Regulated and Unregulated Blockchains: What’s the Difference? – In question

The issue of regulation within the world of blockchain technology is not ready to be resolved. Despite the general decline in the cryptocurrency market throughout 2022, $3 billion worth of crypto assets were stolen by hackers throughout the year, the highest total ever for heists of digital assets. This apparent lack of security has shed light on regulated and unregulated blockchains. So what’s the difference? And can true decentralization be achieved alongside regulation?

Gray blocks in a chain illustrating blockchain

One of the biggest advantages of blockchain is decentralization. This revolutionary technology, which is secured by an interconnected collection of distributed computers, means there is no single central owner. In the case of a blockchain, any change must be approved by a predetermined number of distributed computers, or “nodes”, to modify or supplement the stored information.

Although this procedure may seem complex, blockchains can negotiate transactions in seconds. Moreover, since it is extremely difficult for a hacker to gain access to a sufficient number of computers distributed around the world, it is practically impossible to compromise a blockchain.

So why do thieves continue to steal record volumes of crypto and blockchain assets like NFTs? The answer is that many cybercriminals have targeted phishing and tricking asset holders into willingly handing over their valuable assets in scams.

In March 2022, the European Union requested that cryptocurrency transfers be fully traceable so that any illegal activity can be better controlled. Introduced as part of the EU’s anti-money laundering package, this measure would introduce a considerable amount of regulation into the blockchain ecosystem but run counter to a truly decentralized landscape.

Today, we can see examples of regulated and unregulated blockchains populating the ecosystem, with different benefits for users. Let’s take a closer look at the key differences between regulated and unregulated blockchains:

What are regulated blockchains?

Regulated blockchains are rarer and are generally centralized in nature. For this reason, they are generally referred to as “private” blockchains, where a single organization has authority over a network.

While this means regulated blockchains can technically offer more privacy, especially for businesses looking to bring more efficiency to their internal processes, many people believe their centralized nature means governing authorities could circumvent the rules. and cancel transactions. This prospect can be very off-putting for cryptocurrency enthusiasts.

Despite this, regulated blockchains can have many useful advantages. Their centralized nature makes regulated blockchains generally faster than their decentralized counterparts and can be much more stable than more distributed public blockchains.

Above all, regulated blockchains make it more difficult for illegal activity, at least from hackers and other criminals. These centralized chains can even add an authentication process before users can access the network.

Additionally, their regulatory framework means suspicious activity can be quickly identified and addressed, with less risk to users and their assets.

However, giving centralized control of a blockchain to a single organization or entity means that users place their trust in the owner of the chain. This means that unlike fully distributed and decentralized systems, your information is never completely private.

What are unregulated blockchains?

On-chain blocks illustrating blockchain

Unregulated blockchains largely populate the cryptocurrency ecosystem and allow users to join whenever they want. Here, users have no restrictions, and participation in the consensus process is open to everyone.

Today’s major cryptocurrencies, like Bitcoin and Ethereum, run on unregulated blockchains. The latter’s chain currently hosts the largest number of decentralized financial applications and platforms in the world, benefiting millions of users.

These unregulated blockchains are also known as “public” blockchains because they are largely completely decentralized. This means that no single entity controls the chain, which theoretically allows all users to have full control over their assets, information and transactions.

While regulated blockchains can be great at mitigating instances of illegal activity, there is no doubt that the security offered by unregulated blockchains is exceptional and unmatched in any digital landscape.

Since all changes and transactions made within the chain must be verified in a large decentralized network of nodes, it is virtually impossible for cybercriminals to break into a public blockchain (an attacker would need to control 51% of the network) , but the lack of regulation means scammers face little consequence if they trick you into giving up your credentials or assets. In short, once your crypto is gone, it won’t come back.

Additionally, because it is a public ledger, unregulated blockchains are transparent at all times, meaning all participants can see all activity recorded on the blockchain, providing greater security against hackers. corrupt activities. However, the anonymity of unregulated blockchains means users can still transact for just about any means they see fit. While this is a great way to maintain privacy, it can also lead to sneakier transactions on the ledger.

Can public blockchains ever be regulated?

Although government bodies like the European Union and the SEC have long sought to regulate blockchain technology, successful regulation is only possible by finding some form of coexistence with a fully decentralized and open system.

Blockchain’s biggest proponents remain adamant that full decentralization must be preserved at all times and that the technology can have designers buy no owners under any circumstances.

As data is freely dispersed across the network, it is certainly possible for decentralization and regulation to co-exist, and encryption systems could seek to ensure that predetermined users can see certain data without larger centralized bodies interrupting the process. fabric of a functional blockchain.

The role of blockchain in the future

As the Web3 era continues to give us more and more clues as to how blockchain technology can deliver a future of smart transactions and online privacy, we are likely to see new interpretations of the ledgers emerge. distributed.

As the most powerful and immutable solution for data security available today, it is likely that the next generation of the Internet will be built on blockchain.

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Regulated and Unregulated Blockchains: What’s the Difference? – In question

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