What Are Different Types Of Blockchain?

The first generation of blockchain technology was Bitcoin. It was a public network where all transactions were anonymous but viewable to everyone. You may see it as a means to maintain transparency on a blockchain, but from a business perspective, it is a big issue. Every organisation has some critical data that is the reason for its success. It will not want to publicise that data at any cost as its competitors may take advantage of it. 

Thus, there arose a need for different types of blockchain technologies that served the purpose of its users. Let’s dive deeper into this subject. 

Types Of Blockchain:

You can divide blockchains into four major types:

Public

A public blockchain works on permissionless decentralised ledger technology (DLT). Anyone can join and transact on the network. Each peer on the network has a copy of the ledger, and one can easily access any public blockchain if they have an internet connection. 

On public blockchains, the consensus mechanisms used are Proof-of-Work (PoW) and Proof-of-Stake (PoS). These mechanisms enable the users to participate in the process of validating transactions and thus keep the whole network functioning without needing a third party. 

In Proof-of-Work consensus mechanism blockchains, the validators of transactions are called miners. They use high-powered ASIC computers to find the correct hash for validating a block on the network. The time and energy they put in to validate a block and fill it with transaction data are rewarded by the blockchain in the form of block rewards. 

In Proof-of-Stake (PoS) consensus mechanism blockchains, you have to stake tokens to validate a block. The higher the stake, the greater the chance for you to get the validation rights for the block. This staking of the validator's assets makes them work in good faith, ensuring the smooth functioning of affairs on that network. 

Advantages

As public blockchains are open and need no third-party verification, many organisations will adopt them. Additionally, you do not need to provide your true identity to participate in the network. So, if your identity is secured, no one can track your transactions on the network. 

The best use cases for public blockchains are fundraising and voting. 

Disadvantages

Public blockchains, however, it has their drawbacks too. The first problem is the lack of scalability. As the number of nodes increases on the network, it becomes slower. 

The lack of transaction speed is also a major issue. Bitcoin can manage only seven transactions per second, while VISA clocks 24,000 transactions per second. 

Another significant problem of public blockchains is their power consumption. The PoW blockchains consume huge amounts of power as the ASIC computers run 24/7. This problem has been, however, solved to a great extent with the introduction of PoS blockchains. 

Examples

Bitcoin, Bitcoin Cash, Litecoin, Ethereum, and many more are good examples of public blockchains.  

Private

To put it in simple terms, a private blockchain is a permission-based network under an entity's control. Only selected participants can access this type of blockchain, and the entity or organisation controlling the network can set various parameters like accessibility, authorisation, etc. 

Advantages

Private blockchains are fast as there are fewer users than public blockchains. It takes less time for the network to reach a consensus, so transactions are processed sooner. 

Furthermore, private blockchains are easily scalable. As only a few nodes have the authority to validate transactions, no matter how much the network grows, the speed and efficiency of processing transactions will remain the same. 

This type of blockchain is mainly used in private companies for activities like Internal Voting, Asset Ownership and Supply Chain Management. 

Disadvantages

The main disadvantage of private blockchains is that it goes against the concept of decentralisation. As only a few nodes have the right to validate transactions on the network, they are the ones that make the final decision on any matter. 

Private blockchains also pose a security risk if some central nodes go rogue. It will surely compromise the consensus mechanism of the network. 

Examples

Ripple (XRP) and Hyperledger Fabric are good examples of private blockchains.

Federated

A federated or consortium blockchain is similar to a private blockchain but with a few changes. In such a type of blockchain, only some aspects of the organisation remain open to the public while the rest remain private. There are preset nodes that handle the consensus mechanism of this network; however, there is a catch. A group of organisations control the central nodes rather than only a single entity.

This unique feature of Federated blockchains makes them more secure than private blockchains as the authority for validating transactions is not under the control of one single organisation. Thus, it is immune to monopoly. 

It has a validator node that can validate, initiate and receive transactions. On the other hand, the member nodes can only receive and initiate transactions. 

Advantages

Federated blockchains have more security and scalability. They are customisable and offer better control over resources. 

Banks, insurance, logistics and companies that deal with payments can benefit from this type of blockchain. Research and food tracking can also adopt this type of network. 

Disadvantages

Like private blockchains, this type of network can suffer security risks if the controlling entities go rogue. It is also less transparent and less anonymous than other types of blockchains. 

Examples

Voltron, Batavia and Marco Polo are some examples of this type of blockchain. 

Hybrid

A hybrid blockchain combines the best of public and private blockchains. It works in a closed ecosystem; thus, organisation data is not made public on this type of network. Like any other user, you can conduct, view, append and even modify transactions. Your identity will remain a secret like that of others on the network. The network will only reveal your identity to the transacting party when transacting with a fellow member.  

Every transaction on a hybrid blockchain remains private. However, when need is, they are still verifiable. 

Advantages

This type of network is immune to a 51% attack as hackers cannot gain access to the network. It offers privacy to its users even when conducting transactions on a public network. Hybrid blockchains also offer good scalability if you compare them to public blockchain networks. 

Hybrid blockchains are best for governments, supply chains, banking, global finance and trade. 

Disadvantages

A major disadvantage of hybrid blockchains is that it is not completely transparent. Moreover, if you want your company to upgrade to a hybrid blockchain, it can be quite a tricky affair. Furthermore, there is no incentive for contributing and participating in the network activities. 

Examples

IBM food trust and Xinfin are good examples of hybrid blockchains. 

Every blockchain type has its advantages and disadvantages. The type of blockchain that will suit you best depends solely on your use case. If you are thinking of implementing blockchain technology in a private organisation, then opting for a private blockchain may be the best. Alternatively, opting for a public blockchain may be the best if you want full transparency. 

The final choice, however, lies with you.