Are you curious about the differences between different types of blockchains? Do you have to choose between federated, public, and private blockchains? This article will provide an overview of blockchain technology and an in-depth analysis of various blockchains. Let's get started.
Introduction to Blockchain Technology
Blockchain employs peer-to-peer topology, which allows data to be stored on millions of servers worldwide. Blockchain can alternatively be called P2P or decentralized, distributed ledger tech. In contrast to traditional banks, which rely on intermediaries, it does not involve any central authority or third-party intermediaries. Because it provides greater security, transparency, and immutability, Blockchain is the technology that is currently receiving the most attention. Because of its potential to transform the way businesses and industries work, blockchain experts and blockchain developers are embracing it. Let's now, without further delay, get to know the different types of blockchains.
Blockchain is a network of computers that maintains a digital ledger that records transactions. It is challenging to hack or change. Blockchain technology enables direct communication between people, eliminating the need for middlemen like banks, governments, or other third parties.
A block is a list of records that are linked via encryption. Using a peer-to-peer computer network, each transaction is independently validated. Before it is recorded in the ledger, it is time-stamped. The info can't be modified once it is recorded.
Blockchain technology is becoming increasingly popular due to the increasing use of Bitcoin, Ethereum, and other cryptocurrencies. Medical records, legal contracts, property sales, and any other industry requiring authorization and recording a string of transactions could benefit from its use.
Blockchain Example: Bitcoin
Let's take the Bitcoin system as an example. Here's how Blockchain, also known as distributed ledger technology, works.
- Bitcoin transactions, such as the purchase and sale of bitcoins, are entered into and sent to a network of powerful computers known as nodes.
- A global network of tens of thousands of nodes competes to use computer algorithms to validate transactions. This is called Bitcoin mining. The first miner to successfully finish a block of Bitcoin receives Bitcoin in exchange for their work. These rewards are passed on to the buyer or seller and consist of freshly created Bitcoin and network fees. The fees may vary depending on the number of transactions.
- Once the purchase has been cryptographically verified, the transaction is added to a block in the distributed ledger. The majority of the network must confirm the sale.
- The transaction is completed by the block being permanently chained to all other blocks of Bitcoin transactions using a cryptographic fingerprint called a hash.
Blockchain technology was first discussed in an academic paper. The architecture of a distributed computer network that can be created and maintained by unethical groups was discussed in this dissertation. Still, Bitcoin, a Peer-to-Peer Electronic Payment System, put the academic theory into practice.
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Pros of Blockchain
These are the pros and cons of blockchain technology when it is applied to cryptocurrency:
Decentralization
The Federal Reserve issues the U.S. Dollar, but no government agency controls Bitcoin or other cryptocurrencies. Hence, no government or organization has the authority to determine the future of a public Blockchain. Cost is reduced by eliminating intermediaries. Third-party transaction fees are also eliminated. The effectiveness of Blockchain is also seen in how quickly it processes data. The Blockchain is independent of banks or other middlemen and is open for business 24 hours a day, 365 days a year.
Transparency and Anonymity
All transactions made on the Bitcoin blockchain network are recorded on all computers. Transparency is assured because transactions are transparent. The cryptocurrency wallets' addresses and transaction histories are accessible to everyone. The proprietors of the wallets linked to these public addresses' names are unknown, though.
Security and Accuracy
The transaction is less likely to involve human interaction and therefore has a lower chance of error. The majority of network nodes must confirm each transaction. This makes it impossible to alter or manipulate information. It also prohibits you from spending Bitcoins more than once.
Blockchain Applications for Public and Private Use
Blockchain technology can create efficiencies that go beyond digital currencies. The sector has seen developers create complex products and games that decentralize finance (DeFi) and digital collectibles called NFTs.
Bitcoin and other prominent cryptocurrencies (sometimes termed altcoins) are available on public blockchain networks. It follows that anyone can participate. Private blockchain networks, however, can be used to develop various corporate applications. Organizations can manage who joins.
- Blockchain Supply Chain: Blockchain Companies already offer private network solutions that use blockchain technology to track product supply chains more precisely. Companies can use the technology to determine where recalled food products were shipped and sold quickly.
