Based on the way blockchain has evolved over the last few years, it can be divided into multiple types with distinct but sometimes partly overlapping attributes.
As the name suggests, these blockchains are open to the public and anyone can participate as a node in the decision-making process. Users may or may not be rewarded for their participation. These ledgers are not owned by anyone and are publicly open for anyone to participate in. All users of the permission-less ledger maintain a copy of the ledger on their local nodes and use a distributed consensus mechanism in order to reach a decision about the eventual state of the ledger. These blockchains are also known as permission-less ledgers.
Private blockchains as the name implies are private and are open only to a consortium or group of individuals or organizations that has decided to share the ledger among themselves.
Here part of the blockchain is private and part of it is public. The private part is controlled by a group of individuals whereas the public part is open for participation by anyone.
More precisely known as pegged sidechains, this is a concept whereby coins can be moved from one blockchain to another and moved back. Common uses include the creation of new altcoins (alternative cryptocurrencies) whereby coins are burnt as a proof of adequate stake. There are two types of sidechain. The example provided above for burning coins is applicable to a one-way pegged sidechain. The second type is called a two-way pegged sidechain, which allows the movement of coins from the main chain to the sidechain and back to the main chain when required.
A permissioned ledger is a blockchain whereby the participants of the network are known and already trusted. Permissioned ledgers do not need to use a distributed consensus mechanism, instead an agreement protocol can be used to maintain a shared version of truth about the state of the records on the blockchain. There is also no requirement for a permissioned blockchain to be private as it can be a public blockchain but with regulated access control.
As the name suggests, this ledger is distributed among its participants and spread across multiple sites or organizations. This type can either be private or public. The key idea is that, unlike many other blockchains, the records are stored contiguously instead of sorted into blocks. This concept is used in Ripple.
This is generic term that is used to describe any application or database that is shared by the public or a consortium.
These blockchains perhaps have no mainstream application as they deviate from the core idea of decentralization in blockchain technology. Nonetheless in specific private settings within an organization there might be a need to share data and provide some level of guarantee of the authenticity of the data. These blockchains could be useful in that scenario. For example, for collaboration and sharing data between various government departments.
These blockchains are standard blockchains that generate cryptocurrency as a result of a consensus process via mining or via initial distribution.
These are probably not real blockchains because they lack the basic unit of transfer of value but are still valuable in situations where there is no need to transfer value between nodes and only sharing some data among various already trusted parties is required.
In the next section, the idea of consensus from a blockchain perspective will be discussed. Consensus is the backbone of a blockchain and provides decentralization of control as a result through an optional process known as mining. The choice of consensus algorithm is also governed by the type of blockchain in use. Not all consensus mechanisms are suitable for all types of blockchains. For example, in public permission-less blockchains it would make sense to use PoW instead of some basic agreement mechanism that perhaps is based on proof of authority. Therefore it is essential to choose a consensus algorithm appropriately for a blockchain project.
Consensus is basically a distributed computing concept that has been used in blockchain in order to provide a means of agreeing to a single version of truth by all peers on the blockchain network. This concept was discussed in the distributed systems section earlier in this chapter.
Roughly, the following two categories of consensus mechanism exist:
Proof-based, leader-based, or the Nakamoto consensus whereby a leader is elected and proposes a final value
Byzantine fault tolerance-based, which is a more traditional approach based on rounds of votes
Consensus algorithms that are available today or are being researched in the context of blockchain are presented later. This is not an exhaustive list but an attempt has been made to present all important algorithms.
This type of consensus mechanism relies on proof that enough computational resources have been spent before proposing a value for acceptance by the network. This is used in bitcoin and other cryptocurrencies. Currently, this is the only algorithm that has proven astonishingly successful against Sybil attacks.
This algorithm works on the idea that a node or user has enough stake in the system; for example the user has invested enough in the system so that any malicious attempt would outweigh the benefits of performing an attack on the system. This idea was first introduced by Peercoin and is going to be used in the Ethereum blockchain. Another important concept in Proof of Stake (PoS) is coin age, which is a derived from the amount of time and the number of coins that have not been spent. In this model, the chances of proposing and signing the next block increase with the coin age.
Delegated Proof of Stake (DPOS) is an innovation over standard PoS whereby each node that has stake in the system can delegate the validation of a transaction to other nodes by voting. This is used in the bitshares blockchain.
Introduced by Intel, it uses Trusted Execution Environment (TEE) to provide randomness and safety in the leader election process via a guaranteed wait time. It requires the Intel SGX (Software Guard Extensions) processor in order to provide the security guarantee and for it to be secure. This concept is discussed in more detail in Chapter 9, Hyperledger in the context of the Intel Sawtooth Lake blockchain project.
Nodes that wish to participate on the network have to put in a security deposit before they can propose a block.
This idea is important and different from Proof of Stake. Proof of importance not only relies on how much stake a user has in the system but it also monitors the usage and movement of tokens by the user to establish a level of trust and importance. This is used in Nemcoin.
Used in the stellar consensus protocol, nodes in this protocol keep a group of publicly trusted peers and propagates only those transactions that have been validated by the majority of trusted nodes.
As the name suggests, a leader is elected on the basis of the reputation it has built over time on the network. This can be based on the voting from other members.
Practical Byzantine Fault Tolerance (PBFT) achieves state machine replication, which provides tolerance against Byzantine nodes. Various other protocols, including but are not limited to PBFT, PAXOS, RAFT, and Federated Byzantine Agreement (FBA), are also being used or have been proposed for use in many different implementations of distributed systems and blockchains.