The Blockchains 101

9 May 2022

Design by matejmo

There are many different blockchains, and it’s important to understand their differences. For example, some blockchains are designed for public use, while others are private.

Some blockchains are permissionless, while others require permission to join. The features of a blockchain can affect its usability and security.

For example, the Bitcoin blockchain is a public, permissionless blockchain. It’s been around for over ten years and is well-proven. It has an extensive user base and a large number of nodes.

The Ethereum blockchain is a public, permissionless blockchain designed to be more efficient than the Bitcoin blockchain. It can process more transactions per second and has a larger capacity.

In this article, we will look at the different types of blockchains and how they work. We will also explore some of the benefits and drawbacks of each type.

Blockchain 101

Blockchain is a digital ledger of all cryptocurrency transactions. It is constantly growing as "completed" blocks are added with a new set of recordings.

Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Bitcoin nodes use the blockchain to differentiate legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

What is a Bitcoin node? - Bitpanda

A blockchain is created when a new block is added to the blockchain network. To create a new block, miners solve a complex mathematical problem using specialized software.

It is managed by a network of communicating nodes running bitcoin software. Transactions are broadcast to the network using software applications.

Transactions are confirmed by the network through cryptography and recorded in a dispersed public ledger called a blockchain.

Benefits of Blockchain Technology

Blockchain technology is a distributed ledger technology that allows for secure, transparent, and tamper-proof transactions.

It can revolutionize many industries, including finance, healthcare, and supply chain management.

Some of the benefits of blockchain technology include:

1. Increased security and transparency: Transactions on a blockchain are secure and transparent, meaning that they can be verified and audited by anyone. This makes it difficult for fraudulent activities to take place.

2. Reduced costs: Blockchain technology can help businesses reduce costs by eliminating the need for third-party intermediaries such as banks or clearinghouses.

3. Faster transactions: Transactions on a blockchain are processed quickly, often within minutes. This eliminates the need for manual checks and approvals, significantly slowing down the transaction process.

Types of blockchains

When most people think of blockchains, Bitcoin's the first thing that comes to mind. However, Bitcoin uses one type of blockchain. There are a variety of blockchains, each with its features and purposes.

There are many different blockchains, but they all have the same basic features. They are all distributed ledgers that allow for peer-to-peer transactions without the need for a third party.

They are also all secure, transparent, and immutable. However, a few different blockchains have been developed to meet specific needs.

Blockchain technology has various types which can be classified according to their features, usage, and characteristics: public, private, hybrid, and federated blockchains.

Public Blockchain

Public blockchains are open to anyone who wants to use them. They are decentralized, meaning that there is no one central authority that controls them. Bitcoin, the first and most well-known public blockchain, was created in 2009.

Public blockchains are powered by cryptocurrencies, digital tokens that can be used to pay for goods and services.

The most popular cryptocurrency is Bitcoin, but there are many others, including Ethereum, Litecoin, and Bitcoin Cash.

Public blockchains can be used to create new cryptocurrencies. Many of the newest cryptocurrencies were created using public blockchains.

Examples of Public Blockchains

Public blockchains are open to anyone who wants to use them. Furthermore, they are decentralized, meaning there is no one central authority that controls them.

Instead, they are maintained by a network of computers that work together to keep the blockchain up-to-date. Public blockchains are often used to store data or run applications.

Some of the most well-known public blockchains include Bitcoin and Ethereum. Bitcoin was the first cryptocurrency and is still the largest.

Ethereum is a platform for running decentralized applications. Other popular public blockchains include Litecoin, Bitcoin Cash, and Dogecoin.

Public Pros 

Public blockchains are open and accessible to anyone with an internet connection. As a result, they offer a high degree of transparency, as all transactions and data on the blockchain are visible to everyone.

This makes public blockchains ideal for transparent record-keeping, such as tracking the movement of goods or verifying the ownership of assets.

Public blockchains are decentralized, meaning there is no single point of failure, and no one can control the network. This makes them resistant to censorship and helps ensure that the data on the blockchain is tamper-proof.

Public blockchains are typically slower and less efficient than private blockchains, but they offer a higher level of security and trust due to their transparency and decentralization.

Public Cons:

When it comes to public blockchains, a few key disadvantages come with the territory. The first is speed.

Because public blockchains are open to anyone who wants to participate, they can be quite slow. This is because every participant needs to verify and approve new transactions.

