Blockchain technology started over a decade ago with Bitcoin’s public blockchain. This blockchain technology may also be termed the blockchain technology of the first generation. As the years rolled by, many more types of blockchain technology came into existence. Today, there are various kinds of blockchain technologies, with each one serving a different function. Each blockchain technology exists to solve a specific set of problems.
Many companies use blockchain technology, taking advantage of its many potentials. A full appreciation for blockchain technology has yet to be realized. It is the blockchain technology that introduced the concept of decentralized ledger technology (DLT).
Blockchain technology offers many benefits to companies and industries in the cryptocurrency market, more than we can imagine. The best part is this is only the beginning; the full potential of blockchain technology is yet to be discovered. Each of the types of blockchain technology has its benefits, uses, and merits. This article aims at comparing the different types of blockchain technology.
What is Blockchain Technology?
The simplest definition of blockchain technology is a decentralized and distributed ledger that documents the origin of cryptocurrency. Blockchain technology is a Distributed Ledger Technology (DLT) that renders the provenance of digital assets as transparent and unalterable. This feat is achieved with the use of cryptographic hashing and decentralization. A ‘hash’ is that immutable cryptographic signature with which blockchain technology records transactions.
Blockchain technology is a system that involves taking records of information in a way that makes it near impossible to alter. The technology is as secure as can be; cheating the system is difficult or impossible.
Blockchain consists of several blocks in which each block holds several transactions. Every time a new transaction occurs, the information is added to the existing ledger, continuing the chain.
Each block is connected such that if one is accessed, it becomes immediately known. Hacking a blockchain is difficult because it would mean each block in the chain, and there’s a lot of them, would have to be changed.
Before blockchain technology came into existence, there had been many attempts to create digital money and a cryptocurrency market. However, each attempt at this had always failed for one reason or the other.
Someone was always in control of these other types of databases that were created. Putting the fate of one’s investment in the hands of a stranger was hard to do. The question of imbalance, inequity, and lack of transparency always arose.
Therefore, Bitcoin was created to change the narrative. It was designed to solve this issue with one specific database called ‘blockchain.’ Unlike the other databases, Bitcoin is decentralized – that is, it is not controlled by one person or group of persons. The people controlling blockchain technology are the people using it, whoever they may be.
There are four types of blockchain technology present today. All four types of blockchain technology are characterized as permissioned, permissionless, or both. Permissioned blockchain technology works by restricting access to the network to specific nodes. The rights of those nodes on the said network could also be denied.
On the other hand, permissionless blockchain technology gives unrestricted access to any user who wants to access the blockchain network in the cryptocurrency market. There is no denial of the rights of nodes to a network on the permissionless blockchain network.
The four types of blockchain technology include public, private, hybrid, and consortium blockchain. Each of these blockchain technologies has its uses, advantages, and disadvantages.
Public Blockchain Technology
Public blockchain technologies are decentralized and permissionless – meaning anyone can join the network and do transactions. All nodes have equal rights and unrestricted access to the blockchain on public blockchain technologies. The nodes on public blockchain technology create new blocks of data and also validate them. Each peer on the public blockchain network has a copy of the ledger.
The public blockchain is the first type of blockchain to ever exist in the digital market. Bitcoin came through public blockchain and made the distributed ledger technology known. This type of blockchain technology was created to introduce decentralization, a system where everyone has control of the network. This promotes maximum security and transparency on the blockchain network.
Public blockchain technology requires verification of the authenticity of data before access to the network is granted. This method is known as the consensus algorithm, including proof of work (PoW) and proof of stake (PoS). It is a means whereby participants on the network agree on the current state of the ledger.
Anyone on the internet can access the public blockchain technology to become an authorized node. Public blockchain technology is open-source where anyone can find bugs, verify transactions, or propose changes as the case may be. Examples of public blockchain include Bitcoin, Ethereum, XRP, Bitcoin Cash, etc.
Major Advantages of the Public Blockchain Technology
Public blockchains are decentralized and completely independent of any organization or group, even the one that created them. That means that even if its creator is no more, the network will continue to run so long as computers are still connected to it.
