My earlier blog postDoes Your Organization Really Need Blockchain was about deciding whether blockchain offers the best solution for your business need. If blockchain is the best solution for your business, you now need to determine the right kind of blockchain network for your use case.
The variety of solutions in the blockchain space is a direct result of the various use cases people have envisioned and the trade space between decentralization, scaling and security. These trade spaces have enabled innovation and thought around the possible. As the blockchain space evolves and new technology is tested, new ecosystems are being envisioned and the importance of the use cases becomes clearer.
It’s important to identify the tradeoffs and features of the various blockchain options available to your organization. There are several choices to make, and they can be difficult. Read on for some insight into what questions you need to ask in order to make the right call.
Public or private?
The first consideration is whether your business need calls for a public (permissionless) or private (permissioned) blockchain. As the name suggestions, anyone can join, download and participate in a public blockchain; a private chain is open only to invited participants.
Public chains tend to be more decentralized, with larger numbers of participants. Since they must be more secure than private chains and operate on zero trust, the mechanism for validating transactions, known as consensus, tends to be slower. This limits the number of transactions per second because every transaction must undergo scrutiny.
This limitation on public chains is why private chains arose to begin with. Private chains exist in a semi-trusted environment, allowing consensus to be less onerous. They typically have fewer ledgers to update, allowing the number of transactions per second to outperform their public counterparts.
The common trilemma
Apart from the broad question of public vs. private, you need to consider three key aspects of blockchain—decentralization, scalability and security—and decide which two are most important. These three parameters, often referred to as the common trilemma, interact with one another so that any blockchain configuration may excel at any two of them, at the expense of the third.
The descion tree for the trilemma comes down to three key considerations:
- How decentralized must the network be?
- How scalable should the transaction throughput be to meet the need of the use case?
- What sort of security considerations should the network make?
How you answer these three questions will shape the way you design your network. Choose wisely for your use case.
First consideration: Decentralization
How decentralized does the system need to be in order to address your use case? Decentralization was originally a key aspect of blockchain’s appeal, eliminating the ability of any one node to control the chain. However, decentralization limits scalability because the more nodes are involved, the slower everything runs. If you need a high degree of decentralization, you can also make the blockchain highly secure, but it won’t scale beyond a fairly low threshold.
Second consideration: Scalability
Does your use case call for a high-degree of scalability? The more transactions and users on the network, the longer it takes to validate all of the blocks on the network. However, because there are more eyes on the network, there is less room for nefarious actors.
This inability to scale to millions of transactions per second limits mass adoption of blockchain. A private blockchain network with a known number of participants can achieve greater scale with high security, but at the cost of decentralization.
Third consideration: Security
Security and decentralization go well together, but they limit scalability. On the other hand, as noted above, a private network can be scalable and secure, if decentralization is less important. This final leg of the trilemma has caused a rise in decentralized ledger technology that borrows from blockchain but has some important differences.
Three considerations, many permutations
These three aspects—decentralization, scaling and consistency—have given rise to a variety of projects that make the space interesting, yet exhausting, to follow. Many blockchains fit their use cases in ideal ways but would be seriously handicapped if transplanted to a different situation. Think of a rugged pick-up truck boldly and effectively cutting a path through muddy off-road conditions. The same truck wouldn’t be a good solution in an old European city—it would be hard to drive through narrow streets . Blockchain solutions also must be suited to the environments in which they operate.
Understanding the limitations of certain blockchain protocols becomes important for your organization if it is considering embarking on the journey of digital transformation using blockchain technology. It’s important to understand the trade space within your use case today so that your organization is equipped for the job at hand tomorrow.