- Health Care Records: A nationwide blockchain network for electronic medical records, according to consulting, could "improve efficiency and support better outcomes for patients."
- Smart Contracts: Blockchain technology allows contract terms to be automatically modified or updated when predetermined conditions are met.
- Digital Elections: Developers are developing blockchain technology that can be used to conduct elections.
- Property Transactions: Blockchain technology is being promoted to sell various assets, including real estate and autos or investment portfolios.
Are you ready to invest? These are our top picks for the best Bitcoin and cryptocurrency exchanges.
Opportunities for the Underbanked
Blockchain protocol cryptocurrencies allow cash transfer and hold in countries and regions with poor or corrupt financial institutions.
Cons of Blockchain
Criminals like Crypto
Criminal enterprises were among the first to adopt Bitcoin, as with many new technologies. They use Bitcoin to pay for privacy and also to scam Bitcoin holders. Silk Road was an online black market for illicit drugs that the FBI shut down. Silk Road's customers used Bitcoin to buy illegal drugs. A Pipeline was the victim of a ransomware attack that resulted in the payment of $4.4 million in cryptocurrency. Bitcoin investment scams have risen in parallel to their historic rise.
Blockchain Cryptocurrencies can be Volatile
Many people ask, "Is Blockchain a good investment?" Your risk tolerance and investing goals will determine this. Cryptocurrency became extremely popular. Bitcoin hit a record-breaking spot price of almost $65,000. However, Bitcoin's and other cryptocurrencies' prices have fallen by over half. Stablecoins, crypto projects that are also known as stablecoins, have attempted to address this problem by creating mechanisms to link digital assets to the dollar and other fiat currencies.
Cryptocurrency is Still a Niche Use
Businesses now accept Bitcoin, like PayPal and Microsoft, as well as many other exchanges, brokers, and payment apps. Blockchain-based transactions, like those involving Bitcoin, are still the exception rather than the rule. Users must also pay capital gains tax on Bitcoin sales made for cash app purchases through PayPal and other similar services. In addition, the product may be subject to any applicable local, state, or federal taxes.
Bitcoin Mining Requires Energy
Bitcoin mining requires an extensive network of high-speed computers, which consumes much electricity. According to the reports, Bitcoin's proof of work system would be the 34th largest electricity consumer. It would follow Pakistan and Kazakhstan. Other blockchain developers have developed less energy-intensive options. One such option is "proof of stake," which replaces crypto mining with crypto staking.
Bitcoin is Slow
A Bitcoin blockchain can execute seven transactions per second. A credit card company, Visa, claims it can process approximately 24,000 transactions per second. This raises a scaling difficulty for the Bitcoin system. This problem is being addressed by alternative blockchain-based cryptocurrencies, such as Ethereum, which has recently completed the Ethereum merger.
Blockchain Technology's Future
Although the Bitcoin system is perhaps the most well-known example of blockchain technology, many other cryptocurrencies are built on top of it. Although it is not clear if Bitcoin will be able to replace traditional forms of payment, blockchain technology applications are rapidly growing. They may bring about significant changes in industries.
Read More: Public vs Private Blockchain For Businesses Based on Today's Scenario
Different Types of Blockchains
Based on their use and requirements, there are three types of Blockchain: public, private, and consortium, also known as federated. Each blockchain network has a distinct function and addresses a particular problem. Nonetheless, each one has its set qualities and advantages. Let's start with the public Blockchain, the most well-known type of Blockchain.
Public Blockchain
Everyone can participate and receive a reward for their contributions to a public blockchain. Everyone can join and participate in a public Blockchain network because it is available. The incentive mechanism is frequently used to attract people to the network. Today's most widely used public blockchain network is bitcoin.
One drawback of a public blockchain is that it takes a lot of processing power to run a distributed ledger at a large scale. To obtain consensus, each node within a network must solve a challenging, resource-intensive cryptographic challenge known as proof of work (PoW). This is done to guarantee that everyone is on the right page.
A public blockchain has another problem: it is open, which means transactions are not private and support only a basic idea of security.
