Blockchain is a distributed and immutable ledger that helps companies record transactions and manage assets (both tangible and intangible) more efficiently. All forms of value can be recorded and exchanged on the blockchain network, eliminating risk and reducing expenses for all parties.
But, first and foremost, what are blockchain networks?
The blockchain network is an infrastructure that connects applications to the ledger and smart contracts. In general, smart contracts create pre-planned or preprogrammed transactions sent to both peers in a network and then immutably recorded on each node\’s ledger copy. App users include client application users and blockchain network administrators.
So, how many different blockchain networks exist?
In most circumstances, multiple companies form a consortium to build the web, and their permissions are governed by regulations that the consortium agrees to when the network is first created.
Other forms of blockchain networks include public, private, and hybrid blockchain networks.
This article will cover all four types of blockchain networks and their benefits, challenges, use cases, and examples.
What Is The Purpose Of Different Kinds Of Blockchains?
When blockchain technology was exposed for the first time, it was a public version with a cryptocurrency application. Because of this, it is hard to decipher the creator\’s intentions, even though it introduced the concept of decentralized ledger technology (DLT).
The DLT mechanism altered how we tackle problems in our daily lives, enabling groups to work without relying on a central authority.
While distributed technology overcomes the limitations of centralization, it also poses new challenges when it comes to implementing blockchain technology in various situations.
Bitcoin, for example, relied on the inefficient Proof-of-Work consensus mechanism, and it needed the nodes to use energy to do mathematical calculations.
Initially, it wasn\’t a problem, but as the difficulty level increased, so did the time and energy required to solve those complex equations. The inefficiency of this method makes it unsuitable for any system that must remain efficient.
For example, banks handle many transactions each day, and they demand extensive scalability. This makes the public blockchain unsuitable.
In addition to scalability and lack of automation, the first generation of blockchain had many other shortcomings.
In conclusion, we can summarize that:
- Early blockchains were inefficient and lacked scalability.
- Moreover, public blockchain does not suit everyone\’s needs or objectives.
- A public blockchain is slow, has scalability issues, and consumes a lot of energy.
These three factors are considered the base points to invent new types of blockchains as mentioned below:
Types of Blockchains
Generally, blockchains are categorized into two varieties:
The permissionless blockchain is an open network that allows any user to connect pseudo-anonymously, and it does not limit the privileges of its nodes.
Permissionless blockchains offer greater security than permission because they validate transactions across numerous nodes. Therefore, bad actors wouldn\’t be able to work together on the network. On the other hand, a permissionless blockchain takes a long time to process transactions because of its many nodes.
Examples: All public blockchains such as Bitcoin and Ethereum are permissionless blockchains.
A permissioned blockchain restricts network access and may also restrict nodes\’ rights on the web. Also, users\’ identities on a permissioned blockchain are known by its other users.
Therefore, a permissioned blockchain is more efficient. Moreover, since nodes on the blockchain can only access the network via a specified address, fewer nodes are online, resulting in comparatively faster transaction processing, unlike permissionless blockchains.
Examples:: All private blockchains such as Corda, Hyperledger Fabric, and Quorum are permissioned/ Enterprise blockchains.
Based on this category, we have four types of blockchains:
Public blockchains fall under the category of permissionless and are decentralized, allowing everyone in the network to participate. All blockchain nodes in the public blockchain network possess equal access to the blockchain, generate new data blocks, and authenticate the data on the blocks.
Public blockchains are employed in mining and exchanging bitcoins. However, popular public blockchains like Bitcoin, Litecoin, and Ethereum are familiar. Nodes on public blockchains \”mine\” to solve cryptographic equations for creating new blocks for the requested cryptographic transactions.
The users who perform mining are compensated for their efforts with a small bitcoin. The miners are similar to modern-day bank tellers in that they formulate a transaction and are paid for their work.
