Even Bitcoin and Ethereum, the two most popular cryptocurrencies, utilize different types of blockchain. So, why would a cryptocurrency use a specific network type? There are several reasons for this, including privacy and the environmental impact of securing the network. These variables, among other things, illustrate how crucial it is to understand different types of blockchain and how they function.
Table of Contents
What are the 4 types of blockchain?
It is impossible to deny that blockchain has developed considerably in the last decade. It began with bitcoin, which provided a public blockchain (the first type of blockchain). Bitcoin’s blockchain may also be referred to as the first generation of blockchain technology.
We are now at a stage where there are several forms of blockchain technology, each solving a distinct set of challenges. Furthermore, many organizations employ them to get the most out of their businesses.
The difference between the four types of blockchains can be found in how transactions and new blocks are submitted to their nodes. Every blockchain is a P2P network linked via nodes that execute transactions and add new blocks, but those pathways may be permissionless or permissioned. The gap between public and private blockchains occupies the middle ground.
Before we start detailing the types of blockchain, you might want to learn more about blockchain. If that’s the case, take a look at our list of the best blockchain books.
A public blockchain allows anybody to join and engage in the network, such as Bitcoin. There may be difficulties with excessive computational energy needed and little or no privacy for transactions.
The transactions are verified using consensus algorithms such as Proof-of-Work (PoW), Proof-of-Stake (PoS), and so on. At the cores, nodes that participate in making the public blockchain run must do the hard work, including verifying transactions to make it functional. A public blockchain will be non-functional if it does not have the required number of peers participating in transaction verification. Several types of blockchain platforms employ various sorts of blockchain as a foundation for their project. On the other hand, each platform offers additional features in addition to the basic ones.
Features of public blockchain
- Anyone can contribute to a public blockchain by looking at and adding information to the blockchain.
- A public blockchain is based on a decentralized model.
- The amount of transactions processed by a public blockchain is much less than that of a private blockchain, and it can process larger amounts of data.
- When compared to private blockchains, public blockchain transactions per second are lower.
- Because it is open and distributed, a public network is more secure. It also has active participation, which makes it more resilient.
- In a public blockchain, access to the network must be allowed by a central authority to keep track of it.
Advantages of public blockchain
The weakest link in a chain is the one that breaks it. Even if someone is successful, centralized businesses have a point of failure at the top that might eventually collapse. Because decentralized blockchains are distributed, they lack this risk.
A public blockchain can continue to operate regardless of the organization that initially funded it if any computers/nodes are linked together to form a distributed ledger. This is the strength of a permissionless distributed ledger network and transparency.
Disadvantages of public blockchain
The time it takes to verify transactions across all nodes is proportional to the number of nodes on a network. As a result, overall network speeds are reduced. Furthermore, because anybody can join a public blockchain, there’s the potential for hackers as well. Then they can carry out a 51% assault and take control of the network.
As of yet, Bitcoin’s blockchain has never been tampered with. Due to proof-of-work consensus, a malevolent party would require a large quantity of computational power to counter other nodes on the network; this is practically impossible. That may not be the case when public blockchains do not have the same degree of decentralization.
Use cases of public blockchain
Blockchain technology may be used to replace existing financial systems, whether they are based on a proof-of-work (PoW) or proof-of-stake (PoS) consensus. Bitcoin is attempting it by being a deflationary cryptocurrency that is similar to digital gold. Litecoin and Bitcoin Cash are creating low-fee, borderless payment networks.
As a public blockchain network, a private blockchain network is a decentralized peer-to-peer network. On the other hand, the network is governed by one entity that determines who is allowed to join, execute a consensus protocol, and maintain the shared ledger. This can substantially increase trust and confidence between participants based on the purpose of use. A private blockchain may be operated behind a corporate firewall and even hosted on-premises, thanks to these blockchain platforms. Fabric, Sawtooth, Corda, and Multichain are all examples of private blockchain platforms.
Private blockchain features
- Full Privacy
- High efficiency
- Low fee
The main distinction between public and private blockchains is who is allowed to join the network, carry out the consensus protocol that determines mining rights and rewards, and maintain the shared ledger. The owner or operator has authority over what entries on the blockchain are necessary.
A private blockchain isn’t truly decentralized since it’s a distributed ledger that functions as a closed, secure database based on cryptography ideas. Not everyone can operate a full node on the private blockchain, conduct transactions, or authenticate/validate blockchain modifications.