The Blockchain is a distributed ledger system that is permissionless and non-restrictive. Anyone can join the network and become part of it. This Blockchain can be used for mining and exchanging cryptocurrency. It also maintains trust between the users, as everyone feels incentivized and encouraged to contribute to improving the network. Bitcoin is the first such Blockchain. It allowed everyone to make transactions. Examples of public blockchains include Ethereum and Bitcoin.
Merits:
- Transparent and trustworthy.
- No intermediaries.
- Secured.
Demerits:
- Scalability issues.
- Transaction speed is not good.
- It consumes a lot of energy.
How does a Public Blockchain Work?
Anyone can join the open blockchain network at any moment. A Blockchain Platform allows anyone to sign up as an Approved Node. Public blockchains are non-restrictive and, therefore, permissionless. This person has access to both previous and present data. They are also capable of mining activities. These are complex calculations that verify transactions and add them to the ledger.
There is no method to change any transaction or record on the network. As the source code is frequently available, anyone can audit the transactions and spot mistakes. To interact with the open Blockchain, each participant must set up an account. They next attach it to a node. It can be compared to a bank account that enables money transfers. Software is what makes up wallets that store accounts.
Consensus is used to decide whether to add a transaction on a public blockchain to the chain. The consensus means that most of the "nodes" or computers within the network must approve all transactions. The people who control the machines within the network get rewarded for confirming transactions. This procedure is called "Proof of Work (PoW)."
Private Blockchain
Private blockchains, permissioned environments, restrict who can see the chain and what they can write. As opposed to open, liberal blockchains, this. Therefore, these systems have a clear power hierarchy and are not decentralized. They are nonetheless distributed as several nodes keep copies of the chain on their workstations.
A private network cannot be created without an invitation. The network creator or the network starter must accept this. Businesses often create private blockchains on a permissioned network. This limits the kind of transactions that are permitted as well as who can use the network. Participants need first to acquire an invitation or authorization.
Existing participants could select potential entrants. A regulatory authority or consortium could issue participation licenses. The Blockchain will be maintained in a decentralized manner once a company has joined the network. This permissioned blockchain paradigm offers users access to more than 30 years of technical material and potentially delivers considerable benefits.
Suppose a company seeks to take advantage of Blockchain's benefits without publicizing its network. In that case, private chains will be more suitable for enterprise environments. Private blockchains can be used to facilitate secure data exchanges between healthcare providers and patients, as well as to deal with supply chain issues. The Hyperledger Fabric from the is a fantastic illustration of a private Blockchain.
The disputed claim that private blockchains aren't true blockchains is one of their drawbacks. This is true even though the fundamental tenet of Blockchain is decentralization. A private blockchain makes it more challenging to produce accurate information since centralized nodes determine what is legitimate. A low node count might also suggest lessened security. If a few of the nodes are not performing as expected, it can cause substantial damage to the consensus system.
A private blockchain, unlike the public, is a permission- and restrictively-controlled Blockchain that works in a closed network. This type of Blockchain is most commonly used in an organization that has only a few members participating in a blockchain network. This is the best option for businesses and enterprises that only use Blockchain internally. The main difference between the two blockchains is that public information is easily accessible. In contrast, private information is restricted to a specific group of people.
Because only one entity is responsible for maintaining a private blockchain, it is more centralized. Private blockchain source code is frequently closed and proprietary. Users cannot independently verify or check it, which can result in a loss of security. Anonymity is not possible on a private blockchain.
Merits:
- TPS is a higher transaction per second.
- Highly scalable.
Demerits:
- Public blockchains are less secure than private ones.
- Less decentralized.
- It is not easy to gain trust.
How does a Private Blockchain Work?
Private blockchains are a type of blockchain technology where a single entity manages the network. The network is shared by the consortium of organizations using a private permissioned Blockchain. The network administrator can set up roles and permissions for users and nodes, allowing them to participate, read, and write to the ledger. It also determines how the nodes are distributed throughout the network.
The steps involved in creating a private blockchain network:
- Users' rights are not the same as those who are part of the network. They are determined by the role they play in the consortium.
- Only authorized users can access different types of data.
- The regulations of the network participants determine the method of access.
