The Technology Behind Cryptocurrencies

With the invention of Bitcoin, Satoshi Nakamoto applied another revolutionary concept: technology blockchain. Although it was not given a name by its creator, it came to have both emphasis as Bitcoin. After all, blockchain’s first major achievement was to help solve one of the biggest problems to the development of decentralized computing.

Today, blockchain technology is the target of several studies and programs of companies. Everyone seeks to take advantage of the advantages and innovations it brings. And, in these last 12 years, advances have been made through new networks and different types. Currently, there are three types of the most used blockchains on the market:

• Blockchain public;
• Blockchain private;
• Blockchain hybrid.

Each network has its own differences, advantages, benefits and risks. And it’s important to know all of them, since blockchain is often sold as a silver bullet for various problems. However, it is like all technology, it has its great benefits and also great limitations. In this text we will check how they are and how each one works.

Public (permissionless) blockchain

THE public blockchain is, for many people, the blockchain for excellence. Bitcoin, which was the first blockchain effectively functional to be launched, is an example of a public blockchain. In it no is there any limitation input, the participation on the net is open to all and any person who wishes to participate.

Generally the few limitations that exist are of a technique. For example, operating a blockchain requires a computer in good condition and with a lot storage space. The Bitcoin blockchain, for example, has almost 400 GB in size. However, once a person meets these requirements, he or she does not need to no authorizationpassword or other limitations.

Furthermore, public blockchains, despite having this name, have a higher degree of privacy. Anyone can to check and audit transactions executed on the network in real time. However, none personal data or name of those involved is mentioned on the network, as the authors of these transactions no they are identified.

Finally, the people who execute us of private blockchains also have anonymity. These nodes are usually scattered around the world, which generates more decentralization and security for the network. After all, there is no single individual or company that controls it.

Due to this decentralization, public blockchains do away with the factor trusteither in governments, companies or other authorities. Therefore they will always have a cryptocurrency attached to them, which will function as a incentive economical so that the network has a behavior honest. Some examples of public blockchains are:

• Bitcoin;
• Ethereum;
• Litecoin;
• Monero;
• Zcash.

Private (permissioned) blockchain

The concept of private blockchain was developed by the environment business. Companies began to see the potential of blockchain technology, but they saw failures and/or distrust in the model decentralized. Furthermore, the transparency and decentralization of public blockchains no is attractive to all sectors

Imagine, for example, the sector banking. The use of a public and 100% auditable blockchain by anyone could leave several exposed data freely. With that, the company would not be able to protect data sensitive to its operation or obey rules of complianceamong other difficulties.

Therefore, companies decided to create their own own blockchain networks. These are managed with rules private and have access restrictedusually released by some password or security mechanism authorization. Furthermore, as depend from the trust in a third party (company or government), they usually no have cryptocurrencies attached to them.

Transactions made on a private blockchain are made between its members (P2P). They have a link of name and identitymaking it possible to know who did what. However, only the people who work in the company that coordinates the network you can see and audit the process. Rules of use, responsibilities and possible penalties for use are defined in a centralized.

Private blockchains are generally used in the control of processes and products internal or for sales external. A large fridge can use blockchain to track and certify the origin of a meat. A port or enterprise of loads can track a certain product and check its authenticity from the beginning, and so on.

Like public blockchains, private blockchains have records unique and immutable. In this way, the falsification or manipulation of platform data is practically impossible. Companies ensure that processes will be well documented and executedwhile the customer is guaranteed the origin of the product or service received. Some examples of private blockchains are:

• Hyperledger (IBM);
• TradeLens;
• Rope (R3 consortium).

Hybrid Blockchain

Finally, we have the blockchain hybridwhich, as the name suggests, is a mixture of the previous types. These networks have characteristics present in both public and private blockchains. For example, they combine blockchain models privacy partial and even use tokens own, similar to cryptocurrencies.

Thus, hybrid blockchains may leave some data open and transparent. However, these accesses would remain restricted only to those who had permission to operate them. In this way, a authorization access provided by the company or consortium that carries out the management of the tool.

Another issue is that these networks could use tokensunlike private blockchains. These tokens would be used to fulfill some function specific on the network, such as authenticate documents, transfer values, etc. The entire process of issuing, using and controlling tokens would be the responsibility of the issuerswhich differs from decentralized cryptocurrencies. Here are some examples of hybrid blockchains:

• XRP Ledger (Ripple);
• XinFin.

Public or private network: which is better?

This question is inevitable: after all, what is the best type of blockchain that exists? And would hybrid blockchains also be a viable option? The answer is: depends of how it will be used.

Blockchains public are open to anyone who wish to use or monitor the network. No one is obliged to reveal their identity, but they are fully transparent. In addition, their decentralization provides an extra layer of security. Therefore, they are ideal for applications that require anonymity and they can’t depend third party trust.

On the other hand, these networks have a large difficulty of scalei.e, no can withstand a number big of transactions. In this sense, blockchains private have the advantageas they can have more capacity. However, they lose in the question centralizationwhich can cause failures security and attacks.

Regardless of the type of blockchain, the technology has a great potential growth. Consulting firm Gartner estimates that blockchain could add up to R$ 17 trillion in value to business up to 2030. Therefore, even if only part of this value is created, blockchain promises revolutionize – and enrich – many sectors.

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