Different Types of Blockchain

Different Types of Blockchain

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In the previous article we learned briefly about Blockchain, how it works and some of its applications. If you haven’t read it yet, read it here:

Blockchain – A Brief Introduction

Lets dive into three major types of Blockchain.

Historically, Blockchain started as a public permission-less technology when it was used for powering Bitcoin. Since then, other types of blockchains have been created.

These can be categorized as follows :

  • Public Blockchain
  • Private Blockchain
  • Consortium/Federated Blockchain

Public Blockchain

Public blockchain as the name suggests is open to all users in a distributed network.

  • Transactions are open and transparent, but anonymous/pseudonymous.
  • There is no one in-charge, and anyone can participate in reading, writing or auditing.
  • Everyone has the read and write access to the ledger, and participate in the decision-making process.
  • All the users maintain a copy of ledgers on their local nodes.
  • As there is no dedicated in-charge, decentralized consensus mechanisms like Proof of Work (PoW) and Proof of Stake (POS) are used to agree upon the final state of the ledger.

Examples: Bitcoin, Ethereum, Monero, Dash, Litecoin, Dodgecoin, etc.

Effects:

  • Potential to disrupt current business models through disintermediation.
  • No infrastructure costs: No need to maintain servers or system admins radically reduces the costs of creating and running decentralized applications (dApps).

Here is a brief overview on public blockchain

Private Blockchain

Private Blockchain as the name claims is a private property of an individual or an organization.

  • It is not decentralized unlike public blockchain; it is just a distributed database. However, all permissions are kept centralized to an organization.
  • This type of blockchain enables an organization to create its own currencies.
  • There will be an in-charge who manages read/write or provides selective access to read or vice versa.
  • Consensus or mining rights are achieved through in-charge.

Main drawback of this kind of blockchain is the beauty of De-centralization, and open protocols get lost.

However, private blockchains have their use case, especially when it comes to scalability and state compliance of data privacy rules and other regulatory issues.

Examples: MONAX, Multichain

Effects:

  • reduces transaction costs and data redundancies
  • replaces legacy systems, simplifying document handling and getting rid of semi manual compliance mechanisms.

Here is a brief overview on private blockchain:

Consortium/Federated Blockchain

This model of Consortium blockchain evolved to remove the sole autonomy of Private blockchains (single party vested interests).

  • The Consortium blockchain is controlled by a group of members. (Group of companies/representative individuals come together and make decisions benefiting the whole network).
  • This is partially a decentralized kind of blockchain.
  • Here, all or some of the members will have read access, but only few will have the write access.
  • They are pre-defined set of nodes where the users have access to write the data or block.
  • Quite faster with additional checks to avoid failures.

Examples: R3 (Banks), EWF (Energy), B3i (Insurance), Corda

Federated/ Consortium Blockchains are faster (higher scalability) and provide more transaction privacy.

They are a compromise between the openness of public blockchain and the closed control of private blockchains.

Here is a brief overview on Consortium/ Federated blockchain

Why use permissioned blockchain?

A permissioned blockchain is similar to a permissionless one except for an additional access control layer. This layer controls who can participate in the consensus mechanism, and who can create transactions or smart contracts.

A permissioned blockchain gives the following advantages:

  • Performance: Excessive redundant computation of permissionless blockchains is avoided. Each node will perform only those computations relevant to its application.
  • Governance: Enables transparent governance within the consortium. Also, innovation and evolution of the network can be easier and faster than in permissionless blockchains.
  • Cost: It’s cost effective since there’s no need to do spam control such as dealing with infinite loops in smart contracts.
  • Security: It has the same level of security as permissionaless blockchains: “non-predictive distribution of power over block creation among nodes unlikely to collude.” In addition, an access control layer is built into the network by design.

Public blockchain vs Private/Federated Blockchain

Sources and further reading

On Public and Private Blockchains, Vitalik Buterin (2015)
Vitalik Buterin: On Public and Private Blockchains, Coindesk
Ok, I need a blockchain, but which one?, Pavel Kravchenko
IBM blockchain explained, Diego Alberto Tamayo
Blockchains What & Why, Gavin Wood

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