There are primarily two types of blockchains; Private and Public blockchain. However, there is a third type of blockchain too, known as Consortium blockchain. Before we get into details of the different types of blockchains, let us first learn what similarities do they share. Every blockchain consists of a cluster of nodes functioning as a peer-to-peer (P2P) network system. Every node in a network has a copy of the ledger which gets updated timely. Each node on all types of blockchain can verify transactions, initiate or receive transactions and create blocks.
What are the Types and Benefits of Blockchain Technology?. The Complete Blockchain Developer Course 2023 [Videos].
Now in the blockchain tutorial, lets have a look in detail about the three types of blockchains that are possible.
- Public Blockchain: A public blockchain is a non-restrictive, permission-less distributed ledger system. Anyone who has access to the internet can sign in on a blockchain platform to become an authorized node and be a part of the blockchain network. A node or user which is a part of the public blockchain is authorized to access current and past records, verify transactions or do proof-of-work for an incoming block (thus, do mining). We use public blockchains for mining and exchanging cryptocurrencies thus, the most common public blockchains are Bitcoin and Litecoin blockchains. Public blockchains are mostly secure if we follow security rules and methods strictly. Although, it is only risky when the participants dont follow the security protocols sincerely.
- Private Blockchain: A private blockchain is a restrictive or permissioned blockchain operative only in a closed network. Private blockchains are usually used within an organization or enterprise where only selected members are participants of the blockchain network. The level of security, authorizations, permissions, accessibility is in the hands of the organization. So, we use private blockchains for similar purposes as a public blockchain but have a small and restrictive network. Examples of private blockchains are; Multichain and Hyperledger projects (Fabric, Sawtooth).
- Consortium Blockchain: A consortium blockchain is a semi-decentralized type where more than one organization manages the blockchain. Contrary to what we saw in a private blockchain which a single organization controls. Thus, in a consortium blockchain, more than one organization or authority manages the blockchain. More than one organization can act as a node in this type of blockchain and exchange information or do mining. Examples of consortium blockchain are Energy Web Foundation, R3, etc.
Learn about the Types of Blockchains in detail and choose the best one
Benefits of Blockchain Technology
Blockchain technology is a revolutionary technology if accepted and implemented properly. It is a direct and secure way of conducting financial transactions or exchange files within a network.
Here are some major advantages of the blockchain technology that makes it so unique and popular.
- Immutable data: One cannot change a data record or information that is once stored or added as a block in the blockchain. The data in the blockchain is immutable that is no one can make changes in it and it gets a permanent place in the blockchain.
- Digital freedom and decentralization: The entire blockchain network is a decentralized one as it gives every user its digital freedom. There is no central authority that controls all the other users in the network. Every node is independent in functioning.
- Anonymity and privacy: The blockchain network has tight security techniques for the transactions to take place securely. For users that use blockchain for cryptocurrencies like Bitcoin, can do so anonymously (without revealing their real identity) keeping their privacy and security ensured.
- Security: The security method in the blockchain is cryptography that ensures that hackers cannot change or tamper with the data records stored in the blocks of the blockchain. Encrypted hash functions link all the blocks in the blockchain and so it is impossible to do fraud or illegitimate transactions in the blockchain network.
- No intermediaries: Due to the point-to-point nature of the blockchain network, transactions take place directly between two nodes without a mediator. There is no need for an intermediary like Paypal, any bank, Visa, WesternUnion, etc. to facilitate transactions between two parties.
- Transparency: The digital distributed ledger system provides a great deal of transparency to all those who are a part of the network. Each node in a network has its own copy of the ledger and has the right to verify transactions. Due to this, no one can hide their details and transactions from the other users ensuring fair trade.
- Low transaction cost: As there are no intermediaries in a transaction within the blockchain network, the transaction costs are also lowered. Transactions of millions of dollars can happen for around $1.00 or even less. If there are intermediaries involved, then they charge a heavy amount and your overall transaction cost increases.
- Consensus-based: The blockchain concept is entirely consensus-based, that is, for every transaction that takes place between two nodes in a blockchain, a request for its verification is sent to all the other nodes. After all the nodes verify a transaction, it goes into the memory pool to make a new block. The memory pool stores numerous such verified transactions.
- Now that we know what an ingenious technology blockchain is, it obviously finds its application in many fields and areas. In this section of the blockchain tutorial, we will discuss some of the most common fields which use blockchain technology.
- Cloud Storage: Blockchain provides a decentralized system for storing files on the cloud. It is like an Inter Planetary File System (IPFS) in concept where sharing and storing files happen in a distributed web system rather than a client-server web which we currently have. Each website can act as a node which has a P2P transfer of files with other nodes directly, instead of requesting a central server.