What's the Difference Between Public and Private Blockchains?
A blockchain was designed to secure the intermediary in every asset trade scenario. Private blockchains allow the intermediary to re-enter the picture. Anybody can join a public blockchain by uploading data and verifying it. Approved entities can only control private blockchains. Examples of public blockchains include Ethereum and Bitcoin. A public blockchain is decentralized and more secure than a private or centralized one. Public blockchains are less transaction-intensive than private ones. Private blockchains may process hundreds or even thousands of transactions per second due to the smaller number of authorized users.
Because it allows for active involvement and decentralization, a public network is safer. The increased number of nodes makes it extremely difficult for "bad actors" to attack the system and take over the consensus network. A private blockchain is more vulnerable to hacks, hazards, and data breaches/manipulation than a public blockchain. Bad actors can quickly put the entire network at stake.
A public blockchain requires more electricity to operate and reach consensus. Public blockchains consume a lot more electricity and energy than private blockchains. A private blockchain makes it impossible to have minor collisions. Each validator has been identified and can join the network with the required credentials. There is a possibility of cooperation and 51% attacks if no one knows the identity of each validator in a public Blockchain.
Is Bitcoin a Public Blockchain or a Private One?
Because it was built with open-source computing codes, Bitcoin is a public blockchain anyone can see and use. Private blockchains don't allow anonymity. However, the Bitcoin blockchain allows for anonymity. For example, anyone can buy and trade Bitcoins without revealing their identity. It ensures everyone is treated equally.
Bitcoin's decentralized structure allows transactions to be transparently watched using a personal node or blockchain explorers. This allows anyone to see transactions as they occur in real-time.
Each node keeps its copy of the chain. This is updated every time new blocks are confirmed. You can follow Bitcoin wherever it goes if you want to.
Consortium Blockchain
Combining both private and public blockchains creates a consortium blockchain. By combining components of both private and public chains, the consortium blockchain blurs the distinction between them. Unanimity is the most notable difference between the two systems. A consortium chain uses a limited number of equally powerful validators to replace an open system that allows anyone to validate blocks.
A consortium blockchain is most beneficial if several companies are in the same industry. Two examples of consortium blockchains are Quorum and Corda.
Compared to a public blockchain network, a consortium blockchain is more effective, scalable, and secure. Similar to a private blockchain, a consortium blockchain also provides access controls. A consortium blockchain, however, is less transparent. Nonetheless, it can still be hacked if a member node has been compromised. The Blockchain's rules may also make the network unworkable.
Organizations that need public and private blockchains are best suited for consortium blockchains, sometimes called federated or centralized blockchains. For auditing, reading, writing, and writing the Blockchain, this kind has more than one central administrator or more than one organization with access to specific nodes. Because there isn't a single organization in charge of controlling everything, it is decentralized.
Merits:
- Ideal for collaboration within an organization.
- Scalability and security.
- Public blockchains are more efficient than private ones.
- More incredible customizability and better control of resources.
Demerits:
- Transparency is less important.
- Blockchains are less anonymous than other ones.
What is the Working Principle of a Consortium Blockchain?
The consortium blockchain network is a platform that many organizations manage. Newcomers could join a consortium to assist in managing the shared structure and data rather than beginning from scratch. By cooperating to address problems, businesses can also save time and money.
The coordination of actions and sharing of expertise help to avoid duplication. This allows varied subjects to share their obligations rather than repeat efforts.
A blockchain with a consortium has fewer users. It guarantees good performance and minimal latency because voting is frequently used as the basis for the system. Each node can read and write transactions. But no node alone can add a block. Each node (or a supermajority) must confirm an addition before it can be added. The block cannot be added if this rule is broken.
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Conclusion
It isn't easy to declare one Blockchain to be superior to another. Each Blockchain has its advantages, purposes, and requirements. If you want to take part in any public blockchain, you should be able to comprehend its specifics. Your company blockchain can be developed and implemented using a private blockchain. The consortium blockchain is likely to interest corporations and groups seeking to streamline their communication.
Be sure to consider your business needs and the features each Blockchain offers before choosing the perfect one. This article will provide you with instant updates on Blockchain Technology.