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Blockchain

Blockchain Explained: Blockchain Distinctions

Public Blockchain vs. Private Blockchain. Public blockchains refer to networks where anyone can join. There are no participation restrictions. Private blockchains refer to blockchain technology where only a single company has control. It is not publicly available and generally developed as a platform for the company’s internal system.

Permissionless vs. Permissioned. Blockchains can be permissionless—meaning that there are no restrictions on who can access it or become a miner—or they can be permissioned—where access is controlled. The Bitcoin blockchain is an example of a permissionless blockchain because it is an open network that allows anyone to engage in transactions. Other permissionless blockchains include Ethereum, Litecoin, and Monero. Permissioned blockchains are closed networks, partially decentralized, and distributed across known parties. They can have characteristics of both private and public blockchains. Ripple is a permissioned blockchain. Additionally, Facebook’s Libra coin is an example of a permissioned blockchain. Recently, Facebook announced the launching of a permissioned payment system with the coin “Diem” to run on its blockchain network. Both Libra and Diem are not decentralized and will both run first on permissioned blockchains. Facebook plans for Diem to give the world access to financial services by using blockchain technology.

Private Key vs. Public Key. If you want to send Bitcoin to someone else, you will need to have (1) your public key, (2) your private key, ad (3) the recipient’s public address. The public key is the public address of the user. It is hashed and forms an address that others can use to send you Bitcoins. The private key is like a password and is linked to the public address. It is known only to the individual user and the user’s wallet. The public keys of the transaction are viewable by anyone with Internet access, but the names of the individuals linked to the public keys are not viewable. As a result, Bitcoin transactions are pseudonymous, not anonymous.

Proof of Work vs. Proof of Stake. There are two main consensus mechanisms for verifying transactions: proof-of-work and proof-of-stake. The more common is proof-of-work, which involves a community of miners who use their computer power to solve mathematical algorithm in exchange for a reward of coins. This is the mining process described above. Proof-of-stake was developed second and as an alternative to proof-of-work. It allows users to validate transactions in proportion to how many coins of the cryptocurrency they hold. Those who hold more coins have more mining power. In other words, rather than validating transactions by using large amounts of computing power, proof-of-stake allows for transactions to be validated or “mined” according to how many coins an individual has. For instance, proof of stake is like earning interest on a savings account. If you keep your money in the savings account, it earns interest and the more money in the account, the more your interest accrues.

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