3 Main Types Of Blockchains You Need To Know
Why Were Different Blockchain Types Created?
There is no doubt that blockchain is a cutting-edge discovery implicated in the world’s greatest innovations. Different types of blockchains give us new opportunities in the digital world that are easy and secure to interact with. This network was introduced alongside Bitcoin, the most well-known cryptocurrency in the world. Bitcoin protocol is a peer-to-peer digital cash system that enables people to create transactions without involving middlemen or increasing high-performance fees. Nathaniel Popper called Bitcoin “digital gold” in his book of the same name that investigates the phenomena of this cryptocurrency.
Img Nathaniel Popper commenting on the Bitcoin network
Blockchain technology supports digital interactions that do not require third-party involvement. Digital ledger technology is a combination of cryptography and computation that records all types of financial transactions in addition to all other valuable information: for example, goods, property, work, votes, etc. The data can be stored in all possible formats. This record should be verified with public-key cryptography, and the system of records should require its own scheme.
Lots of ICO projects are launched on the blockchain network, which can successfully help to create new tokens and raise funds for your business. You can investigate how much it costs to do an ICO with Applicature.
Can blockchain become a global, decentralized source of trust? The answer is yes, as cryptography forces blockchain to perform as a strong digital ledger. Participants interact with the network, confirming their identity with cryptographic keys. As a distributed ledger, blockchain is revolutionizing the way data is stored, and manages the system of records in a decentralized way.
Safety is guaranteed by its encryption technology. The key principle is the possession of a private key that proves your ownership of your digital assets. You do not have to share your personal information to gain access — you simply open your wallet with the private key for your keystore file.
Let’s investigate the main types of blockchain and find out all the pros and cons.
Private vs. Public Blockchain Types
The implications of the main types of distributed ledger networks, public and private, can be different at varying stages. However, the principle of work remains the same, and fulfills all user needs requiring a peer-to-peer market. The main distinction lies in membership: it can be for selected people, or for anyone in the network.
Img Private vs. public blockchain types
Distributed ledger technologies are built either on permissions, or without them. In the permissioned blockchain definition, members of the consortium are verified to interact with the network.
In contrast, permissionless blockchain allows anyone to participate in the network. Bitcoin and Ethereum blockchains are both permissionless, as anyone can become a participant. The public blockchain can be permissioned or permissionless, as well.
Img Permissioned and permissionless types of blockchains
An Optimal Solution: Public Blockchain
The distributed nature of public blockchain makes it more secure and transparent. The most prominent examples are blockchain protocols based on Proof of Work (PoW), in which each node in the network has to solve a cryptographic problem in order to sync with the network. The network starts as decentralized, but operates as distributed. This difference is illustrated in the following example:
Img The difference between distributed, centralized, and decentralized blockchains
The public blockchain is an open network. It lets anyone use the network, execute transactions, and maintain a ledger. The largest networks in production are Bitcoin, Ethereum, Litecoin, and Dash.
The advent of blockchain technology and the implementation of smart contracts relieves us of lengthy financial procedures, verifying our identity, or signing a lot of paperwork.
Benefits of Using the Public Blockchain for Data Management
- solves efficiency, security, and fraud problems
- democratic mechanism of consensus
- no permission needed
- anyone can generate a transaction and verify it
- anyone can keep track of the transaction
- preserves the anonymity of the sender
- no costs for using it for the development of a decentralized application (dApp)
Disadvantages of the Public Blockchain
- reduced efficiency
- a substantial amount of computational power is required to maintain a distributed ledger
- no privacy for transactions
- limited block size
Private Blockchain: Use Cases
Public blockchain can be compared with the intranet, in which all the members are verified and use is limited to one organization.
Because the paperwork of an organization is stored centrally in one place or network, this type of server is prone to hacks and violations. In this case, blockchain is the high-level solution to optimize business management. Access is limited, and data is encrypted within the company, keeping your business safe.
To demonstrate, MONAX is a software platform developed on the private blockchain. It supports blockchain services, smart-contract development, EVM contract implementation, etc. Another example, MultiChain, allows you to build high-performance blockchain applications.
Upgrade Your Business by Implementing the Private Blockchain
Here are the main pros of using private blockchain for your business or startup:
- higher scalability
- permission is required
- transactions are verified internally by an assigned group of users
- only permissioned users can keep track of the transaction
- management is internal, within a single company
Private Blockchain Can Harm Your Business
- security depends upon the entities validating the transactions
- as the number of participants in a private network will probably be lower than in a public network, the risk of successful attack is higher, as well
- can be viewed as a centralized system
Each type of business requires different services and implementations. Obviously, this pushes us to create new types of blockchain technology, and in the near future, there will be a variety from which to choose. Let’s take an in-depth look at the consortium type of distributed ledger network.
Synthesis: The Consortium Blockchain
A semi-private blockchain type — the consortium blockchain — is run by a predetermined group, not a single entity. This means that the nodes for the consensus process can be selected in advance. The consortium blockchain guarantees privacy for transactions just as well as the private blockchain. The most suitable use case for this blockchain type is a consortium of financial institutions that sign blocks, validating transactions to operate the nodes.
Vitalik Buterin, a co-founder of Ethereum, explains the consortium blockchain in the following way:
Img Vitalik Buterin explains consortium blockchain type
The implementation of the blockchain network in production is intense, and more businesses are concentrating on the efficiency of business management as well as transparency. The options they choose among different types of distributed ledger networks are based upon business requirements.
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