Public Blockchains Explained

Remember the first time you heard about Bitcoin? That mysterious digital currency that seemed to exist everywhere and nowhere at once? Well, you were hearing about more than just a new form of money;  you were getting your first glimpse of public blockchains. 

What Are Public Blockchains?

A public blockchain is like a digital, decentralized ledger that's open for anyone to see and participate in. Imagine it as a giant, global spreadsheet that anyone can view, add to, and help maintain.

Key Characteristics

Public blockchains have some unique features that set them apart from other types of blockchains:

1. Open Participation: Anyone with an internet connection can join the network, validate transactions, and view the ledger. It's like a huge, global game of digital Lego where anyone can add pieces to the structure.

2. Decentralization: There's no central authority calling the shots. Instead, the network is maintained by a distributed group of participants. It's more like a street party where everyone brings their own drinks, rather than a catered event run by a single company.

3. Transparency: All transactions are visible to everyone on the network. Imagine if you could see every transaction your bank ever made! That's the level of transparency we're talking about.

4. Immutability: Once data is recorded on the blockchain, it's extremely difficult to alter or delete.

5. Censorship Resistance: Because there's no central authority, it's very difficult for any single entity to censor or block transactions. This makes public blockchains a powerful tool for preserving freedom of transaction and information.

How Public Blockchains Work

Participation

Participating in a public blockchain is easier than you might think. Here's how it typically works:

1. Join the Network: Anyone can download the blockchain's software and become a node in the network. It's like joining a massive, global club where the only membership requirement is having a computer and an internet connection.

2. Conduct Transactions: Users can send and receive transactions, which are then broadcast to the entire network.

3. Validate Transactions: Some participants (often called miners or validators) work to verify and add new transactions to the blockchain.

Consensus Mechanisms

Consensus mechanisms are the heart of how public blockchains make decisions. They're like the rulebook that everyone agrees to follow. There are two very common types of consensus mechanisms, Proof of Work (PoW), and Proof of Stake (PoS).

Proof of Work (PoW) is like a complex puzzle-solving competition. Miners compete to solve mathematical problems, and the first one to solve it gets to add the next block to the chain and receive a reward. Bitcoin uses this method.

In Proof of Stake (PoS) system, validators are chosen to create new blocks based on how much of the cryptocurrency they're willing to stake as collateral. It's more like a lottery where your chances of winning increase with how many tickets (stakes) you buy. Ethereum recently transitioned to this method.

Transaction Processing

When you make a transaction on a public blockchain, it goes through several steps:

1. Initiation: You start a transaction from your wallet.

2. Broadcast: The transaction is announced to the entire network.

3. Verification: Network nodes check that the transaction is valid.

4. Block Creation: The transaction is bundled with others into a block.

5. Block Addition: Miners or validators add the block to the blockchain.

6. Confirmation: The transaction is confirmed, and the blockchain updates across the network.

Advantages of Public Blockchains

Transparency and Trust

One of the biggest perks of public blockchains is their transparency. Every transaction is visible to all participants, creating a high level of trust. This transparency has several benefits:

• Reduced fraud risk: It's much harder to pull off shady deals when everyone can see what you're doing.

• Easy auditing: Anyone can verify the history of transactions.

• Trust without intermediaries: since the system itself ensures trust, you don't need to trust a central authority. 

Security

Public blockchains are like digital fortresses. Their decentralized nature makes them incredibly difficult to hack or manipulate. This is because all data is secured using advanced cryptography.

Furthermore, the nature of the distributed network means that there's no single point of failure for attackers to target.Apart from this, it’s economically unfeasible to attack the network due to the resources required.

User Empowerment

Public blockchains put power back in the hands of users. They allow individuals to have full control over their assets and data without relying on intermediaries. In fact, many public blockchains also allow users to vote on protocol changes.

Disadvantages of Public Blockchains

Scalability Issues

One of the biggest hurdles faced by public blockchains is scalability. As more people use the network, it can become slower and more expensive to use. Imagine a highway that gets congested during rush hour. The more cars (or in this case, transactions) that try to use it, the slower everything moves.

This scalability issue causes slow transaction speeds, higher fees, and requires more storage space. 

So, for example, the Bitcoin blockchain can only process a limited number of transactions per second, and when the network is congested, users often have to pay higher fees to prioritize their transactions.

Energy Consumption

Particularly for public blockchains using Proof of Work consensus (like Bitcoin), energy consumption is a significant concern. The process of mining requires substantial computational power, which translates to high electricity usage.

To put it in perspective, Bitcoin's annual energy consumption has been compared to that of entire countries. In fact, in February of 2022, Bitcoin's annualized electricity consumption reached an all-time high of 204 TWh, which is higher than the power consumption of Finland. 

This high energy use raises environmental concerns and questions about long-term sustainability.

However, it's worth noting that many newer blockchains are adopting more energy-efficient consensus mechanisms like the previously mentioned Proof of Stake.

Privacy Concerns

While transparency is generally a positive feature, it can also be a double-edged sword when it comes to privacy. In public blockchains, all transactions are visible to everyone, which might not be desirable in all situations.

While users are identified by addresses rather than names, it's still technically possible to link addresses to real-world identities through various means.

Examples of Public Blockchains

Bitcoin

Bitcoin, launched in 2009, is the granddaddy of all cryptocurrencies and public blockchains. It was the first successful implementation of blockchain technology and remains the largest cryptocurrency by market capitalization.

Bitcoin is primarily used as a store of value and a medium of exchange, and it has a limited supply of 21 million coins.

Ethereum

Ethereum, launched in 2015, took the concept of public blockchains a step further by introducing smart contracts. This innovation opened up a world of possibilities beyond simple financial transactions.

Ethereum 2.0 transitioned from Proof of Work to Proof of Stake (Ethereum 2.0), and has its own programming language, Solidity, for writing smart contracts

Litecoin

Often called the silver to Bitcoin's gold, Litecoin was created in 2011 as a faster, more lightweight alternative to Bitcoin. It uses a different hashing algorithm than Bitcoin, which allows for faster transaction confirmation times.

Cardano

Launched in 2017, Cardano prides itself on being built on peer-reviewed academic research. It uses a Proof of Stake consensus mechanism called Ouroboros and focuses on sustainability, scalability, and interoperability.

Use Cases for Public Blockchains

Cryptocurrency Transactions

This is the most well-known use case for public blockchains. Cryptocurrencies like Bitcoin and Ethereum use public blockchains to record and verify all transactions.

Decentralized Applications (dApps)

Decentralized applications, or dApps, are applications that run on a public blockchain rather than on centralized servers. This opens up a whole new world of possibilities for software development.

Examples of dApps include:

• Decentralized finance (DeFi) platforms that offer lending, borrowing, and trading services without intermediaries

• Non-fungible token (NFT) marketplaces for buying and selling digital art and collectibles

• Decentralized social media platforms that give users control over their data and content

Tokenization

Tokenization is the process of converting rights to an asset into a digital token on a blockchain. This can be applied to a wide range of assets, from real estate to artwork to company shares.

Tokenization on public blockchains offers certain benefits, such as Increased liquidity (assets can be more easily divided and traded), and global access to investors from anywhere in the world.

Conclusion

The potential applications of public blockchains are as vast as they are exciting. In our next article, we'll pull back the curtain on private blockchains. These are the more secretive cousins of public blockchains.