37. What are the types of blockchain networks?
Blockchain technology is becoming increasingly popular. More and more companies are testing ways to use it. However, here is the key question – does every company have a need for the same blockchain? Of course not. Each project or structure has its requirements, unique features that require a specific type blockchain to implement. Do you know all the types of blockchain networks?
What is blockchain technology?
We have already written about what blockchain is here. To fully understand today’s lesson, we recommend you also take a peek here.
We’ll just do a quick reminder, essential for today’s lesson.
Blockchain is a decentralized database, fully distributed across a network of computers. With this technology, transactional data from multiple sources, can be collected in one place, accessible to all. Interestingly, the data collected in this way is divided into blocks, connected to each other thanks to cryptographic passwords. These passwords are unique identifiers.
Blockchain technology ensures data integrity and security. There is no room for fraud or data manipulation in the entire blockchain ecosystem. Why? Because no variable can be changed without the consent of the other nodes.
Types of blockchain technology
- Public blockchain
In the case of public blockchain, anyone can join the distributed ledger and conduct a transaction. What does this mean? That as long as you have access to the Internet, you can connect to the public blockchain from anywhere on earth and at any time.
By connecting to this type of blockchain, you get access to contemporary as well as historical records of transactions that have taken place in it. Interestingly, in this type of blockchain, the source code is usually open. This means that anyone can inspect the transactions, identify existing problems and suggest fixes.
The public blockchain is a good of trust. This is its undoubted advantage. All thanks to the mechanism proof -of-work, which ensures us the absence of any fraud in the chain. Another of the advantages is security. A public blockchain network can have as many participants and nodes as it wants. And the larger the size of the network, the harder it is for hackers to break into it. Therefore, you don’t have to worry about your security when using a public blockchain.
The final advantages of this type of blockchain include transparency and openness. Each participant in the network has insight into the transaction data of the other nodes. However, with these advantages in mind, public blockchain also has some significant disadvantages:
- Scalability. That is, the issue of almost every blockchain. Transactions are processed slowly. Remember that the larger the network, the slower it will be.
- High electricity consumption. And all through the proof-of- work consensus mechanism.
- Lower TPS. Since it’s a public blockchain, it has many users. As a result, the number of transactions per second in this case is small.
Where do we meet public blockchain? For example, in the government. The public blockchain is a great solution for conducting voting. The second option for using a public blockchain is fundraising. This would make companies more transparent and trustworthy.
- Private blockchain
A private blockchain is much smaller than a public blockchain. A single node usually controls it. However, this does not prevent it from maintaining full decentralization. Other aspects are practically no different from a public blockchain.
It is worth knowing that private blockchains are managed by a central authority. It is the one that assigns certain functions to nodes and in fact chooses who can be them.
Private blockchains are commonly launched in small companies or organizations. Therefore, their advantage will be speed. In a private network, the number of nodes is smaller, which definitely reduces the time for verifying transactions. With a private blockchain, we may also see greater scalability. Why? A private blockchain has the possibility that we can adjust its size, according to our specific requirements.
Disadvantages of private blockchain:
- Less trust. There are fewer participants in such a private network, which increases the likelihood of a 51% attack. [LINK – WHAT IS A 51% ATTACK ON BLOCKCHAIN – MASTER LEVEL].
- What also applies to the above, in a private blockchain, is not very safe. And all because of the small number of nodes in the network.
- They are not fully decentralized. They require a single user to manage IAM identity and access.
Where can we come across private blockchain? In logistics, for supply chain management. Private blockchain can also be used to track and verify assets. Another example where we can use it is in internal voting.
As the name suggests, the hybrid combines features of both private and public blockchain. It allows companies to build a network by determining who has access to certain data. In this type of blockchain, transactions and other data are not made public. However, it is possible to validate them if necessary. For this, of course, the well-known smart contracts are used.
The advantage of hybrid blockchains is its security. It can operate in a closed environment, making a 51% attack impossible. The second advantage is also cost. It provides a high level of privacy, while inexpensively allowing contact with third parties. Transactions on a hybrid blockchain are inexpensive and more scalable than on a public network.
Unfortunately, due to its nature, hybrid blockchain also has its drawbacks. The main one would be the lack of transparency. Moreover, in this type of blockchain network, users are reluctant to participate in its development. They lack motivation and rewards to stimulate their involvement.
Where will we encounter this type of blockchain? Certainly in real estate or retail, where hybrid blockchain streamlines some processes. Interestingly, hybrid blockchains are great in highly regulated areas, such as banking sectors.
- Blockchain Consortium
In the cryptocurrency industry, this type of blockchain, is also referred to as feeder blockchain. Here are the basic differences between the syndicated blockchain and others:
- Specific nodes that control the consensus methods. Simply put, they are managed by a group, not a single person, as in the case of a private blockchain.
- It includes various members of the organization who work together in a decentralized network.
- It has a validation node that is responsible for initiating, receiving and validating a given transaction.
- The transactions themselves can be initiated by member nodes.
- Creating consortiums is a difficult process because it requires cooperation among many organizations.
Compared to a public blockchain network, this type of blockchain is far more secure, scalable and efficient. However, it is at the same time less transparent. If a member node is found to be infiltrated, then it is easy to break into this type of blockchain network.
This type of blockchain can be found in banking and payment systems, among others. A blockchain consortium can be formed by a group of banks that cooperate with each other. They then have control over which nodes validate the transaction.
Blockchain consortium also has great applications in scientific research. Then a group of scientists could share data and research results.
Each of the presented types of blockchain, has its advantages and disadvantages. Therefore, it is impossible to answer unequivocally which type of blockchain to use. But before you decide, determine your requirements, what to use the blockchain network for. Only after that, start acting.