There are different types of blockchain that have their own purpose and use cases. Understanding the different blockchain types provides you insights into which one best fits your project or meets the organization’s needs. This article describes the different types of blockchain, how does it work, the advantages, disadvantages, and use cases of each. Especially, the article will elucidate four categories of the blockchain network.
1. Public Blockchain
It is decentralized with no single authority on the network. All transactions in this type of blockchain are visible to any node on the network. The first blockchain network was created for Bitcoin which is a public blockchain. Bitcoin originated with the concept of this type of blockchain and helped to popularize distributed ledger technology (DLT). DLT distributes and stores the data across a peer-to-peer network. A decentralized system requires some methods to verify the authenticity of data for which it uses the consensus algorithm.
Two mostly used consensus methods are Proof of Work (PoW) and Proof of stake (PoS).
- Completely decentralized and independent of organisation so in the future even the organisation who created it fail to sustain in the market, blockchain will be able run as long as there are nodes connected in the network.
- Public blockchains are more transparency and security than any other blockchain
- Network can be slow, and organisation doesn’t have control on access and use.
- Hackers can alter it if they gain 51% or more of the computing power.
Use cases: cryptocurrency exchange, mining, non-governmental organizations, and other companies or businesses which need transparency, trust, and are based on public nature.
2. Private Blockchain
This type of blockchain operates under the control of a single entity and is considered a closed network. However, like a public blockchain, it uses peer-to-peer connections and decentralization. The transaction is not visible to any node on the network. Only, if we have trust in participants, we can invite some participants to access the information stored in the blockchain. Private blockchain operates on a small network size.
- The organization who setup it has control on granting permission, security, authorization and managing access such as organization can determine which node can view, add, or update data as well as can restrict the third party.
- Private blockchain is limited in size so transactions process is quicker than public blockchain.
- Centralized nodes determine what is valid and which node to grant permission and access, so some people say it violates core principle of blockchain decentralization.
- As it has small number of nodes, it is less secure, less trustworthy than public.
Supply chain management, internal voting of any organization or parties, etc.
3. Hybrid Blockchain
This is the combination of private and public where we can keep some processes private and some public. It includes the best features of both the private and public blockchain. In this blockchain, organizations can decide who can participate or which transaction to make public or private. We can control who can access specific data stored in the blockchain and what data to show publicly using the private permission-based system along with a public permissionless system. Typically, data and transactions stored in hybrid blockchain are private but can make it public allowing access through a Smart Contract. Although this type of blockchain is used by private organizations (single entity) and confidential information is kept in the network, it is immutable.
- Hackers in this type of blockchain can’t mount a 51% attack because it works inside close ecosystem.
- Provides the privacy and allows to communicate with the third party.
- Transactions are cheaper, faster and offers scalability.
- It’s not fully transparent as the information can be shielded. In short partially transparent, partially shielded information.
- No incentive and reward for users to who participate and contribute to the network.
4. Consortium Blockchain
It’s the fourth type of blockchain. A consortium blockchain is known as a federated blockchain. We can say this is similar to hybrid blockchain. Meaning that it has private and public blockchain features. However, in this type of blockchain, multiple organizational members collaborate on the decentralized network. It is like a private blockchain that allows limited access to a particular group. It eliminates the risks that may associate with private blockchain which comes with a single entity controlling the network.
Validator node initiates, receives, and validates transactions and member nodes can receive or initiate transactions.
- More secure, scalable, and efficient than public
- Provides access control mechanism.
- Less transparent than public.
- Can be compromised if a member node is breached.
- Blockchain’s own regulations can impair the functionality.
Banking, financial institutions, and payment system. Multiple banks and financial organizations collaborate and can form a consortium blockchain network.