Understanding the 4 Types of Blockchain and Their Applications

Marc Kenigsberg, Founder of BitcoinChaser, said it right, blockchain is the tech, and Bitcoin is merely the first mainstream manifestation of its potential. This technology is evolving at a rapid pace, and it's due to the unique functionality it offers in terms of security and speed. The stage we see it at today is just the trailer; as Marc said, we will be witnessing many developments in this field.

Grand View Research has predicted that the blockchain market is going to reach the mark of USD 1,431.54 billion by 2030. Therefore, comprehending its basics, types, and applications becomes paramount.

So, to help you, here's a complete guide on four types of blockchain technology: public, private, consortium, and hybrid. Read further to learn about the types of blockchain networks, their definitions, application, uses, and more.

1. Public Blockchain

Definition and Characteristics:

A public blockchain, the likes of which are open to one and all to partake and affiliate with, is a decentralized blockchain. By this, it means that no one authority commands the system. Instead, the network authenticates transactions, and everyone has the same access to the ledger.

Consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS) are employed in public blockchains to validate transactions.

Applications:

• Cryptocurrencies: The public blockchains form the fundamental infrastructure of numerous digital currencies, including Bitcoin, Ethereum, and Litecoin. Eliminating intermediaries or centralized authorities permits anyone to produce, transfer, and store value.

• Decentralized applications (DApps): Developers can leverage this type to design blockchain applications that operate on a distributed network of nodes rather than depending on a solitary server or platform.

• Smart contracts: Public blockchains also support the creation of programmable agreements that execute automatically based on predetermined rules and conditions. These self-executing contracts can facilitate various transactions and processes, including escrow services, voting systems, and supply chain management.

• Tokenization: Public blockchains can also be used to represent real-world assets or rights, such as stocks, bonds, art, or identity, as digital tokens. These tokens can be traded, exchanged, or verified on the blockchain. The decentralized and secure nature of public blockchains ensures the transparency and integrity of these transactions.

• Decentralized finance (DeFi): Public blockchains enable the development of various financial services and products that operate without intermediaries or centralized institutions. DeFi applications offer users access to open, inclusive, and transparent lending, borrowing, trading, investing, and saving options.

Advantages:

• Transparency: Public blockchain is open and transparent, meaning anyone can access the ledger and verify the data. This reduces the need for intermediaries and increases trust among the participants.

• Security: Public blockchain is immutable, meaning it is impossible to erase or replace recorded data. This prevents data tampering and corruption within the network. Public blockchain also uses cryptographic techniques and consensus mechanisms to ensure the validity and integrity of transactions.

• Empowerment: Public blockchain empowers the users to participate in validating transactions and governance of the network. No central authority or entity can control or censor the network.

Disadvantages:

• Scalability: Public blockchain has a limited capacity and speed of processing transactions. This is because every node in the network has to store and verify every transaction, which consumes a lot of resources and bandwidth.

• Privacy: Public blockchain does not offer much privacy to the users, as their transactions are visible to everyone on the network.

• Regulation: Public blockchain is not regulated by any legal or institutional framework, which may challenge its adoption and integration with existing systems.

2. Private Blockchain

Definition and Characteristics:

A private or permissioned blockchain represents a cryptographic database that functions exclusively within the limits of a restricted environment. Such an environment may include a closed network that isolates the DLT system or a governance structure that vests control over the DLT system in a singular entity with ultimate authority.

Unlike its public counterpart, which thrives on a larger scale, a private blockchain relies on a much more compact ecosystem that embodies the essence of decentralization and peer-to-peer connections.

Applications:

• Supply chain management: Private blockchains can track goods' provenance, quality, and movement across the supply chain and automate contracts and payments between different parties.

• Healthcare: Private blockchains can store and share sensitive medical data, such as patient records, prescriptions, and test results, among authorized healthcare providers and patients while ensuring data integrity and compliance with regulations.

• Banking and finance: Using private blockchains, you can facilitate cross-border payments, trade finance, asset tokenization, and settlement, streamline internal processes, and reduce operational costs and risks.

• Identity management: Private blockchains help to create and verify digital identities for individuals and organizations and to enable secure and transparent access to various services and resources.

• Voting: The conduct of secure and transparent elections can be made possible using a private blockchain. Voters can cast their ballots anonymously and verify the results in real time.

Advantages:

• Highly Scalable: It offers higher scalability and can process more transactions per second than public blockchains.

• Private: Private blockchains provide more privacy and security, as they can restrict who can see and verify the transactions on the network.

• Customizable: Using it, you can have more customization and flexibility, as they can tailor the rules and features of the network to suit their specific needs and goals.

Disadvantages:

• Lacks Decentralization: They need more decentralization, as they depend on a central authority or a consortium of authorities to maintain and govern the network.

• Less Trusted: They reduce trust and transparency, as they can censor or manipulate the transactions on the network without external oversight or accountability.

