Demystifying the Various Types of Blockchains

 Learn about public, private, consortium, and hybrid blockchains for an in-depth knowledge of blockchain technology.

Source: Foley

Blockchain is a shared, immutable ledger that enables the process of tracking assets and recording transactions within a business network. Blockchain has gained massive popularity over the years, but each firm has unique and different types of requirements that demand different types of Blockchain. Hence, having a clear understanding of the different types of blockchain is crucial as it helps in carrying out data transfers or transactions across a secure network. Moreover, multiple blockchains are needed as decentralized applications that exist only on one blockchain might be missing out on several other users on another blockchain.

The infrastructure landscape of blockchain is diverse, with a wide spectrum of protocols, platforms, and tools that are available for developers, users, and enterprises to interact with or build blockchain. For business purposes, the potential and scalability of blockchain are the most important aspects. In the dynamic and wide realm of decentralized applications and cryptocurrencies, blockchain wallets are the gateway to flawless transactions and interactions. 

If you want to work in the blockchain landscape and are curious about its various types, read on!

Core Concepts 

To put it simply, blockchain technology is made out of cryptographic algorithms. Satoshi Nakamoto, the creator of blockchain, created a system in which the trust that we usually place in organizations to maintain trusted records, like banks, is shifted to the blockchain and all the cryptographic algorithms that are used by it. To understand more about blockchain, let’s look at its fundamental concepts:

• As a decentralized network, Blockchain networks do not require any central or certifying authority.

• Encrypted information can be shared across multiple providers without risking a privacy breach.

• Its security is powered by sophisticated cryptographic processes performed by p2p users through a process known as mining.

• Blockchain records transactions across a global network of computers over the web, where the information is highly secure.

• Blocks store information about who the participating entities are in transactions. They also store primary details on transactions, such as date, time, and purchase amount of your last transaction, chronologically.

• Each block stores a unique code called a ‘hash’ that allows it to be different from every other block. Hash codes also ensure that blocks in a blockchain are in sync.

• Unlike a centralized database, in the decentralized blockchain structure, a security breach of just one block or one computer has no major detrimental effect on the whole system.

Types of Blockchain

Let’s look at the types of blockchain:

1. Public blockchains: A public blockchain is one in which anyone is free to join and participate in the vital and core activities of the blockchain network. All nodes in the network can verify any new data added to the network. It is the origin of Bitcoin, and it popularized distributed ledger technology (DLT).

In a public blockchain, there is no need to use your real identity. As it offers anonymity, nobody can track your transactions back to you. It has no regulation, and hence, there is no limit on how one uses the platform for betterment. 

Iconic examples of public blockchain are Bitcoin (BTC), Cardano (ADA), Algorand (ALGO), Avalanche (AVAX), Cosmos (ATOM), and Ethereum (ETH).

Source: Infrablok

Public blockchains have particular strengths and weaknesses. Strengths include:

• They are decentralized.

• They are transparent. Anyone can view the transactions.

• No permission is required to join a public blockchain network.

• They offer immutability and reduce the risk of fraud. 

On the other hand, the weaknesses are:

• They need more scalability.

• As they are transparent, there is a lack of privacy.

• They require lots of computational power and hence consume high energy.

2. Private blockchains: A private blockchain is where only specific users have access. It works in a restrictive environment, like a closed network, and is controlled by a single entity. It is operated on a small network inside an organization or a company. Some private blockchains are fully transparent to all members, whereas others may limit access to certain information. Private blockchains are better suited for applications that require more privacy and control, such as corporate data-sharing or supply chain management. 

There are certain advantages and limitations of private blockchains. Advantages include:

• They offer greater privacy.

• They are more scalable.

• They provide great control over the network.

The limitations of private blockchains are:

• They are centralized and are controlled by a specific group of users. 

• They need more inclusivity.

• They are expensive to set up and maintain.

