Any industry dealing with sensitive information is subject to potential breaches. With practically every industry in the world having finance intertwined in it for survival, financial records may be one of the most vulnerable areas for virtual break-ins. As such, there will likely always be some form of a well-manicured security system in place.
Blockchain technology keeps a high level of detail in its records of all financial transactions made. The hope here is that this type of technology will lessen the chances of the distribution of misinformation or manipulated information. One of the arguably best parts about public blockchain technology is that it’s usually not controlled by one particular entity. Every party has the opportunity to contribute or make copies. While this is a strength, it may also be viewed as a weakness as some may say it’s not secure enough.
In blockchain technology, there are three different ways it can be used, which include hybrid, private and public. As the names suggest, each type serves a different purpose. While private blockchain is where the records are controlled by one entity, public blockchain is where the records are controlled by anyone in the public, and hybrid blockchain is a combination of the two.
As with any technology, there are certain strengths and weaknesses. We sat down with automated tax software company Avalara‘s CTO and EVP of engineering, Peter Horadan, to learn more about the differences of each of these areas of blockchain and their impacts on the financial industry.
PYMNTS: Please share your own definition of hybrid, private and public blockchain technologies.
PH: Private blockchain is when the method for achieving consensus is controlled by a particular party. Public blockchain is when the method for achieving consensus on the state of the blockchain is not controlled by any party but is instead collaboratively agreed on by all actors in the blockchain. This is the fundamental technological innovation in blockchain.
PYMNTS: What are the strengths and weaknesses of each of these?
PH: A private blockchain does not have a new fundamental innovation, beyond database technology, that has been available for decades. The only real strength of a private blockchain is the publicity you might get by saying it uses blockchain. A public blockchain has the strength that it can operate independently of any private control — some people equate this with freedom.
PYMNTS: Is there a heavy dependence on one type over the other? Does the type of blockchain use depend upon which industry is using it?
PH: Yes, it does depend on which industry is using it. Industries, such as finance, are dominated by private parties that have the most to lose with the emergence of public blockchains. These industries are seeing those private parties release their own private blockchain solutions to try to head off the emergence of a public blockhcain, which may displace them.
PYMNTS: How do you see each of these blockchain technologies impacting the finance industry?
PH: It seems that private blockchains are used by private parties to try to maintain their advantage or dominance in an industry, by preventing a public blockchain that might evolve more organically and displace private parties.
It seems like there are clear disparities between each types of these blockchain technologies in terms of the benefits and weaknesses. As such, it’s likely that any company using it for financial security purposes will have their own viewpoints on which is better between public, private and hybrid.