• Limited Innovation: They limit innovation and interoperability, as they can isolate themselves from other networks and prevent cross-chain communication and collaboration.

3.Consortium Blockchain

Definition and Characteristics

A consortium or federated blockchain is a distributed ledger controlled by a pre-selected group of different types of nodes in blockchain rather than being open to anyone. This grants more expandability, seclusion, and administration than an open blockchain while preserving a certain extent of decentralized assurance.

Consortium blockchains are frequently employed for commercial resolutions that necessitate cooperation among various entities, like supply chain supervision, commerce financing, or healthcare. Some examples of federated blockchains include R3 Corda, Hyperledger Fabric, and Quorum.

Applications:

Supply chain management, healthcare, banking, and finance are common consortium and private blockchain applications. Apart from these three, the other applications are -

• Energy: Consortium blockchain can enable peer-to-peer trading of renewable energy sources, such as solar or wind power, and optimize grid management and demand response.

• Government: Consortium blockchain can improve public service delivery, such as voting, identity verification, land registry, and taxation, by increasing transparency, accountability, and efficiency.

Advantages:

• Speed:Consortium blockchain have fewer nodes to validate transactions, which makes them faster and more efficient. Therefore, this type can be valuable for organizations processing large volumes of data and needing to do it quickly.

• Authority: Federated blockchains can be controlled by multiple organizations with common goals or interests. This can enhance the security and trustworthiness of the network, as no single entity has the power to manipulate or censor it.

• Privacy: This type of blockchains can keep the details of the transactions hidden from the public eye but still allow the participants to access them. This can protect sensitive or confidential information from unauthorized parties.

• Flexible: Consortium blockchains are customizable and can be adapted to suit the needs and preferences of the participants. They can also be more responsive and agile, as decisions can be made faster with fewer stakeholders involved.

Disadvantages:

• Approval: Consortium blockchains require the consensus of all the participants to agree on the rules and protocols of the network. This can limit the innovation and diversity of the system, as any change has to be approved by everyone.

• Transparency: This type of blockchains can be vulnerable to corruption or collusion if the participants are not honest or ethical. They may also hide information from the users or regulators, which can affect the accountability and legitimacy of the network.

• Vulnerability: Federated/consortium blockchains have fewer nodes to secure the network, making them more susceptible to attacks or failures. The whole system may be affected if some nodes are compromised or malfunctioning.

4. Hybrid Blockchain

Definition and Characteristics

Hybrid blockchain technology is an amalgamation of both private and public blockchain components. This ingenious technology empowers organizations to establish a dual system comprising a private and permission-based module intertwined with a public and permissionless one.

This unique setup enables entities to exercise unparalleled control over data accessibility and visibility. They can regulate who can gain entry to certain data stored in the blockchain and which data can be exposed to the public domain. The prime examples of this technology are the XRP token and the Ripple network.

Applications:

The use cases of this technology remain the same as those of others. You can use hybrid blockchain in healthcare, supply chain management, government systems, identity management, and voting.

However, there are some unique platforms for its use, such as -

• Dragonchain: A platform that allows businesses to create and run decentralized applications with different levels of security and consensus.

• Kadena: A scalable and secure blockchain network that combines public and private chains for enterprise use cases.

• Wanchain: A cross-chain interoperability platform that enables the transfer of value and data between different blockchains.

Advantages:

• Flexible Control: It allows selective access to data and transactions, depending on the users' and organizations' needs and preferences.

• Efficient: This technology preserves the benefits of decentralization and trustlessness while enabling faster and cheaper transactions than public blockchains.

• Cross-chain Capability: It enhances the interoperability and compatibility of different blockchains and systems, facilitating cross-chain communication and collaboration.

Disadvantages:

• Technical: It may face technical challenges and trade-offs in balancing the conflicting requirements of public and private blockchains, such as consensus mechanisms, governance models, and network architectures.

• Regulation: Hybrid blockchain may lose some transparency and accountability, as some data and transactions are hidden or encrypted from public view.

Comparison of The 4 Types of Blockchain

Key Differences:

Use Cases:

Limitations:

Conclusion

Therefore, these four types of blockchain - public, private, consortium, and hybrid - each have unique characteristics, use cases, and limitations. There are various advantages of blockchain and disadvantages as well. Therefore, choosing the right type of blockchain depends on the particular needs and goals of the project or application. Ultimately, blockchain technology continues to evolve and mature, offering various possibilities for various industries and use cases.

FAQs

1. What are the main components of blockchain technology?

Blocks, nodes, nonce, hashes, and ledgers are the main components essential for ensuring the security and integrity of the network.

2. How does blockchain ensure security?

The structure of data produced by blockchain technology has inherent security features. It relies on cryptography, decentralization, and consensus principles to establish transaction trust.

3. What are the different types of consensus mechanisms used in blockchain?

There are several consensus mechanisms used in blockchain, including Proof of Work (PoW), Proof of Stake (PoS), Delegated Proof of Stake (DPoS), and Byzantine Fault Tolerance (BFT).