Another disadvantage of public blockchains is security. Because they are open to anyone, they are also more susceptible to attacks. Hackers can easily target public blockchains to steal information or disrupt the system.

Private Blockchain

Private blockchains are blockchains where the participants are known and trusted. For example, this could be a group of companies who want to share information securely or a consortium of banks who want to streamline their processes.

There are two types of private blockchains: permissioned and permissionless.

In a permissioned blockchain, only approved participants can join the blockchain, and a central authority verifies transactions.

In a permissionless blockchain, anyone can join, and the network verifies transactions.

Permissioned blockchains are more secure because they require authentication, but they're also slower because the central authority must verify all transactions.

Permissioned vs. Permissionless Blockchains Explained

On the other hand, permissionless blockchains are faster but less secure because there's no central authority verifying transactions.

Examples of Private Blockchains

Private blockchains are blockchains that are not open to the public. However, companies can use them to keep track of their transactions and ensure that all of the participants in the blockchain are authorized.

Private blockchains can also store data that is not publicly accessible. 

Some examples of private blockchains include the IBM Blockchain Platform, R3 Corda, and Microsoft Azure Blockchain. These platforms allow companies to create their private blockchains or join existing private blockchains. 

Private Pros 

There are several advantages to using a private blockchain. One is that it can be customized to meet the specific needs of a company or organization.

For example, the network can be designed to allow only certain participants to join or limit the number of transactions that can be processed. This can help ensure that the blockchain remains secure and efficient.

Another advantage of private blockchains is that they can help companies streamline their operations.

For example, by using a private blockchain, businesses can reduce the need for intermediaries such as lawyers and accountants, who are often needed to verify and approve transactions. This can save time and money for companies.

Finally, private blockchains can help businesses build trust with their customers.

Private Cons

Private blockchains are often a solution to the public blockchain's scalability issues.
However, there are several potential drawbacks to private blockchains.

First, private blockchains are typically less secure than public blockchains. This is because private blockchains are permissioned, meaning that only authorized participants can participate in the blockchain network. As a result, private blockchains are more susceptible to cyber-attacks.

Second, private blockchains are often slower and less efficient than public blockchains. For example, private blockchains typically have fewer nodes and lower bandwidth capacity than public blockchains.

Finally, private blockchains are often more expensive to operate than public blockchains. Private blockages typically require more computing power and storage than public blockchain networks.

Hybrid Blockchain

A hybrid blockchain uses multiple consensus mechanisms to secure its network. This can be a combination of Proof-of-Work and Proof-of-Stake or any other combination of algorithms.

Hybrid blockchains are often more scalable and efficient than traditional blockchains and can be better suited for enterprise use cases.

Hybrid Blockchains Disrupt Business As Usual By Merging 

There are two types of hybrid blockchains: public and private.

A public blockchain is accessible to anyone who wants to participate in the network, while a private blockchain is restricted to a specific group of users. Both types have their advantages and disadvantages.

Public blockchains are more democratic, as anyone can join the network and participate in the consensus process.

They are also more secure as more people work to secure the network. However, public blockchains can be less efficient than private blockchains, requiring more resources to operate.

Examples of Hybrid Blockchains

A hybrid blockchain is a combination of two or more different blockchain types. For example, it can be a private and public blockchain, a consortium/federated, a public blockchain, or any other combination.

The purpose of a hybrid blockchain is to combine the best features of each type of blockchain and create a more efficient and powerful system. 

One example of a successful hybrid blockchain is the R3 Corda platform. Corda is a consortium blockchain that combines the security and privacy of private blockchains with the scalability and speed of public blockchains.

Some other examples of hybrid blockchains include Hyperledger and EOS.IO. These blockchains are being used by businesses worldwide to create new applications and disrupt traditional industries.

Hybrid Pros

A hybrid blockchain is a mixture of two different blockchains. They can be two separate blockchains or one blockchain with a forked codebase.

A hybrid blockchain aims to combine the advantages of both types of blockchains.

One advantage of hybrid blockchains is that they can be used to merge different communities.
For example, the Ethereum and Bitcoin communities have different ideologies and goals. A hybrid blockchain could merge these communities into one unified group.

This would be beneficial because it would increase the number of people working on developing the blockchain. It would also create more competition between groups, leading to better technology development.

Another advantage of hybrid blockchains is that they can be used to trial new features. For example, Ethereum has implemented a feature called Casper on its testnet.

Hybrid Cons

There are several disadvantages to using a hybrid blockchain.

