What are the 4 different types of blockchain technology?

1. Public blockchain

How it works. The public blockchain is the origin of cryptocurrencies like Bitcoin and has helped popularize distributed ledger technology (DLT). It eliminates the problems that come with centralization, including less security and transparency. DLT does not store information in one place but distributes it over a peer-to-peer network. Due to its decentralized nature, a method to verify the authenticity of the data is required. This method is a consensus algorithm in which blockchain participants reach agreement on the current state of the ledger. Proof of Work (PoW) and Proof of Stake (PoS) are two common consensus methods.

Public blockchain is non-restrictive and permissionless, and anyone with internet access can sign up to a blockchain platform to become an authorized node. This user can access current and past records and perform mining activities, the complex calculations used to verify transactions and record them in the ledger. No valid records or transactions can be modified on the network, and anyone can review the transactions, find errors, or suggest changes since the source code is usually open source.

Advantages. One of the advantages of public blockchains is that they are completely independent of organizations. So if the organization that created it no longer exists, the public blockchain can continue to run as long as there are still computers connected to it. “Some blockchains incentivize users to use computing power to secure the network by providing a reward,” noted James Godefroy, director and deputy head of enforcement at Rouse, an intellectual property services provider.

Another advantage of public blockchains is the transparency of the network. As long as users carefully follow security protocols and methods, public blockchains are mostly safe.

Disadvantages. The network can be slow and companies cannot restrict access or usage. If hackers gain 51% or more of the computing power of a public blockchain network, they can unilaterally alter it, Godefroy said.

Public blockchains also don’t scale well. The network becomes slower as more nodes join the network.

Use cases. The most common use case for public blockchains is mining and exchanging cryptocurrencies such as Bitcoin. However, it can also be used to create a fixed record with a verifiable chain of custody, such as: B. Electronic notarization of affidavits and public records of ownership.

This type of blockchain is ideal for organizations based on transparency and trust, such as social support groups or non-governmental organizations. Due to the public nature of the network, private companies will likely want to steer clear.

2. Private Blockchain

How it works. A private blockchain operates in a restrictive environment such as a closed network or is under the control of a single entity. While it functions like a public blockchain network in the sense that it utilizes peer-to-peer connections and decentralization, this type of blockchain is found on a much smaller scale. Rather than simply allowing anyone to join and provide computing power, private blockchains typically operate on a small network within a company or organization. They are also known as permissioned blockchains or enterprise blockchains.

Advantages. The controlling organization determines permission levels, security, permissions and accessibility. For example, an organization setting up a private blockchain network can determine which nodes can view, add, or modify data. It can also prevent third parties from accessing certain information.

“You can think of private blockchains as the intranet, while the public blockchains are more like the internet,” Godefroy said.

Due to their limited size, private blockchains can be very fast and process transactions much faster than public blockchains.

Disadvantages. The disadvantages of private blockchains include the controversial claim that they are not true blockchains, as the core philosophy of blockchain is decentralization. It is also more difficult to achieve complete trust in the information because centralized nodes determine what is valid. The small number of nodes can also mean lower security. If some nodes stop functioning, the consensus method may be compromised.

Additionally, the source code of private blockchains is often proprietary and closed. Users cannot independently verify or confirm it, which may result in lower security. Even in a private blockchain there is no anonymity.

Use cases. The speed of private blockchains makes them ideal for cases where the blockchain needs to be cryptographically secure, but the controlling entity does not want the information to be available to the public.

“For example, companies can choose to take advantage of blockchain technology without giving up their competitive advantage to third parties. You can use private blockchains for trade secret management and auditing,” Godefroy said.

Other use cases for private blockchain include supply chain management, asset ownership and internal voting.

3. Hybrid Blockchain

How it works. The hybrid blockchain combines elements of both private and public blockchains. This allows companies to set up a private, permission-based system in addition to a public, permissionless system and thus control who can access certain data stored in the blockchain and which data is made publicly accessible.

Typically, transactions and records on a hybrid blockchain are not made public, but can be verified if necessary, for example by allowing access via one smart contract. Confidential information is stored on the network but is still auditable. Although a private entity may own the hybrid blockchain, it cannot alter transactions.

When a user joins a hybrid blockchain, they have full access to the network. The user’s identity is protected from other users unless they complete a transaction. Their identity is then revealed to the other party.

Advantages. One of the big advantages of the hybrid blockchain is that external hackers cannot carry out a 51 percent attack on the network because it works in a closed ecosystem. It also protects privacy but allows communication with third parties. Transactions are cheap and fast and offer better scalability than a public blockchain network.

Disadvantages. This type of blockchain is not completely transparent as information can be shielded. Upgrading can also be challenging and there is no incentive for users to participate or contribute to the network.

Use cases. Hybrid blockchain has several strong use cases, including real estate. Companies can use a hybrid blockchain to operate systems privately but retain certain information, such as: B. Entries to be displayed to the public. Retailers can also optimize their processes with the hybrid blockchain, and highly regulated markets such as financial services can also benefit from its use.

According to Godefroy, medical records can be stored on a hybrid blockchain. The dataset cannot be viewed by random third parties, but users can access their information through a smart contract. Governments could also use it to store citizen data privately but share the information securely between institutions.

4. Consortium Blockchain

How it works. The fourth type of blockchain, the consortium blockchain, also known as a federated blockchain, is similar to a hybrid blockchain in that it has private and public blockchain features. The difference, however, is that multiple organizational members work together in a decentralized network. Essentially, a consortium blockchain is a private blockchain with limited access to a specific group, eliminating the risks associated with control of the network by just one entity on a private blockchain.

In a consortium blockchain, the consensus processes are controlled by preset nodes. It has a Validation node that initiates, receives and validates transactions. Member nodes can receive or initiate transactions.

Advantages. A consortium blockchain tends to be more secure, scalable and efficient than a public blockchain network. Like the private and hybrid blockchain, it also offers access controls.

Disadvantages. The consortium blockchain is less transparent than the public blockchain. It can still be at risk if a member node is breached, and the blockchain’s own regulations can affect the functionality of the network.

Use cases. Banking and payments are two uses for this type of blockchain. Different banks can form a consortium and decide which nodes validate the transactions. Research organizations can create a similar model. The Consortium blockchain is ideal for supply chains, especially for food and medical applications.

Ultimately, blockchain technology is becoming increasingly popular and is quickly finding support in companies. Each of these types of blockchain has potential applications that can improve trust and transparency and enable better record-keeping of transactions.

Editor’s note: This article was updated in June 2024 to improve the reading experience.

Christine Campbell is a freelance writer specializing in business and B2B technology.