What are Centralised Blockchains?: A Complete Guide

Zebpay
4 min readNov 25, 2023

Decentralized crypto tokens like Bitcoin and Ethereum dominate the world of crypto. These decentralized cryptos create a new way to transact by bringing together the benefits of cryptographic security and decentralization. However, enterprise solutions are one aspect of the crypto ecosystem that is overlooked. Private or centralized blockchains ensure organizations have access to sensitive data while providing the security benefits of blockchains. The underlying technology operates on a decentralized blockchain system but it is controlled by a small set of individuals or a centralized authority.

Types of Blockchain

Public Blockchains

Public blockchains operate on a permissionless basis. This means users do not require prior permission to access public blockchains from any authority. This system enables users to engage in block validation freely and users can see all blockchain transactions. The vast majority of crypto tokens run on public blockchains.

Private Blockchains

Private or permissioned blockchains need approval from a central authority to access the blockchain. Users will not be able to see any data on the blockchain without approval from an authority. Private blockchains have many levels of permission. Some users may have access to all the data stored on the blockchain, while others may only have access to a few sections of the blockchain.

Federated Blockchains

Data is publicly available in federated blockchains, but validation and mining are done by select entities or individuals. Federated blockchains cannot be mined by a general user.

Blockchains apart from public blockchains are viewed as centralized blockchains in this article. This is because only a small number of entities or individuals have access to certain essential features.

Examples of Private and Federated Blockchains

Stablecoins

Tether (USDT) and USD Coin (USDC) are the most popular stablecoins by market capitalization. These popular stablecoins cannot be mined. These stablecoins cannot be mined because they are collateralized by a fiat currency, the USD. Tether (USDT) and USD Coins (USDC) hold an equal amount of US dollars in reserve for every token available to the public. These reserves are regularly audited and handled by trusted third parties.

Third-party financial institutions are responsible for validation as they manage the reserves. New coins are only created when there is demand for them since reserves have to match the dollars available. Therefore, the consensus process is only handled by these financial institutions.

A decentralized autonomous organization, TetherDAO, controls Tether. Whereas, a single company called Circle controls USD Coins.

Central Bank Digital Currencies (CBDC)

Private blockchain has popular applications in central bank digital currencies. The digital equivalent of a country’s fiat currency is called CBDC or central bank digital currency. CBDCs bring together government-backed systems with seamless transactions of crypto tokens. It is up to the government to decide whether to keep CBDC transactions private or not.

A CBDC can restrict access to private financial data of users by using federated or private blockchains. All the transactions occurring on the blockchain can only be seen by a select few government officials.

Additionally, CBDCs can also apply the federated blockchain model. Public and private financial institutions can engage in the validation process on federated blockchains. The verification process can be more robust with several agencies involved, while the central bank is still responsible for mining digital tokens.

Private blockchain services

Some crypto companies design private blockchain solutions for their customers. Ripple, R3 Corda, Enterprise Ethereum, and Hyperledger are some of the prominent examples.

Companies in different sectors, such as healthcare, finance, and supply chain management, can benefit from private blockchain services. For example, Walmart uses a service based on Hyperledger Fabric. This service enables them to ensure no break in the supply chain by tracing their products from source to destination.

Similarly, the De Beers Group tracks its diamonds using the Tracr blockchain platform. This platform assures that none of their diamonds have been tampered with. Additionally, it is a helpful tool to show their customers that their diamonds are not blood diamonds, which come from sources of crime and conflict in poor African countries.

Final Thoughts

While the crypto industry is obsessed with crypto tokens like Bitcoin and Ethereum, it is vital to know that blockchain technology has many more applications. There is no winner in the centralized vs. decentralized blockchain debate; both have unique use cases. Companies can simplify business processes and boost their productivity using private blockchains. Private blockchains can also make the control of accessing information simpler.

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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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