Advantages of private blockchain
They are considerably quicker than public blockchains since there can only be so many nodes in the network. After all, a transaction has to go through a small number of nodes. In addition, hacking attempts will be less likely to be successful because the company in charge has complete control over approval and network access.
Disadvantages of private blockchain
A tiny school or firm may run a private blockchain in practice. However, can such a network be trusted since it has high levels of control and centralized nodes? Furthermore, if a few nodes go down, the entire blockchain could be jeopardized because of its low number of participants.
Use Cases of private blockchain
Private blockchains benefit businesses looking to secure information flow without exposing it to the public eye. As a result, they’re used for internal auditing, voting, asset management, supply chain management, and other functions. A few private blockchain projects are Corda, Hyperledger, and Multichain.
A hybrid blockchain combines features of both a private and public blockchain. It uses the properties of both blockchains, allowing one to have a private permission-based system and a public permissionless system. Users may choose who has access to which information is stored in the blockchain with this hybrid network. Only specific data or records from the blockchain are permitted to become public, while the rest is kept private in the confidential network.
The hybrid architecture of blockchain allows for easy integration with many public blockchains. A transaction in a private network of a hybrid blockchain is generally validated within the network. Users may, however, release it into the open blockchain to be verified. The public blockchains enhance the security and transparency of the blockchain network by increasing hashing speed and utilizing additional nodes for confirmation.
Advantages of hybrid blockchain
Hybrid blockchains, which are made up of more nodes but confined in a closed network, are resistant to 51% attacks while having high network performance. This makes them more scalable and cheaper than open blockchains.
Disadvantages of hybrid blockchain
Hybrid blockchain is a closed ecosystem, and as such, it does not provide the incentives for network participation. Because of this, it lacks total transparency because someone might be able to conceal information from users.
Use cases of hybrid blockchain
Hybrid networks provide great answers for the healthcare sector, government, real estate, and financial sectors by combining the privacy and security of private blockchains with public accessibility. They represent the ideal therapy when a paper can be viewed publicly but needs to be kept private.
Many organizations may share the obligations of maintaining a blockchain. These pre-determined organizations choose who may submit transactions or access data. When all participants need to be permissioned and assigned a shared duty for the blockchain, a consortium blockchain is ideal for business.
Advantages of consortium blockchains
Compared to public blockchains, consortium blockchain networks offer higher transaction speed and scalability while still allowing for control across many organizations.
Disadvantages of consortium blockchains
They have the same drawbacks as hybrid blockchains, including a lack of transparency and an increased risk of attack if a few nodes are compromised.
Use cases of consortium blockchains
Consortium networks are utilized by big organizations, such as banks and payment processors, to manage their transactions. Banks frequently collaborate to become more efficient, so consortium blockchains are useful. Research, medical, and food tracking companies regularly collaborate within their industries, making federated solutions ideal for them.
There are 4 types of blockchain, but which one is best for you?
The first thing to consider when choosing among blockchain technology solutions (or types of blockchain) is the two key elements:
- Is there a need to limit access or give it permissionless access, or is it a mix of both?
- Does the network operate on a borderless, global, or organizational level?
Within these boundaries, private and public blockchains have differences in scalability, transaction speed, openness, and security.
The majority of the most popular and successful blockchains to date have been public, such as Bitcoin and Ethereum, each with its consensus mechanism to tackle the issue of scalability and security. On the other hand, project-oriented private blockchains may be better suited for businesses since they are faster and more customizable.
Private vs Public Blockchain: which one is better?
Before drawing a conclusion, we’ve done extensive research on two primary kinds of blockchains: private and public networks. Both of them have certain differences from one another. However, the most significant distinctions between them are in terms of security, scalability, and transparency. On the other hand, you can completely trust a public network’s intact consensus (proof-of-work) system because it is not susceptible to hacking or fraud on a private network.
In a nutshell, every instance or case of a successful blockchain application we’ve seen to date has been with a public blockchain. Public blockchains provide security by making it nearly impossible to hack the entire network. It also gives data transparency since each node has equal access to the record kept in the blockchain. The Bitcoin system is one of the most notable examples of a public blockchain.
Why do we need blockchain technology?
