Today, there are hundreds of blockchains and at least four types of blockchain networks. This is due to the fact that a blockchain is a special database for recording, storing and transmitting data not only for cryptocurrency transactions, but also for central bank money, decentralized exchanges, and supply chains.
Nevertheless, the number of blockchains, as well as the number of cryptocurrencies, is constantly growing. It is important not only to understand what is the difference between one blockchain from another, but also to treat your finances responsibly and choose a reliable wallet for sending, storing, buying and exchanging cryptocurrencies.
A blockchain (distributed ledger) is a database consisting of many thousands of blocks, each block contains information about a transaction. All these blocks are connected in a chain of blocks, and in this chain each subsequent block stores information about the previous block.
Records in the blockchain are very difficult to fake, because the data registry is stored on many devices at the same time, and if someone has some record that does not match the rest, then it is considered as invalid. Also, all records are encrypted using reliable cryptography. Thus, it is impossible to falsify the data, because it is impossible to change the block itself.
Blockchain technology ensures the reliability and immutability of data. But this is not its only advantage. Distributed ledger frees us from intermediaries; there’s no need for auditors.
Such a unique database, in addition to cryptocurrencies, is also used for NFTs, decentralized finance, and smart contracts.
The blockchain gained popularity thanks to the creation of Bitcoin in 2009.
As we have already mentioned, the distributed ledger has replaced centralized financial authorities with its own system. Therefore, it is a decentralized network for verifying and recording transactions. There are several key points that distinguish blockchain network from a conventional government or commercial financial structure:
Usually, a network is created by several companies united in a consortium. They coordinate network permissions according to the policy adopted by the consortium. Other types of networks are called public, private and hybrid. So, there are four types of blockchain networks: Consortium, Public, Private and Hybrid. Now we will separately consider each of them, their range of applications, and their advantages and disadvantages.
The first type of blockchain technology was a public blockchain. It was on this network that Bitcoin was created, which subsequently popularized blockchain technology. In this blockchain network, data is not stored in one place, but is distributed over a peer-to-peer network. The decentralized nature of this tecnology requires a method of verifying the authenticity of data. This method is a consensus algorithm by which blockchain participants agree with the current state of the register. Proof of Work (PoW) and Proof of Stake (PoS) are two common methods of reaching consensus.
The public database is unrestricted and unauthorized, and anyone with internet access can connect to the blockchain platform to become an authorized node. Any user can access current and past records and perform mining operations, complex calculations used to verify transactions and add them to the registry. No valid records or transactions can be changed on the network, and anyone can check transactions, find bugs, or suggest changes, since the source code is usually open source.
Since the blockchain network is publicly available, everyone has the right to express their opinion. When there are updates, it is extremely rare to achieve the consent of all participants. The opinions of the community may differ, and it may be necessary to find a compromise, which is not always easy.
Another aspect related to accessibility is censorship. Some users may have malicious intentions and take advantage of anonymity, so the protocol must include certain counter-mechanisms.
As we mentioned above, public networks are open to everyone; anyone can make transactions and view previous ones. There is no need to base the operational process on trust, since this type of blockchain eliminates intermediaries. The main feature of this distributed ledger is transparency, which is an important criterion for this type of technology.
The active participation of a large number of users allows you to create more verification nodes in the network and improve system security. However, with a public consensus network, hacker attacks are almost impossible.
When you use a public blockchain network, transactions are slow. The reason is the limited number of transactions that can be written to a block and then processed simultaneously. For example, the Bitcoin blockchain can register only 7 transactions per second, and the Ethereum blockchain, created by Vitalik Buterin, can handle 15 transactions per second, which is relatively small.
On the other hand, the number of participants is growing every day, which slows down processing of transactions even more. At this rate, the blockchain is less efficient than traditional systems, the limitations of which it was supposed to compensate for.
Contrary to what you might think, a private blockchain is not so called because it will be used by private individuals, such as non-governmental organizations or enterprises.
Private blockchains are rather so called because they are data registers, access to which requires authorization. These permissions are granted by administrators, and help to guarantee the security of the information, since the prerogatives of the public regarding reading or adding data are limited. This, by the way, makes it one of the most popular technologies for companies.
Unlike public blockchains, only participants who have received permission from the managers of a private blockchain will be able to access it. This allows companies and various industries to ensure data privacy.
Only a certain number of participants can have access to a private blockchain, and they need the permission of administrators; thus, the network is not overloaded. Consequently, consensus on private blockchains is achieved much faster, and the risk of overload is low, unlike public blockchains. The number of transactions per second can easily exceed 20,000.
In addition, on a private blockchain, it is easier to switch from the Proof of Work algorithm to the Proof of Authority algorithm (a consensus mechanism or algorithm that uses identification as confirmation).
Another advantage of private blockchains may be greater control over the system by the company. The bottom line is that a private blockchain makes it possible, for example, to quickly update functionality. Therefore, they are attractive for institutions working with registries and accounting systems, since they form a controlled and predictable environment, compared to publicly available cryptographic ledgers.
On the other hand, on a private blockchain, information is available to the owners. Thus, the information and its reliability cannot be verified by the public.
As for security, a private ledger can be hacked, since there are fewer nodes in it. But since only a limited number of verified people have access to a private blockchain, this should ensure the required level of security. In addition, the main principle of blockchain network is to avoid centralization, which seems rather contradictory in a private blockchain, access to which is limited to certain people.
A consortium blockchain is a type of semi-centralized network that is jointly controlled and maintained by a group of companies or institutions. It is considered a link between private and public networks.
