The discussion around the blockchain and traditional databases has been active for a long time. The main question is: which of the two different systems is better?
Every blockchain is a distributed ledger, but not every distributed ledger is a blockchain. Each of these concepts requires decentralization and consensus among nodes. However, the blockchain organizes the data in blocks and updates the records using the structure for adding only. Distributed ledgers and targeted blocks are conceptual breakthroughs in information management.
But first you need to know about the two types of blockchain and the difference between them.
Variety of blockchain
A private blockchain is a block chain whose members have different levels of authority based on protocols. This means that network owners have control over those participants who participate in the network, they have the ability to add or remove participants, reduce their level of power, manage those who can participate in the consensus block chain process.
The public blockchain works on the contrary, it is open, all participants have the same rights, the information in such a blockchain is public, which determines the validity of transactions and the consensus process. Thus, private blockchain have a completely different level of security than the public blockchain.
Distributed ledgers are common databases with different access rights that determine which types of changes can be made using any objects.
The importance of distributed ecosystems at the enterprise level arises from the ability to eliminate data reconciliation between the actors involved. This is especially true for financial institutions that trade with each other.
Today, a lot of effort in back offices is spent on reconciling records between different institutions. Distributed ledgers allow financial institutions to maintain a structured common transaction database. This allows each participating institution to read data from a distributed book and ensure that it is valid and consistent with data stored in other participating organizations.
The difference between public and private blockchain
Distributed data books are based on a wide variety of blockchains, for example, on Ethereum. However, they all differ in their fundamental characteristics of access and security.
The security of a public blockchain, such as Bitcoin, comes from the evidence of work (a consensus protocol that is used during the work), which makes it impossible mathematically to falsify or reverse a transaction without merging miners using the current state of technology.
On the other hand, the promises of security for distributed ledgers and private blockchains are as good as the honesty of companies checking transactions. There are no mathematical guarantees of the irreversibility of transactions in a private chain.
Blockchain database and traditional databases
To understand the difference between a block chain and a traditional database, you need to understand how each one is designed, how it works and maintains.
Traditional databases use a client-server network architecture. Here the user (known as the client) can change the data that is stored on the centralized server. Database control remains with the designated authority, which authenticates the account data of the client before granting access to the database. Since this authority is responsible for the administration of the database, if the security of this authority is violated, the data may be changed or even deleted.
Blockchain databases consist of several decentralized nodes. Each node is involved in administration: all nodes check for new additions to the block chain and are able to enter new data into the database. In order to add information to a blockchain, most nodes must reach consensus. This consensus mechanism ensures network security, which makes it difficult to intervene.
In Bitcoin, consensus is achieved by computing (solving complex puzzles), while Ethereum tends to use share proof as its consensus mechanism. These are very different protocols in their concept, the use of which greatly influences the main data transfer capabilities in these ecosystems.
Integrity and transparency
A key feature of the implementing blockchain technology, which distinguishes it from traditional database technology, is the general availability of verification, which is ensured by integrity and transparency.
Integrity: each user can be sure that the data they retrieve is intact and unchanged from the time they are registered.
Transparency: each user can check how the blockchain changes over time.
A centralized database can not always provide such opportunities, since the data can be easily and quickly changed without the knowledge of other participants. Regarding transparency, not all databases can provide data change tracking, but even if there is one, it can be easily cracked.
CRUD vs read and write operations
In a traditional database, a client can perform four functions on the data: create, read, update, and delete (collectively called CRUD commands).
A block chain is intended to add only a structure. The user can add only additional data in the form of additional blocks. All previous data is permanently stored and can not be changed. Thus, the only operations associated with block circuits are:
1. Data reading operations: these are requests and data extraction from a block chain.
2. Data writing operations: data is added to hash of blockchain.
3. Check and record of data (but not always).
A blockchain allows you to perform two functions: verification of transactions (data) and recording of new transactions. A transaction is an operation that changes the state of data that resides on a block chain. Although the previous entries in the blockchain must always remain unchanged, the new entry may change the state of the data in past entries.
For example, if the blockchain has recorded that your bitcoin wallet has 1 million Bitcoins, this figure will be permanently stored in the blockchain. When you spend 200,000 bitcoins, this transaction is recorded in a blockchain, resulting in your balance being reduced to 800,000 bitcoins. However, since information can only be added to the blockchain, a preliminary balance of transactions of 1 million bitcoins also remains in the hashblock of the blockchain constantly, for those who want to see. This is why blockchain is often called immutable and distributed ledger.
The essential difference between the two systems is decentralized control.
Decentralized management eliminates the risks of centralized control. Anyone who has high access to a centralized database can destroy or corrupt data in it. Therefore, users rely on the security infrastructure of the database administrator.
Blockchain technology uses decentralized data storage to work around this issue.
Blockchain technology in business is well suited for recording certain types of information, but traditional databases are better suited for other types of information. For each organization, it is important to understand what it wants from the database, and to evaluate its strengths and vulnerabilities of each type of database, before choosing.
The community is actively discussing the advantages of a private blockchain over a common database. Some, such as Professor Arvind Narayanan from Stanford, argue that private blockchain chains are the same common database, but with a different name. Others, such as Gideon Greenspan from Multichain, see several differences between private block chains and SQL databases, from disintermediation to reliability.
Traditional databases are completely contained within a single object, regardless of their structure (SQL databases or without SQL). This includes access to reading and writing data, which is possible only through applications controlled by special mechanisms to which the database belongs. Common databases, on the other hand, include read and write access, including several objects.