Let’s talk about why we need blockchains in the first place and what they’re used for. There are several use cases and advantages for blockchain adoption, the most prominent of which is value transmission over the Bitcoin protocol. Blockchain solves a unique issue that had previously prevented other attempts at creating a digital currency like Bitcoin. The “double-spend” issue is the most common type of fraud. We all know that we commonly duplicate what we have in the digital world and send it to another person, such as by creating a copy of an electronic document or photograph.
Let’s assume that this document were a dollar. The sender and receiver would both have identical copies of the dollar, implying they might spend it. This problem was solved by using blockchain technology, which guarantees the receiver that they only have a dollar and the sender that they no longer have it. Anyone who attempts to spend a dollar knows that it is no longer in circulation.
Industries that profit from blockchain networks
Blockchain technology may be used in various sectors, including logistics, finance, real estate, and gaming. Smart contracts allow businesses and individuals to avoid the expense and uncertainty of dealing with third parties to run regular operations by employing self-executing code that is stored on an immutable blockchain.
Blockchain has been used to create cryptocurrencies that are used for payment, such as Bitcoin (BTC), Bitcoin Cash (BCH), Litecoin (LTC), and a slew of other payment-focused coins. Traditional third-party payment companies are less efficient and more globally available than blockchain.
Blockchain also offers great potential for the energy sector, particularly in terms of smart grids, which require a local market for power supply and demand. Securely sharing data among smart meters at home is another example of blockchain’s usefulness. Energy providers such as gas and electric suppliers and utilities might profit from it in a variety of ways.
Blockchain networks are also being used to develop new solutions for industries that need secure and effective data ownership and management processes, such as healthcare and digital identification. Using public-key cryptography, which utilizes a public key for receiving transactions and a private key for sending them, blockchains allow users to be anonymous and safe in their data transfers.
Blockchain technology, which is a distributed ledger that records and authenticates every transaction, may be an effective tool for governments and agencies to secure transactions, automate processes, and foster public confidence. Governments can use blockchains to safeguard sensitive information such as birth dates, social security numbers, addresses, and driver’s license numbers. Government efficiency savings and cost-cutting are two more potential advantages of blockchain technology. Blockchain technology can eliminate redundancies; streamline operations, and ensure data accuracy.
Concerns surrounding blockchain technology
Blockchains with a fragile ecology of network participants or a recognized consensus procedure are vulnerable to assaults and centralization despite the various benefits. Decentralization and throughput — the amount of data a blockchain can handle in a given period — are significant variables to consider. The Blockchain Trilemma – balancing scalability, decentralization, and security in one network – is getting a lot of attention.
Blockchain has several concerns, and some of them have to do with the environment. The proof-of-work (PoW) consensus mechanism, for example, consumes a lot of electricity to operate. Other worries include the technological complexity and intimidation factor that blockchain technology may create for organizations and individuals.
The rapid adoption of cryptocurrencies worldwide is merely the start of blockchain technology’s incorporation into business and our daily lives. More sectors are testing out blockchain technology, and more individuals are learning about the benefits and uses of blockchain-based goods and services in their everyday lives. Unfortunately, despite all it has accomplished so far, the blockchain industry is growing at breakneck speed, with no indication that it will slow down anytime soon.
Why blockchain as a Service (BaaS) is gaining adoption from enterprises?
Blockchain technology is still in its early stages, and like other early adopters, early blockchain implementers have had to deal with the pains of adapting to any new platform. Building on any new platform has long been accompanied by setting up difficulties, limited developer tools, and operational issues.
However, with the advent of blockchain as a service provider, building a blockchain application has become more accessible. Investopedia defines blockchain as a Service (BaaS) as an offering that allows customers to use cloud-based technologies (such as Dragonchain) to host their blockchain app and smart contracts.
Dragonchain, among the first blockchain services providers, manages all of the infrastructures and scaling so that businesses can focus on their apps. Like software as a Service solution, this method allows firms experimenting with blockchain for the first time to get up and running fast while offering a low danger vehicle. Blockchain as a Service makes it possible without requiring extensive blockchain knowledge or a steep investment.
There are many different blockchains, and the pricing and business models for blockchain platforms are all over the place right now. Dragonchain is a Blockchain as a Service provider that provides much-needed stability and convenience to the blockchain industry. This gives developers and organizations the assurance they need to jump onto the blockchain bandwagon.
We explained 4 types of blockchain in this article, and with this information it is much easier to determine the best solution for your project and your business.