Classifying blockchain technologies

In the previous video, we viewed a

blockchain essentially as a decentralized database with some unique features. Just like a database, you can upload

all kinds of data on the blockchain. And this is one way that

a blockchain can be classified by the type of data that they can take. The first type is the simplest and probably the one that

you're most familiar with. That's the cryptocurrencies like Bitcoin,

Litecoin, Dogecoin, etc. These are essentially ledgers in that

the only type of data that you can put on it are records of who paid whom and

possibly who owns what. And that's why they're called

currencies because these ledgers can be used to record payment activities

between different parties. Unfortunately, most of them

didn't pan out as intended because as we'll learn shortly,

they're incredibly inefficient. And therefore, few people actually

use them as a payment mechanism. Instead, the majority

of people use them for the speculative purposes just

like the digital form of gold. An asset that doesn't have much

intrinsic value but it can be held as a value storage or investment

due to other peoples perceptions. Therefore, we can call

these blockchains Gold 2.0. The second type of blockchain

spearheaded by a Syrian but also includes competitors like tasos or EOS, further expand the type

of data that it can take. In addition to transaction records, you

can also upload programs or code that you write to the blockchain, and the network

of nose will then execute these programs. This essentially makes the blockchain

quote and quote programmable. And theoretically, you can use it as a

computer to execute any program you write the programs are often

called smart contracts. And as you can see, this dramatically expand the usability

of the blockchain from a simple ledger to a decentralized Cloud computing

platform that you can build apps on. In reality however,

the possibility is much more limited as the inefficiency often prevents you

from uploading super complex programs. The third type, sort of combines elements

from these two to have a programmable ledger, that with some tweaks like more

centralization becomes more efficient and more usable for enterprise use. We'll look at Ripple as

an example of this class. The next two types are examples

of the apps that you can build on a programmable blockchain. One type called utility tokens represent

access right to some blockchain apps. These tokens are the ones that you usually

see in the initial coin offering or ICOS. We'll cover these in

our credit tech course. Another example of these

apps are Stablecoins, which are like the asset-based

securities in the blockchain world. The goal as their name suggests is to use

the programmability of the blockchain to essentially pecked a value of these tokens

to a fiat currency like the dollar or peg it to the value of some real

assets like gold or real estate. We'll cover this type when we

discuss the cryptocurrency market. The first three types tend

to be called quote and quote coins,

which comes was their own blockchains. The next types tend to be called tokens, which are apps that piggyback

on other blockchains. The next types tend to be called tokens, which are apps that piggyback

on other blockchains. Another way that blockchain

technologies are usually classified is how accessible they are. That is how visible the data

stored on there are to the public. On one extreme for most publicly

traded cryptocurrencies like Bitcoin, data on the blockchain is

visible to the entire Internet. Everyone can access these data

by either joining the network or simply go to a third party website

like Block Explorer or Ether Scan. Because it's public,

anyone can join and become a node. Note that this is different than

using the blockchain as end user. As a node, you are a processor and

are to provide the intermediation services like transaction

verification to the client users. In some settings,

a node is called a minor. In other settings,

it's called a validator. Will explain these terms shortly. And more importantly because

everything is public, these systems usually aim to

maintain a high level of anonymity. In practice,

this means hiding the nodes and the clients behind some pseudo anonymous

identity generated using cryptography. Such that as a public viewer,

you can see all the transactions but cannot guess who made those transactions. And because everyone can participate,

this system could have a lot of nodes and is the most decentralized

version of the blockchain. Therefore, they need some complex

consensus process to make sure that at the end of the day all the nodes

have the same copy of the data. On the other extreme is

a private blockchain, which is very similar

to a shared database. Instead of open to the public,

these blockchains are just set up as data sharing tools between

some already trusted parties. Say between a manufacturer and

its suppliers. Because of this, all the members, the

nodes are completely known to each other, and others cannot join without permission. And because the party's

already known to each other, often times there's no need for

any consensus mechanism. And whoever uphold the data, could for

instance just share it with everybody. And there's no need to use a token

to incentivize other parties to participate either. Not surprisingly, this type of blockchain is the closest

analog to a shared Google doc. And it's consequently used primarily for

either internal purposes or B2B applications between already

trusted business parties. In the middle,

taking features from both public and private blockchains is

a permission blockchain. Here, just like a public blockchain, the data could be made publicly

available in an anonymized form. But like a private blockchain, not anyone

can just simply sign up to become a node. Access to this system is tightly

controlled and noded, minors or validators have to receive permission

to be able to participate. And because of this,

just like a private blockchain, the consensus process is

usually much simpler. At the same time if

the data is made public, this could also serve as a monitoring

device to ensure that the permission nodes are not doing anything bad. This would theoretically enhance

the processing efficiency making it more suitable as enterprise-level product

that could be used in high volume, high frequency applications such

as cross-border business payments. Ripple and Hyperledger fabric

are examples of permission blockchains.