Blockchain, the technology that underpins all the cryptocurrencies out now, is vital to understanding. This is the simplest level since all you must deal with is a network of computers and a database. Because of this, we use a variety of safeguards to protect the blockchain.
The two most valuable cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), follow the same pattern (ETH). However, the way blockchain is explained, implies that it is more than simply a digital ledger for bitcoin. Four main types of blockchains exist, each with its own benefits and drawbacks.
For a cryptocurrency to function, it must make use of a certain kind of network.
A lot of factors, including privacy and environmental concerns, have led to this decision. Some of these qualities demonstrate the significance of being familiar with the various types of blockchains and how they function. The method in which transactions and new blocks are sent to the nodes of each of the four types of blockchains differs. Nodes are responsible for processing transactions and adding new blocks to a blockchain. However, these nodes may be vulnerable to intrusion or fail to verify transactions.
Let’s explore this further!
PUBLIC BLOCKCHAIN
If a blockchain is to be called “public,” it should be possible for everybody to use it. In other words, anyone can use their computer to connect to a network and use their computer as a connection point to work as a node in the network. After the right software has been downloaded and installed on a blockchain node, it can be used for mining, checking transactions, and researching the history of the whole network.
- MERITS
The weakest link in a chain could weaken the whole chain. Even if centralized organizations look like they are running well at first glance, there is always a chance that they could fall apart at the very top. Blockchains that are open to the public don’t have this problem because they are not controlled by one person or group.
When computers, called “nodes,” are networked together to make a “distributed ledger,” a blockchain that is supported by the public can keep working even if the organization that made it goes out of business. This is because a distributed ledger is a database that is not kept in one place but instead is stored on many computers. This is useful because it is an open and permissionless distributed ledger network that is also very easy to use.
- DEMERITS
When there are more nodes in a network, it takes a lot more time to check each transaction. This will have a direct effect on how well the network works. Anyone can join a public blockchain and take part in its transactions, so hackers have the same chance as any other user to do so. The next step they might take is to try an attack that works 51% of the time and take over the network.
Since hundreds of nodes are always running the blockchain, Bitcoin has never seen anything even a little bit like this. Because of the proof-of-work consensus, it is very hard for an attacker to win over the other nodes in the network because it would take them a lot of computer resources to do so. Since public blockchains aren’t nearly as decentralized as private ones, it’s possible that this won’t happen with them.
- CASES
It is not impossible that the current monetary systems could be replaced by a public blockchain that uses either a proof-of-work (PoW) or proof-of-stake (PoS) consensus algorithm. This could happen. It’s not impossible. Someone has probably thought about this as a possible outcome at some point. Bitcoin (BTC), a deflationary cryptocurrency with features like digital gold, is used to reach this goal. With the help of cryptocurrencies like Litecoin and Bitcoin Cash, payment systems that aren’t limited by borders are now being built (BCH).
PRIVATE BLOCKCHAIN
A single entity oversees everything that happens on a private blockchain, and no other users are allowed to participate as nodes in the network or have access to it. These node lists are evaluated by leading organizations, and depending on their results, those organizations have the right to either limit or expand the network. Permissioned distributed ledgers are another kind of blockchain that may be used, and they are used by private companies.
- MERITS
Since there is a limit on the number of nodes that may participate in the network, they are noticeably more efficient than public blockchains. This is since the number of nodes participating in a transaction would be drastically cut down. Another benefit of having full control over network access and authorization is that it makes it far more difficult for hackers to successfully penetrate the system.
- DEMERITS
In practice, the operation of a private blockchain may be carried out by a very modest organization such as a school. It is uncertain if such a network can be trusted due to the high level of control exercised by a limited number of individuals as well as the concentration of power in their hands. The fact that there are so few nodes means that the integrity of the blockchain might be compromised if even a few of them fail.
- CASES
Employing private blockchains that are both well-protected and well-maintained might be beneficial for companies that prefer to keep the details of their transactions a company secret. These software programs have a wide range of applications in businesses, including internal audits, voting, asset management, and logistics management, to mention just a few of their many uses.
HYBRID BLOCKCHAIN
Semi-private cryptocurrencies and blockchains, also known as hybrid cryptocurrencies and blockchains, combine the beneficial aspects of both public and private blockchains. They have networks that are both permissioned and unpermitted by the appropriate authorities. Since a direct consequence of this, they have greater leeway, as they can keep some information confidential while at the same time making other information accessible to the public.
A user’s identity is concealed when they utilize a hybrid blockchain until the moment they provide their approval for a transaction. One possible use of a hybrid blockchain is described below as an example. Following that, the other party to the transaction is given information on their identity.
- MERITS
Even though they have fewer nodes, hybrid blockchains may resist up to 51% of attacks and still provide lightning-fast network speeds. However, public blockchains are significantly more costly and difficult to grow than private blockchains.
- DEMERITS
Considering the hybrid blockchain is a closed environment, there are no incentives for network membership. Therefore, unambiguous accountability isn’t provided since consumers may be kept in the dark about some details.
- CASES
This combination of private and public networks makes hybrid networks appropriate for the healthcare, government, real estate, and finance sectors. Any record that must be safeguarded yet may be accessed by the public is best served by these devices.
CONSORTIUM BLOCKCHAIN
A consortium network is a kind of hybrid blockchain that has several companies rather than just one in charge of its semi-closed environment. This type of blockchain is also known as a federated blockchain, which is another name for it. Combining public and private blockchains results in a network that is more decentralized yet preserving the advantages of both types of blockchains.
- MERITS
When compared to using a public blockchain, using a consortium blockchain offers higher levels of both efficiency and scalability while offering the same degree of control over the network.
- DEMERITS
The bizarre part is that they are referred to as “hybrid blockchains” because of their lack of transparency and their susceptibility to being attacked. This is a startling feature of the situation.
- CASES
As the name suggests, businesses such as banks and payment processors use networks that are referred to as “consortiums.” The blockchains created by consortiums are important since banks often form groupings to operate more effectively. Because federated solutions include continuous collaboration between users, they are also suitable for use in industries such as research and medical monitoring, as well as food monitoring.
The Bottom Line
It should come as no surprise that companies are showing a growing interest in blockchain technology. There is the possibility for each of these varieties of blockchain to be used in a manner that not only improves the reliability of transaction records but also increases accountability and trust in the system.
