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Blockchain 101

What are the types of blockchain?

Various cryptocurrencies

During the last few articles from our Blockchain 101 series, we have established, what the blockchain is, how it works, what are the Smart Contracts and dApps. In this article, you will learn what are the different types of blockchain types. What is more, we’ll try to explain some of the pros and cons of each type. Today, we can distinguish three types of blockchain types – public, private and a consortium blockchain.

This article will provide you with the general information on what are the types of blockchains and allow you to easily distinguish between those three types. Also should provide you with general understanding what are the advantages, disadvantages and the use of those blockchains.

 

Public Blockchain

The first and the most common type is public blockchain launched under the name of Bitcoin in 2009. The idea driving the Bitcoin project was to design a transactional system which will allow peer-to-peer asset exchange, cutting out the middle-man (central authority). At the same time, ensure every participating node have the same set of data. Therefore is able to validate transaction before it gets submitted to the system and replicated across the whole network. What is more, everyone should be able to participate in the network by setting up own node as well as self-manage the assets (coins) by having direct access to own wallet.

While gaining popularity, Public blockchains started to form a large distributed network of computers running the Bitcoin software, consequently strengthening and securing the complete system gradually. Furthermore, there has been quite a lot of controversy around the bitcoin and other public blockchains due to the fact it provides a relatively high degree of pseudo-anonymity there is no control over the exchange of assets. Later, those can be used to fund malicious activities.

Definition

The public blockchain is a peer-to-peer network of computer systems, operating opensource software which allows any user to exchange assets without 3rd party involvement in a secure manner throughout the internet.

Public blockchain pros and cons

ProsCons
Open sourceExpensive
TransparentSlow
AccessibleLack of control
Highly distributedUnverifiable data
Almost anonymous
Secure

 

Private blockchain

After reading this paragraph, you probably will come up with a number of other use cases where public blockchain would not serve the purpose but we’ll rather concentrate on why those chains do not fit in.

As you probably know already, public blockchains allow anyone to become part of the network, have a local replica of the entire network data and does not require to validate your identity. Private or public institutions willing to use the blockchain technology would always look from the perspective of data accuracy and privacy. Although public blockchains provide extremely high redundancy, there is no control over who submits what data to the network. Therefore, implementing or moving some of the internal operations on to the blockchain would not be possible without having this control. In private blockchains, institutions have more granular access control over who submits what data.

Furthermore, with the rise of global corporations, there is a need for internal financial operations including budgets and/or recharges. There are no institutions which would like to provide all their financial data to the open world as it may have a disastrous impact on their operations. Also, the modern world relies completely on data, therefore to win in today’s markets it’s important to know your competition well. By implementing private blockchain, institutions are able to gain all of the advantages of modern technology, while ensuring the data is accurate, secure and remains hidden from the general public and competition.

Definition

The private blockchain is a peer-to-peer network of computer systems operating software which allows authorized users (participants) to exchange assets without 3rd party involvement in a secure and verifiable manner inside a private network.

Private blockchain pros and cons

ProsCons
PrivacyLimited growth
GovernanceLack of transparency
Data accuracyLimited use
High speedLack of anonymity
Lower costs

 

 

Consortium blockchains

These type of blockchains are partially private and there is a thin distinction between Private and Consortium blockchains but one does not exclude the other. Private blockchains are single entity managed with full authority to upgrades, innovation and access control like a company. In contrast, Public blockchains are those where there is no single entity controlling the network and the authority is distributed among all of the network participants like Bitcoin, Ethereum and others. Consortium blockchains are those which inherit some of the attributes of both Public and Private blockchains. The authority is distributed among the verified participants who are granted permission to join the consortium based on the predefined set of requirements. In effect, providing relatively, wide distribution, governance, access control data verifiability.

As an example, we would use the United Nations voting system. Each UN member would be given the ability to host a node, therefore, have the ability to vote. The consortium blockchain setup could either run in the open internet or inside the private UN network though, the authority is split among all of the UN members, at the same time it would form globally distributed system.

Definition

The consortium blockchain is a peer-to-peer network of computer systems operating software which allows authorized users (participants) to exchange assets without 3rd party involvement over the public or private networks.

Consortium blockchain pros and cons

 ProsCons
GovernanceInaccesible
Semi-transparentSemi-anonymous
Distributed
Secure
Semi-anonymous

 

Summarizing, it does not matter which type of blockchain is used, as long as it serves the purpose. About 80% of the companies interviewed by PwC have their hands on blockchain technology and continuously try to experiment. Probably all of the types of those blockchains, Public, Private and Consortium will find its use. Remember, it all started with Satoshi Nakamoto’s Bitcoin in 2009 but where will it end or will innovation end? Let’s wait and see.

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