A blockchain is a distributed ledger of immutable records that cannot be altered and are distributed over a network of computers or nodes. A blockchain, in general, is decentralized, which means it is free of centralized authorities.
As a decentralized technology, it is managed by a network of nodes or computers that keep each other in check. It is immutable and transparent. Its immutability means that no one can alter the records.
Because it is transparent, the distributed ledger of records can be accessed by anyone, regardless of location. Blockchains are generally secure, and one of the prominent ways to breach them is if the attacker possesses at least 51% of the hashing power, which is practically impossible.
This article examines the many types of blockchains and why individuals choose them.
What are the types of blockchain?
Most people believe that only the typical blockchain, which is the public chain, exists, but that is far from reality.
• Public Blockchain
Public blockchains are permissionless distributed ledger systems containing records held by a network of nodes or computers. Typically, people use public blockchains daily, such as Ethereum, Algorand, Binance Smart Chain, etc.
Anyone can decide to run a node in a public blockchain as long as they meet the minimum requirements, which may include a certain number of tokens and hardware requirements.
Nodes can verify transactions occurring on the blockchain and create new blocks, whether the network is a Proof-of-Stake (PoS) network or Proof-of-Work (PoW). In a PoS network, nodes called validators are in charge of verifying transactions. They do not need to mine blocks or employ enormous computing power to solve complex mathematical puzzles.
Validators in this type of network are expected to bind their tokens to the network to validate transactions. They are compensated with a percentage of transaction fees and new tokens.
Different blockchains have different rules for ensuring the security of a PoS or PoW network. In most cases, blockchains are secure due to the network of nodes involved in transaction verification.
Scalability may be an issue with public chains, especially as some are not designed to scale with increasing users. Because of the growing number of users, they have a slower transaction speed than private chains. Ethereum 1.0 is an example of this. Ethereum 2.0, the proposed upgraded network version, is expected to include a sharding component that improves transaction speed.
• Private Blockchain
Private blockchains are not permissionless chains; they are restricted and can be accessed by only a few people. This type of network is often designed for use by members of an organization, and authorization is required before it can be utilized. Private chains are similar to public chains but are more restrictive and cannot be used by the general public.
An organization can create a private chain to incorporate its desired features. Private blockchains, like public networks, are immutable.
Private chains are often faster since they have fewer participants. Notwithstanding, this type of chain occasionally sacrifices the concept of decentralization.
Second, they have fewer nodes, which raises concerns about their level of security because it is simpler for a single person or a small group of people to control 51% of the hashing power.
Thirdly, private networks lack transparency. The source codes of public chains are typically accessible to anyone, but private chains are not. They are the company’s proprietary codes that created the chain, meaning they tend to be hidden from the public glare. This eliminates the possibility of a third party verifying the authenticity and security of the code.
Finally, there is a debate concerning the classification of private chains as blockchains because they lack the element of decentralization. An example is Corda.
• Consortium Blockchain
Consortium blockchains are semi-decentralized chains managed by multiple companies or organizations. The main difference between this type of blockchain and a private chain is that a single entity does not manage it. In this case, multiple organizations can run nodes on the network and verify transactions.
Consortium chains incorporate elements of public and private chains while eliminating the risks associated with a single organization controlling the network.
They are more secure than public chains, especially if an organization’s nodes are compromised. R3 is an example.
• Hybrid blockchains
Hybrid blockchains incorporate the elements of private and public chains, allowing users to benefit from the permissionless and permission-based architectures of public and private blockchains, respectively.
This type of network is created when the developers want the general public to access a section of data while the rest is hidden and accessible to only a few selected people.
When a transaction occurs on the private network in the hybrid chain, it is verified by the former and can only be accessed by individuals in the private network. Users can choose to make it public and move it to the public chain.
A user’s identity in a hybrid chain remains hidden from others except when they engage in transactions.
Hybrid chains provide privacy while allowing internal organization members to communicate with external entities. An example is the Dragon Chain.
Reasons for the massive adoption of blockchain technology?
It is difficult for a centralized authority to change the way things are done on a chain because it is a decentralized technology. Because of its decentralization, it has become an immutable data store. This is especially true for public chains.
The blockchain’s immutability arises from its inability to be altered. Depending on the type of consensus mechanism utilized, miners or validators validate a transaction before it is added to a block.
Validators are chosen at random to validate Proof-of-Stake chains. On the other hand, the Proof-of-Work consensus mechanism requires a miner to expend a tremendous amount of computational power to verify transactions. Once the gas fees are paid and the transactions are verified, they are placed in blocks and added to the blockchain.
Every node, or the majority of nodes in the blockchain, will have access to the network’s ledger. These nodes are a worldwide network of computers. Every network has policies to prevent validators from subverting the system’s operations. If one node violates the platform’s rules, it is removed, and the validator is fined.
• Cross-Border Transactions
Some companies and individuals benefit tremendously from cryptocurrencies based on blockchain, particularly because they facilitate the easy transfer of payments. Transferring funds across different regions can be a Herculean task for many, especially with the red tape that people need to jump over before transferring any funds.
As a result of increased globalization, people can seamlessly purchase items or services from brands thousands of miles away. They must make payments, which may be challenging given the cross-border nature of the transactions. Sometimes, payment channels end up being slow or expensive.
Blockchain facilitates this by allowing users to make payments without the need for a third party. Transactions are swift, affordable, and efficient.
• Smart Contracts
Smart contracts are transforming the world, particularly in automating transactions and interactions without using a centralized authority.
The concept of smart contracts was born with the advent of blockchain technology.
This type of contract is automated and does not require the involvement of a third party.
Using smart contracts ensures that users can conduct transactions without the need for an intermediary. When a condition is added to the code of a smart contract, it is activated if certain events occur, effectively establishing trust in the system.
• Numerous use cases
Companies are now incorporating blockchain technology into their operations because of its numerous use cases. The technology, which is a decentralized ledger, has been found useful in practically every aspect of life, from healthcare to security.
- A blockchain is a distributed ledger of immutable records distributed across a network of computers or nodes.
- There are four types of blockchains: private, public, consortium, and hybrid chains.
- Public blockchains are permissionless distributed ledger systems containing records held by a network of nodes or computers.
- Private blockchains are not permissionless chains; they are restricted and can be accessed by only a few people.
- Hybrid blockchains incorporate the elements of private and public chains, allowing users to benefit from the permissionless and permission-based architectures of public and private blockchains, respectively.
- Consortium blockchains are semi-decentralized chains managed by multiple companies or organizations.
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