Crypto has been the talk of the town for a couple of years, and it is difficult to talk about crypto without mentioning the technology that powers it: blockchain.
Blockchain is a decentralized system of recording information, which runs through a shared network of nodes. With each transaction, data is stored into blocks, which consequently form a chain. Users can access the network through various means, such as a crypto exchange platform like OKX or a wallet. For example, individuals that use Monero can search for the best XMR wallet to access info as well as send and receive money anonymously.
The first generation of blockchain technology, brought about by the creation of the first cryptocurrency, Bitcoin, is public, which means that all transactions and their data can be accessed by all its users. However, over the years, blockchain has developed significantly from its first model and can now be grouped into four different types.
#1 – Public Blockchain
The public blockchain is a permissionless type where anyone can freely access the network and transact online. Each user has a copy of the distributed ledger, and transactions are accomplished through consensus methods such as proof of pork (PoW) and proof of stake (PoS), among others.
Advantages
- Wider availability for different kinds of users
- Builds trust in the community due to the public ledger and incentivizes users to contribute to the network
- No intermediaries, which serves blockchain’s original goal of decentralization
- Increased security with a higher number of nodes, preventing bad actors from compromising the network
Disadvantages
- Slower transaction speeds due to the higher number of users
- Clunky scalability can lead to problems in the future with more users
- Energy-extensive consensus methods that take up a lot of time to accomplish
Uses. Organizations that require high levels of transparency and trust can benefit significantly from this blockchain type, including social support groups and NGOs. Some of the functions that work well with public blockchains include voting and fundraising events.
#2 – Private Blockchain
Not all organizations are keen on using public blockchains. Some institutions, like private companies, prefer to keep some info hidden and limit the people who can access their network. This is accomplishable with private blockchains. In this permission-based type, the supervising authority behind the blockchain network can set parameters for accessibility, authorization, and even the transactions allowed for different users.
Advantages
- Faster transactions speeds due to fewer participants
- Better scalability as only a few nodes are authorized to validate transactions
Disadvantages
- Not truly decentralized as a governing body is involved
- Fewer nodes may compromise security, compared to public blockchains
Uses. Private blockchains work best with institutions that wish to maintain a closed network but still reap the benefits of blockchain technology. Functions such as internal voting, asset ownership, and supply chain management can be improved with this blockchain type.
#3 – Hybrid Blockchain
Hybrid blockchains are best described as a combination of public and private blockchains. They work best for entities that require specific features from both blockchain types. Here, some areas of the network are public while others remain private, which allows the organization to make the most of both private and public blockchain systems. As such, hybrid blockchains are only partially decentralized.
Advantages
- Flexibility in issuing regulations based on needs
- Better scalability, compared to public blockchains
- The closed ecosystem prevents security breaches
Disadvantages
- Not completely transparent as some info is not accessible to all users
- Difficulty in transforming into a hybrid blockchain
- Lack of incentive for users to contribute to the network
Uses. Some of the industries that can highly benefit from hybrid blockchains include real estate and retail, wherein some information (e.g. property listings, retail products) is accessible to the public. Highly regulated markets such as finance can also benefit from the level of transparency hybrid blockchains offer without compromising their privacy.
#4 – Consortium Blockchain
Consortium blockchains are similar to hybrid blockchains, wherein they also employ public and private features. However, consortium blockchains are technically considered private because they restrict the users who can access the network. The public feature lies in their completely decentralized nature because the blockchain is supervised by a group of entities rather than a single individual or group. Because of this, they are also called federated blockchains.
Advantages
- Higher level of customization
- Increased security with access controls
- Scalable according to needs
- Offers a higher level of control over resources
Disadvantages.
- Security can be affected by user integrity
- Censorship, which goes against the initial philosophy of decentralization
- Less anonymous as identities are public in the network
- Less transparent as select info can be shielded
Uses. Entities that can highly benefit from consortium blockchain include banks and financial companies, research institutions, and food tracking groups. The blockchain can significantly improve collaboration and make transactions (e.g. approving loans, sharing information) easier for users and clients.
Overall, blockchain is known as the technology that powers cryptocurrency, and at face value, that is all it is. However, blockchain is far more complex than that and has uses that far exceed the industry commonly associated with it. Developers, institutions, and investors seeking to make their own cryptocurrencies or fund new ones should carefully consider which kind of blockchain to use and whether it suits the organization’s purpose. In this manner, institutions can take advantage of each type’s unique features and maximize this technology.
Also Read: Blockchain Technology on IoT Device Connectivity: How Does It Work?