Benefits of Public Blockchains
- Open Access: Anyone globally can submit data, use it, and manage it on public blockchains.
- Distributed Ledger: Unlike client-server platforms, databases on public blockchains are not centralized. Each node on the blockchain network keeps track of its master copy of the virtual database and helps to validate new transactions. This eliminates the need for unneeded intermediaries, standard in centralized transaction chains.
- Security: As it simplifies the difficulty of simultaneously editing and effecting changes on all copies of databases available on each node on the network, it limits the odds of manipulation and cyberattacks on public blockchains.
- Anonymity: Another significant advantage of public blockchains is the anonymity of users. Users\’ identities are secured from prying eyes through cryptographic identities known as public keys.
Challenges of Public Blockchains
- Scalability: In most blockchain networks, all users (called nodes) are required to validate each new transaction. As a result, transactions are typically delayed, and transaction throughput is low. As a result, businesses that rely on immediate transaction confirmation, like Visa or Paypal, would have difficulty functioning with a public blockchain.
- Smart Contracts: Smart contracts are unchangeable and have irrevocable results. Businesses cannot risk installing flawed immutable smart contracts and facing the irreversible consequences of their automatic enforcement.
- Storage Constraints: Each computer retains data blocks indefinitely in a blockchain network. As a result, significant storage needs are imposed, which are unrealistic in the context of a business application.
- Power: Just as public blockchains necessitate infinite storage spaces, their reliance on mining and consensus algorithms requires the availability of significant computational and energy resources. This high cost is unsustainable in the context of corporate integration.
- Privacy: Another considerable disadvantage of public blockchains is their complete openness. As a result, transaction privacy is limited to non-existent.
Use Cases of Public Blockchain
The public blockchain has a variety of applications. Let\’s look at a few of them to get a better sense.
- Voting: Governments can vote using a public blockchain that is transparent and trustworthy.
- Fundraising: Organizations can utilize the public blockchain to improve transparency and trust in their fundraising efforts.
Examples of Public Blockchains: Bitcoin, Litecoin, Ethereum, NEO
Restricted access and permissioned relationships are the lifeblood of private blockchains. New users are usually invited and validated by the platform\’s admin or founder\’s particular rules.
Enterprise blockchains are typically used for intra-company transactions, with access limited to corporate members and employees. However, non-members are permitted access to the chain on a need-to-know basis if they need to be there. R3 Corda and Hyperledger Fabric are some of the most well-known private blockchains.
Benefits of Private Blockchains
- Controlled Access: One of the most noticeable features of private blockchains is the admin\’s broad control over who can and cannot access the platform. The business identity management system verifies new users and grants them access to enterprise data.
- Faster Transaction: Enterprise blockchains have fewer nodes than public blockchains, allowing more secured transactions. Because the number of users that need to reach a consensus is reduced, speeding up the processing and validation of transactions or operations.
- Efficient Governance: In private blockchains, the entire virtual platform is controlled by a central authority. The admin specifies the standards, processes, methodologies, and tools to ensure the platform\’s day-to-day administration.
Challenges of Private Blockchains
- Lack of Trust: The operation of private blockchains\’ process depends on a few powerful nodes that validate transactions. Except for those with validation powers, all other users are not trusted enough to be given network governance rights.
- Security: Because a private blockchain often has fewer users, it\’s far easier for a single party to gain control of or alienate the blockchain network for selfish, dishonest objectives. It is essentially more vulnerable to database attacks, hacks, and manipulations.
Use Cases of Private Blockchain
There are numerous applications for private blockchains, and the following is a list of some of them.
- Supply chain management: A private blockchain extensively cooperates in the supply-chain management of any organization.
- Asset ownership: A private blockchain helps in tracking and verifying assets.
- Internal Voting: Private blockchain can be used for internal voting as well.
Examples of Private Blockchains: Hyperledger Fabric, R3 Corda, and Hyperledger Sawtooth
Federated/ Consortium Blockchains
Federated blockchains (also known as consortium blockchains) are a new solution that combines the capabilities of public and private blockchains.
