Vitalik Buterin: Talking about public and private blockchains

Over the past year, the concept of “private blockchains” has become a hot topic in discussions about blockchain technology. Essentially, compared to completely public, uncontrolled systems that use cryptoeconomics to secure the network (e.g., proof-of-work and proof-of-stake), “private blockchains” can also create systems with more stringent access control, where modification or even read permissions are limited to a small number of users, while still retaining the authenticity and partial decentralization of the blockchain. Financial institutions have shown great interest in such systems, which has also led to fierce opposition from some people who believe that such developments are contrary to the essence of decentralization and are the desperate actions of those conservative and backward middlemen (or simply proposed a wrong application other than Bitcoin). However, for those who simply want to better benefit mankind, or simply continue to seek to provide better services to their customers, what is the practical difference between public and private blockchains?

First of all, how many options do we have? In summary, we have three categories of blockchain database applications:

1. Public blockchains

A public blockchain is a blockchain that can be read by anyone in the world, where anyone can send transactions and transactions can be effectively confirmed, and where anyone can participate in the consensus process - the consensus process determines which blocks can be added to the blockchain and clarifies the current state. As an alternative to centralized or quasi-centralized trust, the security of public blockchains is maintained by the "crypto-digital economy" - the "crypto-digital economy" combines economic rewards and cryptographic digital verification through proof-of-work or proof-of-stake mechanisms, and follows the general principle that the economic rewards that each person can obtain from it are proportional to their contribution to the consensus process. These blockchains are generally considered to be "fully decentralized."

2. Consortium blockchains

A consortium blockchain is one where the consensus process is controlled by pre-selected nodes; for example, imagine a consortium of 15 financial institutions, each running a node, and requiring confirmation from 10 of them for each block to be valid. Blockchains may be readable by everyone, or restricted to participants, or a hybrid approach where the root hash of the block is public and its API (application programming interface) is publicly available, allowing a limited number of queries and information about the state of the blockchain. These blockchains can be considered "partially decentralized."

3. Fully private blockchains

A fully private blockchain is one where write access is restricted to a single organization. Read access is either open to the public or arbitrarily restricted. Applications include database management, auditing, and even a company, and while public auditability is desirable in some cases, public readability is not necessary in many cases.

The difference between the two

In general, little emphasis has been placed so far on the distinction between consortium blockchains and fully private blockchains, although it is important to emphasise that the former combines the “low trust” of public blockchains with the “single high trust” of private blockchains to provide a hybrid model, while the latter can be more accurately described as a traditional centralized system with some degree of cryptographic auditability. However, there are good reasons to focus on consortium blockchains: the fundamental value of fully private blockchains is the repetitive function of cryptographic authentication, and there is no reason to believe that the best form of such authentication consists of a series of linked data packets containing the root hash of a Merkle tree. Generalized zero knowledge proof technology offers a wide range of exciting possibilities for cryptographic authentication that can be provided to users by applications. In layman’s terms, I would even argue that generalized zero knowledge proof technology is greatly “underrated” in the financial world compared to private blockchains.

For now, I will focus on the pure “private vs public” blockchain discussion. To conclude, the idea that only one type of blockchain will survive is completely misleading, as both have their own advantages and disadvantages.

Advantages of Private Blockchain

The first is private blockchain, which has many advantages over public blockchain:

1. Changes to the rules

If necessary, the community or company running the private blockchain can easily modify the rules of the blockchain, revert transactions, modify balances, etc. In some cases, such as national land registration, this function is necessary; but there is absolutely no such system that allows "Dread Pirate Roberts" to have legal ownership of a clearly visible piece of land, so trying to establish a land registration agency that is not controlled by the government will not be recognized by the government itself in practice. Of course, some people will argue that it is possible to leave a backdoor key to the government on the public blockchain; of course, some people will refute that this approach is making a fuss over nothing and that private blockchains are more efficient. I will introduce private blockchains later.

2. Validators are public

Because the verification is public, there is no risk of a 51% attack caused by collusion among some miners from China.

3. Cheaper transaction costs

Transactions only need to be verified by a few trusted high-computing nodes, rather than tens of thousands of laptops, so transaction costs will be cheap. The current public blockchain transaction fee is over $0.01, which is a very serious problem, but it should also be noted that in the long run, it will change with the advancement of scalable Bitcoin technology, which is expected to reduce public blockchain fees by one to two orders of magnitude, roughly the same as efficient private blockchain systems.

4. Nodes can connect well

Nodes are well connected to each other, failures can be quickly repaired by human intervention, and consensus algorithms are used to reduce block times, allowing transactions to be completed faster. Advances in public blockchain technology, such as the Ethereum 1.0 concept and the later proof-of-stake mechanism, allow public blockchains to achieve the goal of "instant transactions". But private blockchains will still be faster, so the delay error caused will never disappear, just as the speed of light does not follow Moore's Law to double every two years.

5. Privacy

Such private blockchains can also provide better privacy protection if read permissions are restricted.

Considering the above, private blockchains seem to be more suitable for institutions. However, for institutions, public blockchains still have a lot of value, which is the freedom, neutrality and openness that public blockchains have always advocated.

Advantages of Public Blockchain

The advantages of public blockchains can be summarized into two main categories:

1. Protect users from developers

In a public blockchain, program developers have no right to interfere with users, so the blockchain can protect users who use the programs they develop. From a naive point of view, it is indeed difficult to understand why program developers would be willing to give up their rights. However, more advanced economic analysis provides two reasons for this: borrowing Thomas Schelling's words, compromise is a kind of strength. First, if you explicitly choose to do something difficult or impossible, others will be more likely to trust you and interact with you because they are confident that those things are unlikely to happen to them. Second, if you are forced by others or other external factors and cannot do what you want to do, you can say "Even if I want to, I don't have the power to do it" as a bargaining chip, which can dissuade the other party from forcing you to do something you are unwilling to do. The main pressure or risk faced by program developers comes mainly from the government, so "censorship resistance" is the biggest advantage of public blockchains.

2. Network Effect

Public blockchains are open, so they have the potential to be used by many external users and generate certain network effects. To give a specific example, let's take domain name escrow. Now, if A wants to sell a domain name to B, there is a risk problem that needs to be solved: if A sells the domain name first, but B may not have paid yet; or if B has paid, but A has not sold the domain name yet. To solve this problem, we have to set up a centralized escrow intermediary, but we have to pay a fee of three to six percentage points. However, if we have a domain name system on the blockchain and use the currency of this blockchain, we can set up smart contracts with transaction fees as low as 0: A sells the domain name to the system, and the system immediately sells the domain name to the person who paid the money first, and because the system is built on a public blockchain, it is trustworthy. But note that in order to make the transaction process more efficient, completely different assets from completely different industries must be deposited on the same public database - this is not easy to do on a private blockchain. The same example can be land registration and title insurance, but note that if you want to be interoperable, you need to use a private blockchain that can be verified by the public blockchain, so that transactions can be completed through cross-chain.

necessity

In some cases, these advantages are unnecessary, but in other cases they are very important - important enough that sometimes it is worth waiting for confirmation times that are 3 times longer than before or paying a transaction fee of up to $0.03 (once scalable technology becomes a reality, the transaction fee will only be $0.0003). But it is also important to realize that if we can create private smart contracts on top of public blockchains, or enable cross-chain transactions between public and private blockchains, we can use the characteristics of both very well. As for the specific solution, it depends on your needs. Sometimes public is relatively better, but sometimes you need a certain amount of private control. This is just like the real world. It depends on what you need.

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