- Cryptocurrency: Blockchain technology acts as the backbone of cryptocurrency systems like Bitcoin. Cryptocurrency is an encrypted digital currency that everyone can use as a medium of exchange in transactions. Such transactions take place through the blockchain network. The blocks in a blockchain store the records related to generation and transaction of cryptocurrency between two nodes permanently. These days, there even exist cryptocurrency wallets where you can send and receive cryptocurrencies or exchange them for other currencies.
- Healthcare: With the help of block-chaining, we can store information about patients and drugs in a database securely. Doctors can access patient records and history to analyze a case better at a given point to ensure proper treatment. Also, organizations can monitor and handle drug counterfeiting in the medical supply chain. This is because they can store the supply chain data as permanent blocks in the blockchain.
- Smart Contracts: Ideally, when two parties sign an agreement or make a deal, it is a paper-based contract (which states all the terms and conditions of the deal) which the parties involved sign. However, this method of having deals and making contracts is subject to the risk of fraud and tampering. With blockchain as the base technology, a smart contract concept came into existence. Smart contracts are digital, self-executable contracts recorded and stored in a blockchain once created. A smart contract is a programmed file containing all the terms and conditions of a contract between two parties and it automatically executes itself once all the conditions are met. This gives a 100% guarantee and prevents the deal from any fraud.
- Elections: Another interesting fact about blockchain is that we can participate in elections online with a blockchain system as its backbone guaranteeing the security of records and anonymity. People can cast vote online without physically showing up at a polling booth and the votes will be safely registered on a blockchain. It is nearly impossible for someone to hack into the system and tamper with the votes cast. This makes blockchain technology best for online voting as it would really increase the total number of people participating in elections.
- Digital Identity Management: With the digital revolution, the risks of fraud have also gone up significantly. More and more incidents of cybercrime and digital fraud are surfacing. This is due to easily hackable digital identities of people that hackers can use to do fraud and theft. To ensure the security of digital identities of people, blockchain is the best solution. Having the ids, passwords and authorized documents stored on blocks in a blockchain as a universal online directory. No fraud can occur as identity verification of every user is a necessary step in the blockchain system. One cannot access the online ledger if the credentials dont match with the records of the blockchain network. Also, there is no chance of hacking in a blockchain system.
- Intellectual Property Protection: The information available on the internet is intellectual property. Nowadays, with enormous information getting shared on the internet, copyright issues are surfacing more than ever. Content is easily copied and distributed without the permission of the original author. However, there are copyright laws, but they are not quite in place. Moreover, there are no global laws or standards regarding copyrighting content which increases the problem.
Blockchain is again a savior here as one can copyright their content as a smart contract and store it in the blockchain. The authors or owners of the registered content will have full authority over the accessibility and distribution of their content and share it according to their will.
- Automated Governance or DAOs: Automated governance or Decentralized Autonomous Organizations (DAOs) which are self-governed organizations. DAOs are self-governed organizations that abide by a strict set of rules. DAOs are built on blockchain and smart contracts as their foundations. Every stakeholder in a DAO will have equal authority and opportunity to contribute to the organization. This is unlike the traditional system where much of the corporate governance is under the control of the bureaucracy and hierarchical management.
- Supply Chain Audits: Block-chaining also helps in guaranteeing the authenticity of a product in supply chain audits. Manufacturers can store the details of their products on a blockchain and consumers can verify the genuineness of the product by checking the records on the blockchain.
- Sharing Economy: With blockchain, the need for intermediaries is gone and the trend of the direct transactions between interested parties has arrived. Apps like OpenBazaar use blockchain technology as they follow a peer-to-peer approach. Here, the seller uploads their product and quotes a suitable price. Then the interested buyer contacts the seller directly without an intermediary like Uber or Airbnb.
- Internet of Things: As you all must be familiar with this term, IoT is our future! All the big players like IBM, AT&T, Samsung, etc. are focusing on enhancing their reach in the IoT market to become a global leader. Blockchain and smart contracts can prove to be useful for the implementation and workings if IoT systems. A smart contract can store software, sensors and other important details that will take care of the proper functioning of the electronic device and the network. Smart contract executes themselves only when certain conditions are met properly and so it helps in monitoring and executing protocols for the IoT mechanisms using blockchain.
Smart contracts were first introduced through an open-source blockchain network known as Ethereum. The smart contracts also find their application in areas like real estate property deals, financial agreements, insurances, crowdfunding, etc.