Some of the key differences between private and public blockchain are:

Source: iFour

3. Consortium blockchains: A consortium blockchain is a union of public and private blockchains which is partly decentralized. In it, there are a few controlling nodes that verify and validate the transactions or blocks. A consortium blockchain is essentially a private blockchain with very limited access to a particular group, thus eliminating all the risks when just one entity controls the network on a private blockchain.

A consortium blockchain maintains workflow, accountability, and scalability. With a limited number of known members, it results in high performance and low latency as it frequently uses a voting-based approach. 

Consortium blockchain can be used in various healthcare services, financial transfers and payments, identity verification, real estate, supply chain management, the gaming industry, and intellectual property management.

Before choosing consortium blockchains, one should ask the following questions:

• How easy is the installation process?

• What are the maximum block sizes? 

• How significant are the costs for transactions and maintenance?

• How mature is the technology?

• How secure is the blockchain system?

• How modular is the respective framework?

4. Permissioned vs. Permissionless blockchains: Permissioned blockchains are either closed or have an access control layer. On the other hand, permissionless blockchains are decentralized and open to the public, with no gatekeepers or censorship.

Regarding security and governance, permissionless blockchains provide robust network resilience. However, all data is transparent. However, since there is an access control layer in permissioned blockchains,  it is a more secure alternative. There is no need for permissioned blockchains to be transparent.

Permissioned blockchains can provide a high level of privacy and security. They are also very flexible when it comes to decentralization. Permissioned blockchains are highly customizable. They can accommodate integrations and configurations based on the needs of the organization. Lastly, permissioned blockchains are scalable and perform high as the number of nodes required to manage transaction verifications are limited.

 Source: 101 Blockchains

5. Hybrid blockchains: A hybrid blockchain combines elements of both private and public blockchains. Its goal is to maximize the benefits of both types of blockchains while reducing their disadvantages.

Some of the benefits of hybrid blockchains are:

• It maintains the user’s anonymity.

• It ensures data security.

• It encourages accessible communication with the other Blockchain networks.

• It enables high-speed operations.

• It can be customized as per business requirements.

• It has lower transaction costs.

Some of the challenges of hybrid blockchains are:

• Lack of transparency

• Less incentive

Hybrid blockchains have several applications. Some of them are:

• The Internet of Things can be managed by using the hybrid blockchain.

• It is a great choice for finance, banking, and trade.

• It has enormous potential for use in supply networks. 

• The government can use it to conduct voting or storing complex data.

• It can be used to create both enterprise-level solutions and open-source technology.

It is blockchain interoperability that facilitates communication and exchanges between different private and public blockchains. It enables nodes on separate networks to communicate as well as execute both value and data transfers.

Cross-Chain Interoperability

Seamless interoperability allows unhindered transfer of data and assets, reducing bottlenecks and increasing overall throughput. Consequently, businesses can handle a larger volume of transactions. This opens up new growth opportunities.

Cross-chain protocols are a standardized set of rules that enable the safe transfer of information or assets between different blockchain networks. Cross-chain technology is the ability to transfer tokens and data between other blockchains. The cross-chain approach helps deliver blockchain interoperability, increases stability, and prevents monopolization by big businesses.

A cross-chain bridge enables interoperability between blockchain networks. Some examples include:

• Binance Bridge

• Multichain Bridge

• Arbitrum Bridge

• Polygon Bridge

• Synapse Bridge

• Tezos Wrap Protocol Bridge

• Portal Token Bridge

• Avalanche Bridge

Source: Crosschainbridge

Blockchain technology has the potential to revolutionize the way transactions are initiated. It also helps in the operations of businesses, governments, and economies. Hence, without the different types of blockchain, it would be strenuous to carry out transactions across a secure network.

If you are an aspiring enthusiast who has just started to explore the blockchain industry, knowing about its various types shall help you to increase your level of expertise. Follow this article and delve into the knowledge of this ever-evolving technology!

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