In addition, public blockchains are entirely transparent; this is one of the reasons it thrives. The network has a string of security protocols and methods. As long as those protocols and methods are properly followed, public blockchain is secure.
In public blockchains, two nodes or participants don’t need to know each other to trust each other. The system it works on makes it such that there is no need to question the authenticity of the other person. The PoW (proof of work) process already takes care of that aspect, ensuring there could be no fraud.
Major Disadvantages of the Public Blockchain Technology
Like every good thing, public blockchain has several downsides that flow from its design or function. The first is that the transaction rate per second on public blockchains is very low. A public blockchain has a huge network and many nodes where each has to do proof-of-work – which takes a lot of time. This explains why Bitcoin and Ethereum transactions take so much more time compared to others like Litecoin or Dogecoin.
Another disadvantage is that public blockchains don’t scale very well. The network’s inability to process transactions fast resulted in scalability issues because the size of a network inadvertently affects its speed. The more nodes that join the network, the slower it gets.
Due to public blockchains needing specialized systems to run a special algorithm, the PoW process is energy-consuming. It is expensive and consumes a very high amount of energy, a problem for both the network and the environment.
Use Cases of Public Blockchain Technology
Mining and cryptocurrency exchanges are the most popular uses of public blockchains. The network is ideal for organizations that place value on trust and transparency. It is not a good place for private organizations for obvious reasons. Other use cases of public blockchain platform include voting and fundraising.
Private Blockchain Technology
Private Blockchain technology is classified as a permissioned blockchain technology or enterprise blockchains. It is a restricted network where only those in the network have access to the information in it. Only authorized nodes or participants can access data exchanged between two nodes. The private blockchain is like a closed network under the control of a single entity.
Private Blockchain technology works like public blockchain in that it also uses peer-to-peer connections. However, it is much smaller and has smaller nodes than public blockchain. Unlike a public blockchain, private blockchains are operated on a small network inside an organization. Where public blockchain technology is decentralized, a private blockchain is not.
In a private blockchain, only selected members are participants of the network. The control of the network’s security, permissions, accessibility, and authorizations is entirely in the hands of one entity. Examples of private blockchain technology include Corda, Fabric, Saw tooth, etc.
Advantages of Private Blockchain Technology
First, a private blockchain platform is very fast because there aren’t so many nodes on the network, unlike public blockchain. Due to the small size of participants, transactions are processed more quickly on private blockchains.
Another advantage is that the controlling organization sets permission levels, authorizations, accessibility, and security. Since all activities on private blockchains are monitored and controlled by one entity, third parties cannot gain access to certain information. The controlling organization on private blockchains decides who views, adds, or alters data on the network.
Disadvantages of Private Blockchain Technology
There is a controversy about private blockchains not being true blockchains. The claim states that since the core of blockchain is decentralized and private blockchains are not decentralized, they are not true blockchains.
There is no transparency and trust in the network since it is controlled by a centralized node – which can be biased. This centralized node determines the validity of a transaction. Fewer participants or nodes could also mean less security. Users don’t have control of their information and so can neither audit nor confirm transactions.
Another disadvantage of a private blockchain that sets it apart from a public blockchain is the lack of anonymity of transactions.
Use Cases of Private Blockchain
Private Blockchains are useful to companies and enterprises who want to take advantage of blockchain technology without being vulnerable to competitors. The network is best used when blockchain needs to be secure without giving third parties or the public access to information.
Private Blockchains are also useful in internal voting, supply chain management, digital identity, and asset ownership.
Hybrid Blockchain Technology
Hybrid blockchain technology combines both private and public blockchain technologies. You could say this technology combines the best of both worlds of blockchain technology. Hybrid blockchain has a private permissioned system and a public permissionless system.
The network lets users control who accesses data stored in the blockchain. No data or records go public except the ones that are released. All other records in the network remain confidential.
A hybrid blockchain platform is a flexible network where users easily join a private blockchain with one public blockchain. Transactions in hybrid networks are verified when needed but not made public. Verification on a hybrid blockchain is done through smart contracts. Transactions cannot be altered in hybrid blockchain, not even by the entity that owns it.
