Why Do People Use Different Blockchains/Rails?

What is a Blockchain?

A blockchain is a ledger that is decentralized across multiple nodes – this is known as decentralized ledger technology (DLT). Blockchains are most well known for their use in cryptocurrencies such as Bitcoin. Bitcoin is a form of peer-to-peer, bankless and decentralized money. Bitcoin operates on a public blockchain — also referred to as permissionless.

Public blockchains grant all users equal access and power. Users can also build on the network, exchange its tokens and validate transactions.

Permissioned blockchains are more often seen in organizations where it is not ideal for just anyone to join. They also can have a more centralized structure for power on the network, granting less power to the many nodes that operate on that blockchain. Permissioned blockchains tend to grant less anonymity, making all users known. This is a key differentiating function from permissionless blockchains.

There are two types of permissioned blockchains:

• Private blockchains are controlled by a singular authority. 
• Consortium blockchains are controlled by a group of nodes.

The final blockchain type is a mix of permissioned and permissionless blockchains, known as a hybrid blockchain. A hybrid blockchain has a singular point of authoritative power, but the rest of the nodes hold some oversight power over the authoritative node.

A chart from Foley Insights displays a clear representation of this relationship:

Image source: Foley

Actions taken on a blockchain are permanent. As data is entered, it is executed on a new block. Once a block fills with data, it is linked back to a previous block. The series of blocks are chronologically chained together – hence the name blockchain.

The data on a blockchain cannot be changed or controlled by a single entity. This decentralization of power is a key appeal to cryptocurrencies as well as a blockchain’s ability to accurately display history for all users with no risk of tampermant. 

Overview of Blockchains & Rails

Blockchains and rails are similar in concept. Both are technology-supporting digital payments. While blockchains support cryptocurrencies, rails support fiat currencies. Some popular rails include Mastercard Inc. MA, PayPal Holdings Inc. PYPL and Automated Clearing House (ACH). However, the rise of blockchain technologies has put the necessity of rails in question because they have higher transaction fees and longer wait times for money transfers.

Why Do People Use Different Blockchains?

The different types of blockchains all hold valid reasons to be used. While public blockchains are essential for peer-to-peer money like Bitcoin. Permissioned blockchains are necessary for corporation and international trade use.

Permissioned blockchains such as those Ripple and Hyperledger are building are designed to shift the way banks and corporations interact with money and data. Permissionless blockchains such as Ethereum aim to give users more control of their data with the ability to build applications on top of the blockchain.

The chart below from HFS Research shows some of the more popular permissioned and permissionless blockchains:

Image source: HFS Research

Where To buy ETH 

If you are looking for exposure to these developing blockchains, you can invest through their tokens. Ethereum, for example, has an ETH token. These tokens represent the value of using their network — as demand to use these blockchains rises, so, in theory, will the price per coin. Some common uses of Ethereum are interacting with decentralized autonomous organizations, trading non-fungible tokens, gaming, decentralized finance, identity management and supply chain. ETH can be traded on sites such as INX – a crypto trading platform that offers regulatory oversight, world-class safety and broad crypto trading offerings.

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Photo by Shubham Dhage on Unsplash