “Blockchain” typically refers to. While most people have heard of the terms distributed ledger technology (DLT) or blockchain by now, not everyone will understand what it actually means and describes.

In very simple terms, it describes a ‘database’ that is distributed across all of the participants of such a data network. Each entry in that database is mathematically linked to the entry before that, which is linked to the entry before that, rinse and repeat. This, in itself, is not that innovative. The same can be achieved by cooperating with people in the same (online) spreadsheet and locally storing a real-time version. However, the power of a blockchain becomes evident when it is combined with a distributed consensus mechanism.

With distributed consensus the entire network provides its own autonomous due diligence process, so to speak. This is also commonly referred to as “mining” or “proof-of-work”, which is where the real magic happens. The chain of data inputs now becomes mathematically secure, tamper proof and removes friction caused by several layers of intermediaries, by design. On top of that, outside of the coded rules within the network, no discrimination, no censorship and no exclusion can take place. This means that every participant is treated equally.

Source: Koumentakis & Associates (https://koumentakislaw.gr/en/blog/articles/blockchain-revolution-in-safety/)

Consensus mechanism

The main example of such a consensus mechanism is “proof-of-work”, introduced within the Bitcoin network. This method requires nodes to find a solution to a complex mathematical problem by using computational power (CPU/GPU calculations). This has to be repeated for every new block of transactions, which is roughly every ten minutes for now (Bitcoin). These are asymmetric problems as it is extremely hard to find a solution to the ‘puzzle’, yet it is easy to verify whether it is correct. Once the solution is verified to be correct, the block of transactions is added to the chain of blocks. However, there are alternatives to reaching (distributed) consensus — that I won’t go into details about for now -, such as; Proof-of-stake (POS), Delegated-Proof-of-stake (DPOS), Proof-of-capacity (POC) and Proof-of-elapsed-time (POET).

Consensus mechanisms such as the Bitcoin network’s proof-of-work are dispersed across many individuals, which make them highly distributed and decentralized (leaving the mining pools discussion aside). Effectively, top-down central authority is replaced by a decision network that is global and flat. This means that no individual or groups of people can decide on the rules of the system, but, rather, the network and the code itself determine and enforce the rules of the system. More importantly perhaps, the network participants can trust on mathematical governance rather than powerful individuals or groups. When consensus mechanisms are mathematically secure, inclusive and robust by design, in combination with a blockchain, they can be an extremely reliable and self-governing way to transact peer-to-peer.

What is the difference between private/corporate and public blockchains?

In terms of blockchains, apart from subtle changes in the code, the essence and general workings are all the same. They are just a string of validated transaction blocks that are linked to one another. The main difference when comparing private/corporate blockchains with public blockchains is the consensus mechanism.

With public (permissionless) blockchains, as the word ‘public’ probably already reveals, nobody is excluded from entering and participating in the network. Usually, the source code is also a public resource and can be viewed by anyone that wants to. This allows for worldwide access to these networks and abundant cooperation on improving the source code over time by developers across the globe. Notably, changes to the source code can only be achieved under consensus. When consensus cannot be reached, either the code change is not implemented at all, or a network fork can take place. A well-known example of such a network is the Bitcoin network.

Private or corporate (permissioned) blockchains are just the opposite. It is operated by a single organization, which also handles the due diligence. Participants, if any, are only allowed to enter the network on an invite basis or on an approval basis. The source code is commonly not accessible on demand and only allows a small group of developers within the company to make improvements or alterations. Typically, these types highly resemble co-opting spreadsheets as distributed consensus is nonexistent and a distributed database should be considered as a more efficient alternative. An example of a platform for creating private blockchain networks is Multichain.

Similar approaches were visible when the internet was in its early stages. Corporations did not see the benefits of using internet within its own system. Instead, some companies preferred a more private and restricted version called ‘intranet’, where the enterprise determines access for the workforce to informational sources. These types of information networks still exist, however, they have lost in popularity significantly over the years.

But… What about hybrid blockchains?

When we combine the aforementioned blockchain variations, a hybrid form arises, also referred to as ‘consortium blockchains’. Again, apart from minor changes to the actual blockchain(-ing) process, hybrid types differentiate themselves by their consensus mechanisms. These forms allow multiple individuals, or companies for that matter, to be part of a select group of approved nodes that are responsible for the consensus process. This means that control is more dispersed than private chains, but much less so than public distributed ledgers. Thus, having the inherent security features somewhat resembling public types, while retaining a degree of governance over the network. An example of such a hybrid network is Hyperledger.

Final words — — —

The mechanisms of digitally distributed decision networks (consensus) is what gives true power to a blockchain. It grants participants an alternative to contemporary hierarchical trust through mathematics and game theory (validators risk losing resources when trying to ‘cheat’ the system). This will bring the winds of change to the dynamics of trust in our societies.

Links/Sources:

• https://bitcoin.org/bitcoin.pdf (Btc whitepaper)
• https://www.investopedia.com/terms/p/proof-stake-pos.asp (POS)
• https://bitshares.org/technology/delegated-proof-of-stake-consensus (DPOS)
• https://www.investopedia.com/terms/p/proof-capacity-cryptocurrency.asp (POC)
• https://www.investopedia.com/terms/p/proof-elapsed-time-cryptocurrency.asp (POET)
• https://en.wikipedia.org/wiki/Distributed_database (Distributed database)
• https://www.multichain.com/ (not associated)
• https://www.hyperledger.org/ (not associated)

First appeared on: https://medium.com/altcoin-magazine/blockchain-types-can-we-come-to-a-permissioned-consensus-d3828dbcbccc