Crypto Guide: What are the Different Types of Blockchains
Blockchain is a secure database or a data ledger shared securely across a network of participants. It's the primary technology underlying most cryptocurrencies, including Bitcoin, Ethereum, and Solana, and it helps promote safe, secure, and transparent payments and other transactions online. Public, private, permission, and consortium chains are currently popular.
Cryptocurrency is one of the past decade's major tech (and financial) stories. Bitcoin, together with Ethereum and other altcoins, is changing the online payments landscape by creating a decentralized platform that's both fair and transparent. The developers behind these crypto projects have advanced their use cases and applications in recent years, covering more industries. In discussing the nature and potential use cases of cryptocurrencies, it's difficult to mention the role of blockchain.
It seems that everyone's talking about this technology, making it familiar and accessible to the general public. But beneath the noise and excitement, there's not always a clear understanding of blockchain, its workings, and its types. If you're new to crypto and blockchain technology or want to learn more, read on.
To say that blockchain is revolutionary is perhaps an understatement. Experts say it's the future of record-keeping systems, reshaping how we complete online payments. The idea behind blockchain started more than 15 years ago, with the creation of an online cash currency, Bitcoin, by a team of developers under the pseudonym Satoshi Nakamoto. However, before the publication of Bitcoin's white paper, there were earlier mentions of the technology through several projects. For example, in 1991, Stuart Haber and W Scott Stornetta described a cryptographically secured chain of blocks.
In 1998, computer scientist Nick Szabo explored 'bit gold, ' a decentralized digital currency. Two years later, Stefan Konst introduced his theory of cryptographically secured chains and recommendations for its implementation. However, in 2008, when developers under the pseudonym Satoshi Nakamoto introduced Bitcoin, the blockchain started to gain mainstream acceptance.
As a technology, the blockchain enables the secure sharing of data stored in a database. All transactions are recorded in a ledger or distributed database, which means the power to update and track the blockchain is distributed between the nodes or participants of a private or public computer network.
We call this the distributed ledger technology and nodes are incentivized with digital tokens to update the blockchain. For this reason, Bitcoin has its BTC, and Ethereum has its ETH,, which serves as a token that incentivizes the activities that support the blockchain.
Three central attributes of a blockchain
A blockchain, regardless of its type, has three central attributes. First, its database must be cryptographically secure. This means that a participant must have two cryptographic keys, the public key, and the private key, to participate in maintaining the blockchain. Next, the blockchain must have a digital log or a database of all transactions, which must be online.
Finally, the database must be shared across a private or public network. For example, Bitcoin, the most popular blockchain, can be accessed by anyone. Others may run on a private network, which is often the type of blockchain in fintech and banking. In short, there can be different types of blockchain depending on its use, how it is built, and how individuals participate in its maintenance.
Popular types of blockchain
There are several ways to design and build a blockchain network. The popular blockchains you can find today can be private, public, permissioned, or built by a consortium. Let's examine these blockchains and explore their benefits and potential use cases.
Private blockchain
A private blockchain is a distributed ledger system wherein only select participants or organizations can join the consensus process and validate the transactions. Unlike public blockchains like Bitcoin or Ethereum, these private blockchains don't rely on the services of anonymous miners to validate transactions but depend on a list of controlled networks of validators. It's a 'permissioned model', where participants are known, thus limiting the participation of 'bad actors' and, in the process, enhancing trust among participants. A private blockchain can run behind a corporate firewall and be hosted on-premises.
Many use cases exist for a private blockchain, including for business-to-business communication. Companies can deploy private blockchains to store and view information securely within and between organizations. Thanks to the immutability and cryptographic features of blockchain technology, parties to the agreement can count on its integrity as an alternative to traditional email or even courier services.
Public blockchain
A public blockchain is transparent and permissionless. A public blockchain is considered better based on two counts: its decentralization and open access. It's decentralized using distributed copies of the ledger held on computers linked to the network called notes. Also, validation of transactions is handled through distributed nodes, reaching a consensus. Two popular consensus mechanisms used for crypto are the proof-of-work (PoW) and the proof-of-stake (PoS). There's open access because anyone with a crypto wallet can access the blockchain and its hosted applications like smart contracts. A public blockchain is preferred for decentralized finance (DeFi), payment rails, and gaming.
Permissioned blockchain
In a permissioned blockchain, the distributed ledger is not publicly accessible and can only be accessed with permission. Participants can only complete specific transactions, like verifying a transaction, through authorization from the ledger administrators. Those who wish to participate must identify themselves using certificates or other digital means. Experts say that adding permissioned users to the blockchain adds a layer of security. For example, blockchain administrators can permit certain users to give them authority to complete specific tasks or transactions.
There's a difference between a permissioned blockchain and a permissionless blockchain permissioned blockchain and permissionless blockchain. A permissioned blockchain does not allow users to access the platform without identification. Even a public blockchain can become permissioned, for example, if it restricts who can join the platform and in what transaction. In this case, the user must obtain an invitation to join.
Consortium blockchains
A consortium blockchain sits between the private and public blockchains. As such, this type of blockchain integrates the best features from both, offering a decentralized experience in a controlled platform. In a consortium blockchain, there are multiple central authorities instead of one. Different organizations with equal powers often use this type of blockchain and come to a consensus when making changes on the platform. If one organization becomes a 'bad actor,' other organizations in the consortium will know about it. The consortium decides who shares the responsibility of maintaining the blockchain, like accessing data or verifying transactions. This type of blockchain is best for businesses where all participants must be permissioned and have shared responsibility for running the platform.
Many experts believe the consortium blockchain is best since data and cost are shared. It offers a systematic way of tracking data movements, and it's cheaper since several organizations cover the costs of maintaining the blockchain. The consortium blockchain is best for supply chain tracking and helpful for other businesses requiring shared information.
