Types of blockchain
Description
Learn what the different types of blockchains are. How public, private, hybrid, and consortium blockchain technology work. Learn about everything from our article.
What is blockchain? It is a technology for encrypting and storing data in a database, distributed across multiple objects (computers) and networked.
Blockchain is a database of executed transactions, represented by a chain of consecutive records, with no possibility to change, delete or replace this information. Each new block contains new information and all the previous block's data.
The main advantage of the blockchain is the ability to transfer data in a reliable, systematic, and unchanged form. This is especially relevant for the transfer of value, which is why blockchain has become the basis for the creation of a new type of digital economy - cryptocurrencies.
Why is blockchain so important?
Immutability and openness are some of the most valuable qualities of blockchain. The blockchain is like a database, constantly transmitting new information while preserving all the actions that have occurred before. And the open information in blockchain trackers reflects every movement on the network, like a constantly updated, trustworthy ledger that takes into account all arguments and changes.
Any kind of data can be transferred on the blockchain: ownership, the volume of value, and even voting rights. All of this data will be securely stored, impossible to fake, and the validity of the data is always confirmed in the transaction ledger.
Therefore, blockchain has become the ideal technological solution for cryptocurrencies. The new asset type is open, not controlled by central banks and regulators, transparent, and secure to transfer value.
How are various industries using blockchain?
Blockchain is currently being used in many industries. These include medicine, supply chains, banking, cybersecurity, identity verification, education, the creation of tokenized Central Bank Digital Currencies (CBDC), and many more. Any industry that requires an open, immutable database seeks to adopt blockchain.
What is the difference between Bitcoin and blockchain?
Many users in the initial stages of learning about the crypto market wonder what the difference is between Bitcoin and blockchain. Sometimes they even equate the two concepts. But this, of course, is not the right approach. Blockchain is a technology for storing, creating, and providing information with maximum openness and immutability. It is a base that is adapted to the creation of any cryptocurrency. Bitcoin is the first cryptocurrency created using blockchain. With Bitcoin, the first enthusiasts demonstrated the network's capabilities to the world. And as Bitcoin began to be issued, the blockchain began to work. However, this does not mean that Bitcoin equals blockchain and is the only currency.
There are now many other examples of networks and digital assets created from them.
Four types of blockchain
It is customary to divide blockchain into 4 types, depending on the technological implementation of the network.
Public blockchain
The first and most popular blockchain type is called the public blockchain. The name itself helps to characterize this technology. This means that any user can become a participant in the blockchain at will. There is no need to receive registration confirmation or go through additional verification steps. Also, in a public blockchain, all transactions are approved and saved by all participants in the network, and their rights are equal. Every crypto investor can check the state of the blockchain, track their transaction, run a node for mining or participate in the supply of liquidity.
Advantages
The main advantages of such a blockchain include openness, accessibility, decentralization, and information security.
Openness and accessibility are the availability of these blockchains to all potential users, with the ability to transparently show all network data.
Decentralization is the distribution of control nodes among unrelated representatives.
Information Preservation is impossible to change the network data since any change is made by agreement in all blockchain nodes.
Disadvantages
A large amount of data. Public blockchain becomes too big and difficult to scale, which is a problem for all users. The speed and price of the transaction increase, and it reduces the quality characteristics of the network.
Low privacy. All transactions are open, information is freely available in the crypto tracker. It will be open to all participants if you try to hide data, transaction amount, sending addresses, amount, gas cost, and others.
Examples.
The most prominent examples of such blockchains are Bitcoin and Ethereum. As the first cryptocurrency, Bitcoin is inherently a model of decentralization and public blockchain. Ethereum is the second-largest cryptocurrency and another example of a public blockchain.
Private blockchain
A private blockchain and its purpose can also be understood from its name. Private means are created and regulated by a single center, an organization. It is most often used to promote that organization and provide its internal processes.
Advantages
Advantages. The obvious advantages include its confidentiality. It is the exact opposite of public blockchains. Only private network members can view the network data.
Also, a plus is the higher security and technical speed. Since the management is in the hands of one company, the management level is much higher, and thus the audit of transactions and risks.
The validators of the private network are the selected facilities. They all have an upfront interest in interacting and creating the most productive system possible and are always coordinated and working together.
Disadvantages.
The disadvantages of private blockchains are their centralization. All management is in the hands of the issuer, which means that censorship and management don't depend on direct users. All aspects of the operation are decided by the developer company. Even validators are culled from the company.
The disadvantages also include getting an application to join the blockchain or going through additional steps to use it. This inhibits the spread of blockchain and the ability of new individuals to access it.
Examples
The largest example of a centralized private blockchain is the XRP cryptocurrency network, XRP Ledger. It was created in 2012 and is run by the non-profit company XRPL Foundation has its own XRP Ledger Consensus Protocol algorithm for mining, with more than 130 active validators, 35 of which are exclusive Unique Nodes List pool.
Hybrid blockchain
Hybrid blockchain combines all the best aspects of the previous two types: public and private. This solution is set up to improve the quality and fight against possible design flaws.
Advantages
The most important advantage of hybrid blockchains is multi-operability. A hybrid solution allows to use of the competitive advantage of two types of blockchain and retains the main technical benefits. At the same time, it is also possible to fix bugs that are inherent in one of the selected blockchains.
Typically, a combined approach to blockchain architecture solves one of the significant Internet problems in networks: scalability. Transactions are not duplicated to every node, but the load is distributed among blockchain participants.
Disadvantages.
Hybrid blockchains have several disadvantages that need further elaboration. One disadvantage is the lack of decentralization, especially compared to a classical public blockchain.
Due to the mixed type, many standard procedures become more complicated: for example, there are problems with the synchronization of updates and the lack of internal incentives for participants. Also, the whole management system becomes more cumbersome, and there may be difficulties in governance and control.
Examples
One example of a hybrid blockchain is Solana. The white paper began writing back in 2018, and one of the developers' main goals was to solve the scaling problems that already existed in Ethereum. It became important for Solana to offer an alternative development option so that the fee would not be as high.
Its own Proof-of-History mining algorithm has over 2,300 validators on the network.
Consortium blockchain
The last of the highlighted blockchain types is called Consortium blockchain. This is a blockchain initiated and developed by several companies that have agreed in advance to cooperate.
Advantages
The first advantage is security. All participants have no access to the network, so the technical possibility of an attack is reduced. At the same time, management is not concentrated on one hand, as it is in a private blockchain. The governance board will be able to consider all opinions and requirements while remaining as democratic as possible.
The advantages also include a conditionally high level of scalability, especially when compared to public blockchains.
Disadvantages
The disadvantage of this type of blockchain is the lack of the ability to decide on possible updates/additions to the operation quickly. Security is also a downside. In a Consortium blockchain, the risk of negative influences and exposure from the external environment increases because the number of objects for interaction increases.
Another disadvantage is the pursuit of personal interests by consortium members. This can affect the development of the network and the development that has occurred.
Examples
A consortium blockchain is not as popular as previous types of blockchain. Most often, they are used to connect cryptocurrencies with classic business objects and create a unique company management model. The most famous examples of consortium blockchains are Bankchain, Enterprise Ethereum Alliance, HYPERLEDGER, MOBI, MarkoPolo, and many more.
Conclusion
Each development company must choose its own path in mastering blockchain technology. It is simply a matter of assessing one's own needs and implementation capabilities before choosing. However, no matter what choice is made: public blockchain, private, hybrid, or Consortium, it is important to use the type that individually suits the company's characteristics or the ideas fixed in cryptography.