There are three broad categories of blockchains: The Public Blockchain, The Private Blockchain, and The Federated Blockchain. In this article, we are going to discuss Private Blockchain. The Private Blockchain differs only slightly in construct and architecture from the public blockchain. The difference is not central to the way it operates, but on who has access to it and in what capacity.
Think of it this way. Let’s say the corporate governance laws change (this is really to illustrate the point; not the intention to suggest the need to change corporate regulations). Each corporation is required to keep its ledger of revenue expenses and assets on a blockchain. What would happen is that the company would only allow a few nodes to participate in the ability to add to the ledger; remember, they cannot change the ledger once it is in the block.
On the other hand, anyone who needs to have an accurate snapshot of the funds can do so by extracting the historical data whenever they desire to. The same goes for viewing the movement of funds across borders. You could write a short app to extract data from the Bitcoin blockchain and you would be able to see the inflow and outflow of all funds from within the US to points outside the US, and vice versa. All it takes is a little app to connect to the blockchain, and getting this is a breeze. But the point is that the same could be done for the company. Now if the company is a publicly listed one, then these accounts are supposed to be within the public realm anyway.
So in this case, the bookkeepers and accountants could place the accounts on the blockchain, and the managers/stakeholders, or auditors would be the ‘miners’ who pull the transactions and make them into blocks that are considered approved. Once that is done, the records of revenues, expenses, assets, and liabilities are all set in stone until the next event gets updated in the ledger and the machinery runs once again.
This would be one way to use a private blockchain. No one has the freedom to go in and change the data, but everyone has the freedom to view it. In some cases, the administrators could also secure the data in such a way that only certain people could see it, and then that data would not be designed to go into the public realm until and unless a certain event occurs.
For instance, you could have a corporate blockchain that has the bookkeeping we just talked about earlier. Then when the managers approve the data and they are put into place, they finally come to be released in the event that the numbers are audited, when the data must be released for public view. This brings us to the element of the smart contract.
Smart Contracts
Smart contracts are not the exclusive domain of the private blockchain. You can institute smart contracts in any you wish, but you should look to do them on blockchains that are Turing complete. The Bitcoin blockchain is NOT Turing complete, but the Ethereum Frontier is. That is the reason smart contracts prefer to be placed on the Ethereum Frontier blockchain.
What is Turing complete? Well, it just means that the platform is able to compute and perform tasks that any Turing computer is able to perform tasks pursuant to the algorithm it is fed. And what does that mean? Simple. It means that the scripts that are uploaded to the blockchain are able to execute conditions, loops, and so on just like any program so that when you have these scripts or apps they can automatically evaluate an event and then perform a function.
So let’s say for instance you run a public company and your shares are in the form of tokens as part of the blockchain in your company. If you promise your shareholder that if the company’s profits are above $1 per share at the close of the financial year, we will declare a bonus to each coin holder.
This is written into the smart contract and when it comes a time, the script will monitor the ledger. As soon as the earnings are released, it will look for the earnings number. If that’s indeed above one dollar, it automatically issues a coin to each coin holder as per the contract. There is no further tampering or tinkering by anyone. It is automatically done when an event is reached.
These are smart contracts and the potential to run these is extremely lucrative and wide-ranging in the real world. This is the reason blockchains that have full scripting ability, like Ethereum, are so popular. Bitcoin’s blockchain does have limited scripting, but they are so hamstrung that you can’t really do much with it because that is the way Satoshi designed it for a certain measure of security.
Just to be clear, Bitcoin has some scripting ability, but it is not Turing complete, so its ability to write robust contracts is not present.
Although smart contracts can be written in private as well as public blockchains, it finds tremendous use in the private scenario especially because of the kinds of relationship these closed groups may have.
A private blockchain is considered partially centralized because part of the ability to alter the ledger is limited to a few persons only. That centralizes the blockchain by default and turns all the other participants into data gatherers and decision-makers. Or it makes them a stakeholder but not the financial manager or the operational managers.
With blockchains, there can be added transparency while maintaining secrecy and privacy. For instance, in public blockchains, you could use your bitcoin to purchase an item that is totally transparent and anyone could see the purchase, but they would have no idea who the person behind it is. That anonymity has its benefits.
For a private blockchain, anonymity is not some much a factor as proprietary. You may not want your competitor to see how much you are making before the numbers are made public. But at the same time, this kind of transparency gives shareholders and stakeholders significant insight into what is going on with the investment.
If you want to set up a private blockchain, there are a number of ways you could do it. If you understand C++ or any form of C programming language, then you could make a copy of the open-sourced Bitcoin blockchain, make the necessary changes to the code and deploy it as part of your private blockchain.
The other way you could do it is to use the Oracle framework and design your own blockchain based on the Ethereum framework. Whichever you chose, you will find that there is a significant number of programming required, even if it is only to alter the parameters that define the blockchain. In fact, you can even create your own token or cryptocurrency. As long as you’ve got the blockchain and the parameter that conform to your vision, then the rest is pretty easy.
The fundamental aspect of blockchains that you want to remember is that it is more decentralized, authenticated, trust-neutral, and high value-to-cost ratio than other mass-deployable technology presently in existence.
