What are the different types of Distributed Ledger Technology (DLT)?

DLTs, also known as blockchains can be distinguished into two classes: public and private blockchain, the latter also known as permissioned blockchain.

Public Blockchain

These networks are open to anyone, meaning anyone can see or join with no other restriction than having a public address. That doesn’t mean anyone can act as they please. Of course, the consensus protocol will validate all transactions, thus invalid transactions are rejected.

Public blockchains are decentralized, which translates into autonomous, no one has control over the network. Unless there’s a “back door” pre-programmed in the smart contract, for instance, the dApp will run forever or until is set to halt.

The best and most notorious example of public blockchain is Bitcoin (see its genesis block). And as publicized, the main feature for public blockchains is privacy: because all you need is a public/private key pair and the network is open to anyone, a person can operate anonymous.

The drawback of a public blockchain is the amount of computational power required to maintain the consensus protocol and the distributed ledger at a large scale. Each node in a network is required to process complex cryptographic problems called a proof of work to ensure the immutability of records.

Private Blockchain

Private blockchains are proprietary networks created by organizations to perform their business or other activities (e.g. voting), therefore it requires a validated user to get access. They work as a centralized database system and have one or multiple entities that control the network, meaning there are third-parties intervening to validate transactions.

Examples of private blockchain are those built on IBM/Linux Hyperledger. And a good example of third-party is Oraclize.

Among the best features of private blockchains is the flexibility to grow, or scalability. A private blockchain is also much faster and computational cheaper because it doesn’t require the enormous amount of energy, time and money to reach a consensus.

On the downside private blockchains don’t grant privacy: the very principle of a permissioned blockchain is to know each user, track and monitor the transactions.

The consensus protocol in a private blockchain also can be a black box, especially when there are so many protocols: Delegated Proof-of-Stake, Proof-of-Authority, Proof of Elapsed Time, Proof of Capacity. But that is another subject.

Interoperability

Pros and cons can be explored further, but at the end the suitability of the DLT to be adopted depends on the kind of problem that must be solved.

However, it’s worth noting that as DLTs progress towards integration (and the Web 3.0), decentralized and autonomous networks may become a standard due to their own nature and purpose: blockchain technology was conceived to achieve its mission without a central authority, in a “trustless” environment like the internet.

By Pascual Ariel Arrechea

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