A consortium platform is formed when a group of organizations with a common goal decides to work together. It allows participants to share a database or information without loss of operational efficiency, scalability, data exchange, and accountability.
Unlike public blockchains, access to consortium networks is limited, and only authorized users can work in it. It differs from private blockchains, however, in that each member of the consortium is given the same degree of control as the others.
Each member of the consortium network manages a separate node as a co-owner of the network. To add or remove a participant from the digital ledger, the co-owners of the network will need permission. Each organization manages its own blockchain or node, but other members of the consortium database can access, share and distribute all data.
· Partial decentralization Private blockchains are completely centralized, and public are decentralized. Consortium blockchains are somewhere in the middle. Consortium members own, access and jointly manage the network. There are fewer nodes in a consortium blockchain, which makes it easier to reach consensus compared to traditional peer-to-peer networks.
· Data privacy Since consortium blockchains are closed networks, only authorized participants can access them. This means that the data stored on the network remains secure, and only network members can access it. And in case of a violation, it is easier to identify the source of the interference, since there are not so many users who have access to the data.
· High transaction speed Since there are few nodes in consortium ledgers, transactions and smart contracts are performed much faster than in private and public blockchain networks.
· Reaching consensus in the consortium blockchain Like all types of blockchains, the consortium database operates on a consensus mechanism. A process called "shared consensus" assumes that transactions are jointly confirmed by a group of trusted nodes to ensure network integrity.
The most popular consensus mechanisms in consortium blockchains are Proof of Authority (PoA), Proof of Vote (PoV), Practical Byzantine Fault Tolerance (PBFT), and Raft. Like other blockchains, consortium blockchains use smart contracts to automatically execute transactions.
· More control over data A key feature of public crypto blockchains is immutability, which prevents the data stored in the blockchain from changing. However, in a consortium blockchain, the data can be changed. This requires a general consensus. Reaching a common consensus allows consortia to support the principle of transparency of blockchain platform.
A hybrid blockchain offers the advantages described above, but its architecture consists of two parts:
This means that some of the partners have rights as to a private blockchain, and the others have rights as to a public blockchain.
This architecture makes the network closed to internal content, on the one hand, and very easy to expand, on the other. The network is characterized by higher transaction throughput in the private part, and, at the same time, rapid expansion in the public part. It also ensures compatibility with other blockchain networks without the need to standardize agreed-upon protocols.
Consequently, an organization can start with multiple partners, and other parties can be added later, provided that interoperability is basically guaranteed.
Thus, the focus is on inter-company processes and the extent to which they scale, optimize, change consistently, and become open to the outside world in order to develop collaborative value creation. During this process, some transactions may be performed publicly and some privately in an anonymous environment. To this end, the Cosmos distributed blockchain system developed the interblock communication protocol (IBC) in 2016.
In addition to Cosmos (which, by the way, uses the tendermint consensus), there are other examples of hybrid blockchains, such as Quorum, Chainlink and Polkadot. For example, the quorum architecture is structured in such a way that the main blockchain interacts with several secondary blockchains. This type of permission management allows companies to limit the use of their blockchain quorum to a specific user base. In addition, this principle of dividing the blockchain into side chains is also used for higher scaling. This parallel data processing is also known as "second-level scaling".
Now that we have described the different blockchain networks and you understand what advantages and disadvantages each of them offers, we can consider the platforms. Like the blockchains themselves, there are a lot of platforms, each with its own characteristics. They are needed in order to modify ready-made blockchain infrastructures and create new projects. Most platforms are related with Ethereum, non-fungible tokens (NFTs), and initial coin offerings (ICO). Now we will talk about the most basic platforms.
There are many variations of blockchains and blockchain platforms. They all exist for different purposes, and different platforms are suitable for different enterprises. However, the most important criteria for choosing a blockchain that should be taken into account are decentralization and throughput.
There are concerns related to blockchain technology regarding the environment. The Proof of Work protocol requires too much electricity. But we should note that partly because of this reason, in 2022, the Ethereum network changed the Proof of Work protocol to Proof of Stake. And most likely in the near future, the crypto community will be able to find a solution to the problem of electricity.
The development of the digital economy, as well as the development of Web 3, is happening rapidly, and there is no tendency to slow down the development of these technologies. Blockchain, with its unique services and features, provides more and more opportunities for entrepreneurship, finance, and other sectors of our life. And since blockchain platforms are becoming more and more integrated into our everyday life, it is very important to understand how it works, its basics, and how and where it can be applied.
There are thousands of blockchains in existence, including public blockchains like Bitcoin, Ethereum, and Binance Smart Chain, as well as private and permissioned blockchains used in enterprise settings. It's worth noting that these numbers can fluctuate rapidly as new blockchains are created and others become obsolete.
A public blockchain is controlled simultaneously by all participants, and these participants have access to the data and the source code of the blockchain. In a private blockchain, access to the source code and the ability to change something in it is available only to a certain circle of people. The rest can only see the results of the work of that group of authorized people.
A blockchain platform is a decentralized, distributed digital ledger that facilitates secure and transparent transactions and interactions between multiple parties without the need for a central authority or intermediary. Blockchain technology allows for the creation of a tamper-resistant, secure, and immutable record of all transactions and interactions that take place on the network.
Bitcoin is a public blockchain; it is transparent and decentralized. It was the fact that the first cryptocurrency was based on the blockchain that brought it such fame.
A public blockchain is also used for the exchange and mining of Ethereum.
Private blockchains can be hacked, but they are generally considered to be more secure than public ones because access to the network is restricted to a limited set of participants who are known and trusted. Private blockchains are usually permissioned, meaning that participation is granted to specific users or organizations who must be authenticated before they can access the network.
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