Private block circuits imitate the security process used by public block chains, such as bitcoin, but do not include mathematical guarantees at the level of data verification or regarding the irreversibility of their constituent.
However, they still use cryptography and data structures, such as Merkle, to ensure that invalid transactions are not added to the blockchain.
In the end, private blockchain chains provide a higher level of error checking and transaction reliability than regular shared databases.
Although they do not use proof of work, transaction blocks are checked using some other forms of consensus mechanism.
The most popular algorithms are Raft and Juno. These consistent protocols operate on the basis of a leader-follower model, in which for each block a leader is selected that creates a block and adds to the block chain. There are various ways to eliminate errors and anomalies by the system.
Shared databases have suffered from the inability to prevent malicious activity in the past. This happens, for example, when one of the participating nodes is hacked, and this object writes “damaged” data to a common database, which makes it invalid for all participants.
The same problem also exists in centralized databases.
Private blockchains solve this problem using cryptography and technologies similar to those used by bitcoin and public blockchains.
Juno protocol improves block chain security by protecting against random hacker attacks, thus preventing individual participants from acting maliciously.
Most blockchains are uncontrollable systems, for example, bitcoin. All information is recorded in this blockchain by uncontrolled stream, without the signature of the identification data and does not have a single data storage location.
However, this does not prevent the use of a specially developed protocol that will only allow registered users to write data.
Despite the fact that confidentiality in the blockchain requires a large amount of processing power, it is several times better than the traditional private database.
If trust is at the highest level and there are no problems with storing large amounts of data, and the main idea of implementation is confidentiality, the database based on the blockchain will not bring you special advantages.
Increasingly, public opinion of the blockchain’s productivity converges on one thing — too slow system, but this isn’t that. Perhaps the blockchain does not have the same speed as, for example, Visa, but is second to none to popular databases. In addition, it should be noted that the powerful blockchain project was able to construct a network that is a couple of times faster than Visa.
Of course, in the near future, the blockchain will increase its performance, because, if we recall, the first traditional databases absolutely did not have good optimization and only over time were able to achieve modern capabilities.
Why banks and financial institutions choose private key block
Banks and financial institutions are increasingly investing in blockchain technology.
Nevertheless, most of these efforts went towards private blockchain space.
There are many reasons for this. Private blockchain keys are much better than state blockchains, and network parameters, such as network overload and transaction fees, are known in advance.
The development of a basic protocol is also more predictable in the case of a private blockchain and gives more control to the banks that control it.
In addition, banks and financial institutions are regulated subjects that cannot operate under open protocols without conducting due diligence of the parties involved in the transaction. It is unclear whether rules are required to determine the type of bidding for certain classes of transactions to ensure final agreement.
It is also necessary to note the reputational risk of the blockchain system associated with the use of technology in Bitcoin cryptocurrency. The system was greatly offended in the media with associations in the drug trade and fraud, but still, it does not greatly affect the banks.
However, even today, many private blocking “anchors” in the chain, such as bitcoin, periodically ensure the integrity of their data.
Challenges when launching private blockchain of consortiums
By their nature, private block chains require different organizations to unite and agree on a common set of standards that will guide them. This is due to the different requirements of the system participants.
It also remains unanswered the question of who should be able to add or remove members and which jurisdictions should be allowed to intervene (for example, to cancel transactions for legal or regulatory reasons).
The first problem was partially solved by Hyperledger, a Linux initiative whose goal is to provide common block standards.
The future of the two competing ideologies will depend on management issues, scalability and reputation.
Why is a private block chain much better than an old-fashioned centralized database?
A private block chain is not a cryptographic element that most of the society is talking about, it is a distributed aspect and trust created using cryptography.
We all know that banks are not the most reliable institutions when it comes to morality and respect for the law. A lot of money is spinning in the gray area, and most banks have concerns regarding trust.
Therefore, from a security point of view, it can be made quite clear that use of blockchain offers significant advantages.
At the moment, all banks have a common structure, but any integration with another bank is a nightmare. A few years ago, the UK decided to let people easily switch their accounts from one bank to another, which turned the work of banks into a real hell. This process requires a lot of time and a lot of interaction between the two banks.
Also, as the bank should theoretically be an authority of trust, the way it is being achieved at the moment is that many employees manually handle certain processes. With a block chain, banks will be able to greatly optimize their operations and save labor.
Most entrepreneurs need a huge database to store things and information. The way it is done now is a large server with several levels of security, as well as a large IT team and a lot of money spent on a 99.99% SLA. A blockchain will reduce costs and provide a similar SLA with fewer problems, and as a rule, improve scalability.
Without exaggeration, the blockchain database is much better than the traditional ones. They have excellent security, privacy, optimization and decentralization. Most of the disadvantages of a centralized database are missing in the blockchain.
Despite this, there are some areas that do not need any innovative changes, so they are far from introducing the blockchain into their activities, they do not need its advantages.
Banks are looking at implementing blockchain technology to ensure security and trust (it saves a lot of money on staff and system maintenance).
The fact that the bank will not be able to delete or change the data will increase the coefficient of customer confidence in banks. Using Blockchain you can always check what happened to the information at a specific time. For example, using Ethereum you can make smart contracts (Ethereum) that will reduce overhead costs, as well as work in the administration department. Most of the work of contract administrators will be performed by a block chain.