What Are the Different Types of Blockchain? Why Do We Need Them?

Blockchain technology has disrupted various industries in recent years. Owing to its efficiency and ease of use, it only takes a few seconds to complete complex processes such as transfer of funds. With the help of blockchain, money can be easily sent and received globally without incurring hefty transaction charges.

So, what is blockchain technology? In layman terms, it’s a type of database in which the data records cannot be changed once executed and are managed by a cluster of computers instead of a single entity. Blockchain works on strict cryptographic principles, which makes it very safe and secure as compared to existing alternatives. If you are a newbie in the domain, or you want to upscale your business requirements then an in-depth knowledge of blockchain will help you gain that much required edge.

Blockchain is a type of Distributed Ledger Technology (DLT) where transactions with an immutable cryptographic signature are registered. DLT, spanning multiple nodes, is a decentralized database operated by multiple participants.

Why Do We Need Different Types of Blockchain?

Due to its adaptability and ease of use, various industries have started incorporating blockchain technology in their systems. And as each industry functions in its own unique manner, different types of blockchain have evolved. It was the need to match the dynamic needs of various sectors which led to the introduction of different types of blockchain.

What Is Decentralization in Blockchain?

Decentralization is one of the pillars of blockchain technology. In a decentralized network, every participating node is an independent one. Instead of following the instructions of a central authority, decentralized nodes connect with each other while maintaining their sovereignty. This helps to secure the network.

In the domain of blockchain, there have been persistent debates about centralization and decentralization. Many industries still follow the centralized technology as it has been in existence for a very long time. Blockchain technology can make the concept of centralization a thing of the past.

What Is Centralization?

Centralization is when a central authority controls the data and functions of the network. Social media platforms like Facebook and YouTube work on a centralized system. Your information is stored on these centralized systems with your consent.

The advantages of centralization are reduced costs, quick decision implementation, and making changes in the network.

However, centralization also has its own set of drawbacks:

• Security: As the data is stored on a centralized database, even the slightest security lapse can lead to an information breach.
• Vulnerable to a system failure: The major disadvantage of a centralized network is that it is dependent on a single point of failure. Organizations have taken many measures to deal with this lapse, but the threat of an entire system collapse is always prevalent.
• Scalability: As there is only a single server which is used, it leads to scalability issues.

Centralization vs. Decentralization

Different Types of Blockchain

A blockchain can be classified as:

Public Blockchain

True to its name, a public blockchain is open to access publicly and has no restrictions in terms of the validator or participants. As no entity has complete control over the network and a single person cannot manipulate the blockchain, it makes the data secure and immutable.

Public blockchains are fully distributed as the authority is equally divided among each node in the network. Cryptocurrencies like Bitcoin, Ethereum, and Litecoin use public blockchains.

Advantages of Public Blockchains

• • It is open to anyone to join.
  • It establishes trust among the network of users.
  • It requires no intermediaries.
  • It is secure and transparent.

Disadvantages of Public Blockchain

• • Slow transaction speed.
  • There is a scalability issue as the more nodes get added, the more the network slows down.

Public Blockchain Examples

• • Voting: The process of voting can become very easy, transparent, and trustworthy through public blockchain.
  • Fundraising: Many companies are making use of public blockchain for their crowdfunding activities as it is secure and transparent.

Private Blockchain

A private blockchain, as the name suggests, is a restrictive system which cannot be accessed by everyone freely. Also known as a permissioned blockchain, only pre-approved entities have permission to access it. The respective authorities choose these entities, who are then granted permission by the blockchain developers while building the application.

The network administrator undertakes the responsibility of giving permission to new users or to revoke permission from an existing user. Private organizations use this type of blockchain to store sensitive data which is accessible to only certain people in the organization.

Advantages of Private Blockchain

• • They are fast and more scalable.

Disadvantages of Private Blockchain

• • They are not completely decentralized.
  • There is a trust issue as the centralized nodes take the final call.
  • The security isn’t very good as there are only a few nodes in the network.

Private Blockchain Examples

• • Supply chain management: A private blockchain is very useful in the management of the supply chain of organizations.
  • Tracking of assets: The ownership of assets can be easily tracked and verified with the help of a private blockchain.

Consortium Blockchain

It is a semi-decentralized type of network where more than one entity operates. In this type of blockchain, many entities may access the network or share information. A consortium blockchain is commonly used by banks, government institutions, and similar organizations.

Advantages of Consortium Blockchain

• • Better customizability and control over resources.
  • They are more secure and have more scalability.
  • It is more efficient as compared to public blockchain.
  • Functions properly with well-defined governance structures.

Disadvantages of Consortium Blockchain

• • It is not very transparent.
  • It is less anonymous as compared to other types of blockchain.

Consortium Blockchain Examples

• • Banking: A consortium blockchain makes it convenient for a group of banks to work together and decide the nodes to validate transactions.
  • Research Data: Here, we use blockchain to store, analyze, and share research data with its associated results.

Hybrid Blockchain

A hybrid blockchain incorporates both private and public blockchain characteristics. It is a very versatile type of node where, according to the individual’s preference, data can be kept open or discreet.

Advantages of Hybrid Blockchain

• • Works without the need to make it public in a closed ecosystem.
  • Depending on the needs, laws may be modified.
  • Hybrid networks are less vulnerable to 51%
  • They ensure anonymity while still linked with a public network.
  • Compared to the public network, it provides strong scalability.

Disadvantages of Hybrid Blockchain

• • Not entirely transparent.
  • It can be a challenge to upgrade to the hybrid blockchain.
  • There is no opportunity to participate in the network and/or to contribute.

Hybrid Blockchain Examples

• • Supply chains can benefit immensely from hybrid blockchains. Since the supply chain is massive, hybridity is necessary for them to go hybrid. It has already been adopted by several supply chain logistics firms.
  • The IBM food trust is one major example that uses a hybrid blockchain in the supply chain.

Every blockchain has its own properties and has something unique to offer. Depending upon the industry’s requirement, the appropriate type of blockchain can be used.

Comparison Between the Different Types of Blockchain

In a nutshell, these are the features of the different types of blockchain.

Further, let’s look into hybrid and consortium blockchain.

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