Four Kinds of Blockchain Structures: Which is the Best for You?
Blockchain is a distributed ledger that safely stores the digital records of transactions across its nodes. The records are accessible to all the people across that blockchain network. However, these records are immutable, i.e., no one can tamper with them. Blockchain technology makes the existence of several cryptocurrencies like Bitcoin possible. But the application of blockchain is not limited to powering cryptocurrencies. It has a wide array of functions in different sectors and industries, including healthcare, education, supply chain management, retail, government, etc. In order to serve these diverse sectors, there exist different kinds of blockchains, each with a specific purpose and specific problem-solving mechanism. In this article, we will be discussing the four types of blockchain structures that every company should know before formulating a blockchain solution for its specific needs.
The most popular kind of blockchain technology is public blockchain. This kind of structure supports cryptocurrencies like Bitcoin, Ethereum and Litecoin. A public blockchain is distributed ledger technology (DLT) that allows anyone to join and make transactions. In a DLT, data is not stored in one place; instead, it is distributed across a peer-to-peer network. Public blockchains are completely decentralized as they offer equal rights to all the blockchain nodes to access, create new blocks, and validate the data. However, they cannot change a valid transaction over the network. Thus, these blockchains are permissionless and unrestricted. Anyone with an internet connection can join the public blockchain network and become an authorized node. All the authorized users will have access to the current records. They can mine new cryptocurrencies by solving cryptographic equations and creating new blocks for transactions.
For verifying and authenticating the data on the blockchain, it uses consensus methods like Proof-Of-Stake (POS) and Proof-Of-Work (POW). POS requires participating nodes to spend large amounts of computational energy on adding new blocks. On the other hand, POW requires participants on the network to put cryptocurrencies at stake to add new blocks. Peers need to be functional for a public blockchain to exist.
Advantages: One of the significant advantages of a public blockchain is its complete independence from all centralized authorities or organizations. They are transparent as the data is available to everyone on the network.
Disadvantage: Since many nodes, public blockchains face the problem of scalability. They become quite slow.
Uses: They are primarily used for mining and exchanging cryptocurrencies. Due to their decentralized nature, public blockchain can be used by organizations that value data transparency and trusts like social groups, non-profit organizations, or even governmental voting. However, they might not be ideal for corporate businesses.
Unlike public blockchains, private blockchains are permissioned and restricted. A single organization usually controls them. Also known as closed networks, private blockchains are privately held by a company or entity that wants to use them for an internal purpose; not everyone can become a node in In this kind of blockchain structure; rather, a centralized authority decides it. And each node might not be given equal rights to perform all the functions over the network. This makes private blockchain structures only partially decentralized because not everyone can have access to the network. However, it provides features like transparency, trust, and security to the selected participants over the network.
Advantages: Using a private blockchain network, the organization can set up permission levels, authorizations, and accessibility. It can prevent any third parties from accessing its data. Since there are a limited number of participants, private blockchains are quite fast and can perform more transactions than a public blockchain network.
Disadvantages: The main critique of private blockchains is that they are “not true blockchains” because they sway away from blockchain’s core philosophy, i.e., decentralization. Since centralized authorities make the last call, all nodes are not equal. There are a limited number of nodes which translates to less security.
Uses: They can be used in supply chain management, asset ownership, and internal voting.
Hybrid blockchains are the answer for organizations wanting the best of both worlds. Hybrid blockchain combines elements from both public and private blockchain. Organizations can set up both permissionless and permissioned systems side-by-side. They can control which data should be open to the public and set up permissions for people (usually within the organization) who can access specific data stored in the blockchain. The transactions taking place over a hybrid blockchain are not public; instead, they can be verified using smart contracts if such a need arises. Other kinds of confidential information are usually kept inside the network. Although a private organization owns the hybrid blockchain, it cannot alter any transactions.
Advantages: Hackers cannot administer 51% attacks on the network since it works within a closed ecosystem. They also allow for fast and cheaper transactions and offer better scalability than a public blockchain.
Disadvantages: It is not entirely transparent. Other challenges include upgrading and lack of incentive for participants to join such a network.
Uses: They can be used in real estate, retail, and even healthcare.
Also known as the federated blockchain, consortium blockchain allows several organizational members to participate over a decentralized network. It is similar to the hybrid blockchain as it combines the elements of both private and public blockchains. It uses preset nodes to achieve consensus. They are more decentralized than private blockchain because several organizations jointly manage them.
Advantages: They are more scalable, efficient, and secure than public blockchains. Like private blockchains, they provide access controls.
Disadvantages: They are not as transparent as public blockchains. If the integrity of one of the members is breached, the entire network is compromised. Besides that, rules and regulations can interfere with blockchain functionality.
Uses: They can be efficiently used in banking, research, and food tracking.
If you are interested in knowing more about different kinds of blockchain and their applications, check out our blog.