Drivers Of Crypto Disruption: Will Public Or Private Blockchains Lead The Way Forward?

Bitcoin, blockchain, and cryptocurrency are now common terms in the investment arena. However, they are often used interchangeably. This often repeated imprecision illustrates the limited amount of detailed understanding about the space. Many have not done proper due diligence because they have simply adopted someone else's view on this new asset class. Some have ignored it entirely. Others have attempted to step into the fray only to find the conversation about hashes, nodes, and keys too technical for their tastes.

For the potential of blockchain applications and cryptocurrencies to be realized according to the expectations of enthusiasts, real disruptive results will have to be demonstrated by real businesses deploying real products to improve real profits.

Cryptocurrency is new asset class that is on one hand hailed as the foremost development since the internet and on the other derided as the largest bubble in human history. In such an uncertain environment it's no wonder that most would prefer to steer clear.

These are indeed still the early days for the technology despite the architecture tracing its roots back almost a decade. To understand the dynamics of the space, it is critical to examine both the new ventures that are building on top of the blockchain ecosystem as well as the existing companies that are looking for ways to deploy distributed ledger technology to improve their operations. Properly assessing this dichotomy is critical to understanding how the path to greater blockchain comprehension and adoption will develop.

This brief review is intended to be as non-technical as possible, so experts will have to excuse some generalizations here.

Public Blockchains

The original blockchain design was constructed to keep track of the balances and transactions of Bitcoin, the original cryptocurrency.

This design was public, meaning that the procedures being used are roughly speaking open source and transparent. Anyone can explore the blockchain or run a full node to be part of the Bitcoin ecosystem.

In order to incentivize the dedication of computer processing power necessary to maintain the fidelity and trustworthiness of the decentralized network, the cryptocurrency mining model was introduced in which rewards would be apportioned in new Bitcoin for every block of transactions. That reward would be distributed to the node in the network that validates the block by solving a random trial and error math problem.

Fundamentally, in a public blockchain architecture transparency and trust are generated by universal access to the entire system of balances and transactions. Most often even the code that defines the rules and functioning of the system is accessible to the general public.

Private Blockchains

Companies may have good reasons for wanting to avoid implementing public blockchain infrastructure.

Chief among their concerns would be that they want to keep their information and transactions private. Firms need to protect their intellectual property and to safeguard critical pieces of information.

A private blockchain can function like its public counterparts with the exception of a permissioning system where only authorized users could interact with the blockchain. External parties such as accountants, auditors, and regulators could be brought into the structure in order to monitor business activities in real time. As such, blockchain creates the possibility for what many are calling a triple entry accounting system.

Transactions are not just recorded as debits and credits on separate books when companies do business with one another, but the transactions can be easily verified on a blockchain as well. This has the potential to eliminate some of the chief mechanisms for fraud even if it will prove challenging to eliminate fraud completely.

Disruption Drivers

Given the differences between public and private blockchains, which architecture is more likely to lead the way? Will we end up with decentralized ledgers that anyone can participate in and validate, or will permissioned versions adopted by large corporations come to dominate the field?

Because blockchain is still in its opening innings, there will likely be room for both models in the near and medium term. Ultimately, innovation will be a primary determinant.

It is reasonable to conclude that public blockchains and the communities of developers and users that grow around them will be able to be more flexible and adaptable than larger, hierarchical structures. Indeed, the decentralized vision of many blockchain enthusiasts involves a potential future where corporate and government organizations become antiquated and replaced by distributed technologies.

The centralized power brokers certainly won't go quietly into that good night, but if the extent of disruption from blockchain comes anywhere near where its strongest advocates claim the global economy could truly be close to an unparalleled revolution.

Today In Cryptocurrency: SEC Says Ether Isn't A Security, Steve Bannon A Bitcoin Bull

Market News and Data brought to you by Benzinga APIs