Every user’s identity is protected in a hybrid blockchain unless the user performs a transaction. In which case, the user’s identity is revealed to the other person to ensure secure transactions. Users have full access to the hybrid network as soon as they join. XinFin and Dragonchain are common examples of hybrid blockchain technology.
Advantages of Hybrid Blockchain Technology
One of the most notable advantages hybrid blockchain has is that it is more scalable than public blockchain. Also, transactions in hybrid blockchain networks are cheap and fast. And the network is protected and cannot be hacked from the outside.
Hybrid blockchain works like public blockchain in that hashing is increased, and more nodes are needed for verification. As such, there is transparency and security in the hybrid blockchain network.
Disadvantages of Hybrid Blockchain Technology
While hybrid blockchain has some transparency, at least more than private blockchain, the network is not entirely transparent. Since there is still a chance for information to be shielded, the transparency of the network is questioned. Participating or contributing to hybrid networks offers no incentives. In addition, upgrading a hybrid blockchain network is difficult.
Use Cases of Hybrid Blockchain
The hybrid blockchain network is one of the most used blockchain technologies. One of the strong use cases of hybrid blockchain is in real estate. Since third parties cannot randomly access information, this makes the network ideal for storing medical records. Users can access their data through smart contracts, but third parties cannot.
Another use case of hybrid networks is a government’s ability to store citizen data privately and securely and share such data between institutions. Companies that want to run their systems privately and, at the same time, show certain information to the public can use hybrid blockchain stock. Highly regulated markets like financial institutions can also use hybrid blockchain networks.
Consortium Blockchain Technology
The consortium blockchain network is semi-decentralized blockchain technology. This network is also referred to as federated blockchain and is geared towards resolving issues within organizations.
It is similar to hybrid blockchain in that it also combines the features of both public and private blockchain networks. It is, however, different in that it is a decentralized network on which many members of an organization can work together.
Unlike in private blockchain networks, consortium blockchain is managed by more than one organization. Several organizations can be nodes and exchange information or mine digital assets. As such, although not open to the public, the network is still decentralized.
In essence, consortium blockchain eliminates the risks associated with having only one node control for a blockchain network. Examples include IBM Food Trust, Marco Polo, Energy Web Foundation, and R3.
Advantages of Consortium Blockchain Technology
Consortium blockchain offers access controls, much like hybrid and private blockchains. The network is more secure, has better scalability, and works with well-defined governing structures. Consortium blockchain tends to be more efficient than public blockchain.
Disadvantages of Consortium Blockchain Technology
When it comes to transparency, only public blockchain networks seem to have that completely covered. A consortium blockchain is transparent to an extent but not as transparent as a public blockchain. Although secure, the network is prone to compromise – if a participant is breached.
Use Cases of Consortium Blockchain Technology
A consortium blockchain is mostly used in banking and payments. Research and food industries can also use the network to create a similar model. Consortium blockchain networks are also ideal for supply chains seeking high scalability. In addition, transactions on consortium networks are not kept anonymous, unlike in public blockchain.
Comparing Blockchain Technologies: Which One Is Better?
There is no simple way to answer this question because each blockchain technology is unique in its way. Each blockchain technology network has something to offer. Nevertheless, when choosing a blockchain technology, you should consider its security, scalability, and transparency. In those three areas lie the major differences between all blockchain networks.
Public blockchain technology is the most used and successful of all four blockchain technologies. The blockchain offers maximum security in that alteration of data is extremely difficult, near impossible. More so, perhaps the best part of it for most people is that the network offers full transparency.
There is no one ‘best’ blockchain technology for all. The best one is the one that meets your needs. To fully maximize the potentials of these blockchains, you should have a good comprehension of them. Once you understand a blockchain network well, you can make smart moves to ensure it works to your advantage.
Pius is a freelance writer cooperating with Paybis, a cryptocurrency exchange platform available to users globally. He is also a crypto investor and a tech enthusiast.