Various Types Of Blockchain And Why We Require Them
Blockchain is the name given to a decentralized data ledger that may be securely shared. Blockchain technology enables data sharing amongst a group of selected participants. Blockchain cloud services enable the quick collection, fusion, and sharing of transactional data from numerous sources.
Shared blocks of data that have been broken up into different chunks are chained together using cryptographic hashes as unique identifiers. Blockchain Technology provides data integrity with a single source of truth, eliminating data duplication and enhancing security.
Fraud and data tampering is prevented by the fact that in a blockchain system, data cannot be modified without the approval of the majority of the stakeholders. Blockchain ledgers support alteration but not sharing. If there is an attempt to alter the data, all participants will be made aware of it and will know who made the effort.
In this article, we take you through the different types of blockchains and why we need them for our data safety and integrity.
What are the Different Types of Blockchains Technology?
Each blockchain network, whether public, private, hybrid or consortium, has unique benefits and drawbacks that essentially determine its suitable applications and help you choose the one that is best for you.
Even though the fundamental blockchain technology for projects is similar, the target end users of the various forms of blockchain “may alter,” according to Espae Hong, director of the CBDC Blockchain Research Institute. Public blockchains are intended for the general public as end users, whereas private blockchains are focused toward users who are invited-only and their networks.
Public Blockchain Technology
Anyone with an internet connection can register and join as an authorized node on public blockchains because they are open and permissionless. The individual has access to both current and historical data and is capable of performing mining operations, which are intricate calculations needed to confirm transactions and add them to the ledger.
Since the source code is frequently available, anyone can review the transactions, search for issues, and suggest changes. As a result, on the network, no legitimate record or transaction can be changed.
How it operates
- The first subset of blockchain technology is public blockchain. Distributed ledger technology initially appeared here, resulting in the creation of cryptocurrencies like Bitcoin (DLT).
- It omits the limitations of centralization, such as less security and transparency. Instead of being held in one place, DLT distributes data across peers in a network.
- Since it is decentralized, some method of data authentication must be implemented. Blockchain users can concur on the present state of the ledger by implementing a consensus process.
- Popular Consensus Methods: Proof of stake (PoS) and proof of work (PoW).
Advantages: Public blockchains have the advantage of being completely independent of organizations; they will continue to operate even if the firm that created them goes out of business as long as computers are still connected to them.
Another advantage of public blockchains is their transparent network. As long as users properly follow security policies and procedures, public blockchains are typically secure.
Disadvantages: Businesses are unable to set access or use limitations, and the network may be slow. If they have 51% or more of the computational power on a public blockchain network, hackers can make unilateral changes. Another drawback of public blockchain is scalability.
Use Case: The most prevalent application for public blockchains is the mining and trading of cryptocurrencies like Bitcoin. It can also be used to electronically notarize affidavits and public documents of property ownership to create a fixed record with an auditable chain of custody.
A public blockchain is suitable for non-governmental organizations and social support networks because they are built on transparency and trust. The open nature of the network will deter private businesses from using it.
A private blockchain technology is a blockchain network that works in a limited setting, such as a closed network, or that is ruled by a single organization. In terms of peer-to-peer connectivity and decentralization, it operates similarly to a public blockchain network, however this particular blockchain has a much smaller reach.
How it operates
Instead of enabling anybody to join and contribute processing power, private blockchains are frequently operated on a tiny internal network within a company or organization. These enterprise blockchains will be called as Permissioned Blockchains
Advantages: The controlling organization regulates access levels, security, authorizations, and permissions. A private blockchain network, for instance, enables a company to manage which nodes can view, contribute, or alter data. It can also limit how much information third parties can access.
Private blockchains are more like the intranet whereas public blockchains are more like the internet. Due to their size constraint, private blockchains can execute transactions far more quickly than public blockchains.
Disadvantages: The disputed claim that private blockchains aren’t blockchains because decentralization is the technology’s underlying principle is one of the disadvantages of private blockchains. It is also more difficult to properly establish trust in the information because centralized nodes select what is genuine. The reduced node count could also lead to decreased security. If a few nodes behave strangely, the consensus procedure may be compromised.
Furthermore, the private blockchains’ source code is typically proprietary and closed-source. Users cannot independently audit or verify it, which could lead to less secure operations. Additionally, there is no anonymity on a private blockchain.
Use Case: Due to their speed, private blockchains are the best choice when a blockchain needs to be cryptographically secure but the controlling entity does not want the data to be accessible to the general public.
Businesses may choose to use blockchain technology, for instance, without handing over their competitive advantage to third parties. Using private blockchains, they can maintain trade secrets and carry out audits.
Additional applications for private blockchain technology include asset ownership, supply chain management, and internal voting.
How it Operates: To obtain the best of both worlds, organizations occasionally use hybrid blockchain, a type of blockchain technology that combines elements of both private and public blockchain.
Businesses now have control over which data is made accessible to the public and who has access to it by setting up both a private, permission-based system and a public permissionless system.
Transactions and records on a hybrid blockchain technology are normally private but can be verified as needed, for instance by providing access via a smart contract.
Confidential information can still be checked inside the network even when it is secured. A private organization may hold the hybrid blockchain, but it cannot alter transactions.
A person who signs up for a hybrid blockchain technology gets full access to the network. Other users cannot discover the identity of the user unless they complete a transaction. The other party is then informed of their identity.
Advantages: One of the main advantages of hybrid blockchain is that outside hackers cannot launch a 51% attack on the network because it functions in a closed ecosystem. Furthermore, it protects privacy while permitting third-party communication. It offers speedy and affordable transactions and has more scalability than a public blockchain network.
Disadvantages: This type of blockchain technology is not completely transparent since information may be concealed in it. Users have no motivation to participate in or contribute to the network, and updating might be challenging.
Use Case: One of the many intriguing applications of hybrid blockchain technology is real estate. Businesses can run systems safely using a hybrid blockchain while also displaying some information, like listings, to the general public.
Both highly regulated industries like the banking sector and the retail sector can benefit from the adoption of hybrid blockchain to improve processes.
Medical records can be kept on a hybrid blockchain. Users can use a smart contract to access personal information, but random third parties cannot see the data. It may also be used by governments to maintain and securely share citizen data with multiple organizations.
The fourth type of blockchain technology, known as a consortium blockchain or federated blockchain, consists of both private and public blockchain components. However, it differs in that many organizational members collaborate through a decentralized network. The risks associated with having just one entity run the network on a private blockchain are eliminated by a consortium blockchain, which essentially acts as a private blockchain with restricted access to a particular group.
In a consortium blockchain technology, specified nodes control the consensus procedures. The transaction initiation, receipt, and validation are handled by a validator node. Transactions can be sent and received by member nodes.
Disadvantages: A consortium blockchain is less transparent than a public blockchain. If a member node is attacked, the blockchain’s own rules may still limit the network’s operation.
Use Case: This type of blockchain has two applications: banking and payments. Which nodes will validate the transactions can be decided by a consortium made up of different banks.
A comparable system can be developed by research organizations as well as organizations that want to track food. Supply chains, especially those involving food and medicine, can benefit greatly from it.
These are the four basic types of blockchain technology, albeit there are more consensus algorithms to take into account. Anyone intending to put up a network should take additional types like Wave and Burstcoin that are available on different platforms into account in addition to PoW and PoS.
For instance, renting proof of stake allows users to profit from mining without the node itself having to mine. To give each user priority, proof of importance combines balance and transactions.
Ultimately, companies are embracing and accepting blockchain technology more and more. There are potential uses for each of these blockchain technology variants that might enhance transaction records while also boosting trust and transparency.