While some aspects of the organizations are made public in a consortium blockchain, others remain confidential.
Preset nodes govern consensus operations on a blockchain. Even though it is not open to the general public, it maintains a decentralized nature. Multiple organizations administer a consortium blockchain.
Benefits of Consortium Blockchains
- Enables resource management and customization.
- Enhances security and scalability.
- More efficient compared to public blockchains and provides the features of private blockchains.
- Works with well-structured governance.
- Provides access restrictions.
Challenges of Consortium Blockchains
- Despite being secure, the integrity of the nodes is compromised in some places.
- Provides low transparency compared to public blockchains.
- Strict regulations impact the operations of the network.
- Less anonymity.
Use Cases of Consortium Blockchain
The consortium blockchain has a variety of applications. The following are a few of them:
- Banking and payments: A consortium can be formed by a group of banks. They have control over a set of nodes that perform transaction validations.
- Research: A consortium blockchain can assist in sharing and maintaining research data.
- Food tracking: It\’s helpful in keeping track of what you eat.
Examples of Consortium Blockchains: IBM Food Trust and Energy Web Foundation.
Although hybrid blockchains sound like consortiums, they are not the same thing. However, there are similarities between the two.
Hybrid blockchains combine the benefits of both private and public blockchains. Those who want the best of both worlds and don\’t want to implement either a private or public blockchain can use a hybrid blockchain.
Benefits of Hybrid Blockchains
- Works in a restricted ecosystem without demanding everything to be public.
- We can customize the network according to our needs.
- Hybrid networks can protect your network from 51% of attacks.
- Though it is tied to a public network, it nourishes privacy.
- Compared to the public network, it provides greater scalability.
Challenges of Hybrid Blockchains
- Hybrid Blockchains are not entirely transparent.
- It is difficult to upgrade to a hybrid blockchain.
- No incentives are offered to people who contribute to the network.
Use Cases of Hybrid Blockchain
- Real estate: Real-estate corporations can use hybrid blockchains to run their strategies. The public network facility helps them display information to the public.
- Retail: The hybrid network allows retailers to streamline business procedures.
- Highly regulated: Hybrid blockchains are well-suited for financial markets, requiring high regulation.
Examples of Hybrid Blockchains: XinFin’s Hybrid blockchain and Dragonchain.
Which Type of Blockchain Should you Choose?
Public, private, and consortium blockchains are not mutually exclusive – they are different technologies:
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- When it comes to censorship resistance, well-designed public chains tend to excel at the expense of speed and throughput. Hence, public blockchains are the greatest for increased transaction security assurances (or smart contracts).
- We do not need to worry about central points of failure like public blockchains. Private blockchains are best used when an individual or emphasized organization needs to maintain control over information while keeping it private.
- Consortium chains eliminate some of the counterparty concerns associated with private chains (by removing centralized control), and their lower node count allows them to perform far better than public chains. Organizations that aim to expedite communication between themselves are likely interested in consortiums.
Wrapping up Types Of Blockchains
We look at different blockchains. If you\’re a business and want to use blockchain without making anything public, using private blockchain is a fantastic choice.
On the other hand, a public platform is a smart choice if you want your network to be transparent, and they are not suited to enterprise use cases.
However, if you are looking for expert advice, reach out to Parangat. Our specialized staff of highly-skilled blockchain professionals will identify your visions and impediments in the process. Then, we will provide you with the most feasible solution for implementing blockchain technology in your business operations alongside providing full-fledged support from project ideation to deployment.
With roll up sleeves, dive in and get the job done approach, it was in the year 2010 when Sahil started Parangat Technologies. Emphasizing a healthy work culture and technology-driven company, he has successfully created a workplace where people love to work and live. He is a software engineer and a passionate blockchain enthusiast.