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What different types of blockchains are there?

Blockchain networks explained

Blockchain is a distributed ledger technology that records and verifies transactions and manages assets (both tangible and intangible). Blockchain’s consensus mechanism network infrastructure allows applications to seamlessly access ledger and smart contract services. The opportunities and efficiency that a blockchain network offers are numerous: tracking trade orders, accounts, payments, production and many more. Blockchains rely on a decentralized network of users to validate transactions using algorithmic protocols such as proof-of-work (Bitcoin) or proof-of-stake (Ethereum). Such decentralized approach operating on the blockchain makes transactions consistent, safe, affordable and, most importantly, tamper-proof.

The hype surrounding the first-generation blockchain technology cryptocurrency Bitcoin encouraged many enterprises to move their blockchain into production as supply chain accountability and middleware developed swiftly. There are four types of blockchain networks: public blockchains, private blockchains, consortium blockchains and hybrid blockchains. They can be characterized as permissionless, permissioned, or both. Depending on the type of project, the appropriate blockchain network should be precisely chosen, as not all types of blockchains are useful for the same function.

Permissionless vs. Permissioned Blockchains

The blockchain network functions by validating nodes. In a permissionless blockchain network, the nodes are not restricted and any user can join this network. Conversely, permissioned blockchains restrict access to the network for certain nodes and may also restrict the rights of those nodes on that network. The user identity is known to all contributors of the permissioned blockchain.

When comparing the safety of the permissionless and permissioned blockchains, we can conclude that permissionless blockchains require more nodes to validate transactions, making it more difficult for bad actors to collude on the network. However, this extra safety comes at a cost because transaction processing times increase significantly due to the large number of both nodes and transactions.

Types of Blockchains

There are four types of blockchain network structures:

Public Blockchain Network

Public blockchains are permissionless in nature and allow all nodes on the blockchain to have equal rights to access the blockchain, create new blocks of data, and validate blocks of data. They are most commonly used to mine crypto such as Bitcoin, Ethereum, Litecoin and many other. By solving cryptographic equations with significant computing power for the transactions requested, the nodes “mine” cryptocurrency, creating blocks on the blockchain. For their work, the miner nodes earn a small portion of the cryptocurrency, acting like a new era bank tellers that formulate a transaction and receive (or “mine”) a fee for their efforts.

Private Blockchain Network

Private blockchains are permissioned in nature and are controlled by a single central authority. The organization determines who can be a node and what rights they posses. They are partially decentralized as public access is restricted. Some examples of private blockchains are the business-to-business virtual currency exchange network Ripple and Hyperledger, an umbrella project of open-source blockchain applications.

Consortium Blockchain Network

Consortium Blockchains are permissioned blockchains operated by a collection of organizations enjoying more decentralization than private blockchains, resulting in higher levels of security. Unfortunately the cooperation between multiple stakeholders has its issues in regards to logistical challenges as well antitrust risks. Furthermore, all members of a consortium may not have the same level of technology infrastructure and upfront cost capabilities to implement blockchain tools across the supply chain.

Consortium blockchains are a challenge to achieve, however many have overcome that challenge, such as enterprise software firm R3. CargoSmart, a supply chain organization has successfully developed the Global Shipping Business Network Consortium. The not-for-profit blockchain consortium aims to increase digitization in the shipping and maritime industry, allowing them to work more collaboratively.

Hybrid Blockchain Network

As the name suggests, hybrid blockchain systems are a mixture of two worlds, incorporating the oversight performed by the public blockchain required to perform certain transaction validations while being controlled by a single organization. An example of a hybrid blockchain is IBM Food Trust, developed to improve the whole food supply chain efficiency.

Concerns surrounding blockchain technology

Despite the numerous benefits of blockchain tech, there are significant questions regarding the stability of the ecology of network participants in the consensus algorithm and the vulnerability to hacker attacks and centralized control. Furthermore, there is the Blockchain Trilemma — balancing and maximizing scalability, decentralization, and security in one network — which fuels the arguments of many critics. Another issue surrounding Blockchain and digital assets is the large consumption of energy to operate the network and the complexity around the technology.

However, the quick rise of cryptocurrencies on a global scale has fueled blockchain technology’s integration into business and our daily lives. Blockchain use cases are increasing across a variety of sectors of the economy and more people are becoming aware of the utility and benefits that blockchain-based goods and services may provide in their everyday lives. The infrastructure for Web3 is currently being constructed at an astonishing speed and, with it, the development blockchain technology itself is being fast-tracked.

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