First, the security of the blockchain may be compromised if not all nodes in the network are using the same protocol.

Second, there is a risk that different blockchains could become incompatible. This could lead to a "fork" in the blockchain, in which two or more versions of the blockchain exist simultaneously and are unable to communicate with each other.

However, the blockchain is not without its drawbacks. One of these is its scalability problem. The blockchain can only process a limited number of transactions per second, which may not be sufficient for large-scale applications.

Another issue is the high energy consumption of the blockchain. Each transaction requires the verification of all previous transactions, which necessitates significant computing power. This has led to concerns about the environmental impact of the blockchain.

Finally, using a hybrid blockchain can be more complex and difficult to manage than using a single type of blockchain.

Federated Blockchain

A federated blockchain is a network of blockchains connected. The blockchains in the network are all based on the same protocol, but different organizations operate them. This allows different companies to use blockchains for different purposes.

There are two types of federated blockchains: public and private. A public blockchain is open to everyone, while a private blockchain is restricted to a select group of users. Public blockchains are more secure than private blockchains, but they are also slower and less efficient.

Conversely, private blockchains are faster and more efficient than public blockchains, but they are less secure.

Federated blockchains allow different organizations to work together using blockchain technology. This can be used for various purposes, including data sharing, collaboration, and dispute resolution.

Examples of Federated Blockchains

A federated blockchain is a type of blockchain system in which nodes cooperate to govern the network.

The advantage of this type of system is that it allows for a high degree of trust and reliability among members. In a federated blockchain, each member is responsible for validating transactions and maintaining the ledger.

This system is well-suited for applications requiring high trust and reliability, such as financial services or supply chain management. 

Actual examples of federated blockchains include Ripple, Hyperledger Fabric, and Stellar. These networks are used by businesses worldwide to process payments and track inventory.

They offer fast transaction speeds and high scalability, making them ideal for enterprise applications.

Another example of a federated blockchain is the Chain Protocol. This protocol was created by Chain, Inc.

Federated Pros

There are many benefits to using a federated blockchain network. One of the key benefits is that it allows for a high degree of scalability.

In a federated blockchain network, transactions are not verified by every node in the network. Instead, they are verified by a limited number of nodes approved by the network’s administrators. This allows for faster transaction verification and higher throughput.

Another key benefit of federated blockchain networks is security. Because only approved nodes can verify transactions, it is much more difficult for hackers to tamper with the network or steal data.

Additionally, since all data is stored on decentralized servers, it is more difficult for malicious actors to access it.

Finally, federated blockchain networks offer increased privacy protection. All data is encrypted, and only authorized nodes can access it.

Federated Cons

The federated blockchain is a variant of blockchain technology that allows different organizations to manage a blockchain without a central authority jointly.

This makes it an attractive option for businesses that want to use blockchain technology but are unwilling to give up control over their data. However, there are several disadvantages to using a federated blockchain.

First, the federated blockchain is much slower than traditional blockchains. This is because all transactions must be approved by all organizations involved in the federation.

Second, deploying a federated blockchain is more difficult than a traditional one. Businesses must agree on how the federation will work before using it.

Finally, there is always the risk that one of the organizations in the federation will go bankrupt or be acquired by a competitor, which could lead to data loss or instability in the network.

Do We Need Types of Blockchain?

Blockchain technology is a hot topic right now. There are many different ways to use blockchain and many different types of blockchains. But why do we need all these different types of blockchains?

One reason is that not all blockchains are created equal. Some blockchains are better for certain applications than others.

Bitcoin, for example, is good for payments because it has fast transaction times and low fees. On the other hand, Ethereum is better for smart contracts because it has more features and can run more complex applications.

Another reason is that not everyone wants the same thing from a blockchain. For example, some people wish for faster transactions, while others want more security.

Some people want to use blockchain for payments, while others want it for smart contracts. By having different types of blockchains, we can meet the needs of everyone who wants to use blockchain technology.

Final Thought

Blockchain technology is currently being used for various applications. However, the technology is still in its early stages, and more types of blockchains will be developed in the future.

Each has its unique features and purposes. For example, some blockchains are designed for public use, while others are for private or enterprise use.

Some blockchains are faster and more efficient than others, and some have more security features. Knowing which blockchain suits your needs is essential for getting the most out of this revolutionary technology.

Blockchain has its strengths and weaknesses, so choosing the right one for your specific applications is important. 

The future of blockchain technology is still unknown, but it has the potential to revolutionize the way we do business.

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