What Are the Four Kinds of Blockchains?

There are four main kinds of the technology used in the crypto, NFT and Web3 sectors.

Mike Antolin was CoinDesk's SEO Content Writer for Learn.

You may have come across the term “blockchain” on social media or online news covering cryptocurrency or during a conversation on the future of technology. In a nutshell, blockchain serves as a shared, unchangeable, digital record of pieces of information (such as transactions) stored in computers or servers.

Benefits of blockchain

Both blockchain and cryptocurrencies are frequently associated with each other by definition, because cryptocurrencies rely on blockchain technology to exist. They aren't the same, but the blockchain technology that underpins crypto does offer many benefits, including the following:

  • Security
  • Transparency
  • Automation
  • Efficiency
  • Cost reduction

Four kinds of blockchain

Public

A public blockchain is permissionless, meaning it is fully decentralized and anyone can participate in it. This allows users with an internet connection to access, download and join the blockchain as an authorized node. All the nodes within the blockchain have equal rights to access and interact with the network. This kind of blockchain is often used for exchanging and mining cryptocurrency. The most widespread consensus mechanisms used in public blockchains are proof-of-work and proof-of-stake.

Pros of a public blockchain:

  • Open to the public Anyone can access the network.
  • Pseudonymous - You are not required to reveal your identity to be able to participate.
  • Decentralized No central authority maintains the network.
  • Transparent Anyone can have full access to the ledger at any given time, eliminating the chance of corruption or discrepancies within the network.
  • Immutability Once blocks are created and inserted, it is practically impossible for anyone to change and manipulate the blockchain.
  • Rewards - As a miner or validator, you can earn rewards by discovering new blocks or for validating transactions on the blockchain network, depending on the consensus mechanism.

Cons:

  • Not suitable for sensitive or proprietary data – A public blockchain doesn't have user permission mechanisms to hide data from certain entities, people or the public. For instance, if the blockchain needs to record personal medical or financial information, it would be visible to anyone anywhere in the world.
  • Scalability issues – These networks can become slow, clogged and expensive. Blocks hold a finite amount of data, and because anyone can use a public blockchain to send and receive transactions (data), the network can become clogged. When there is a lot of activity on a blockchain, it can take a while for transactions to process and network fees can skyrocket.

Examples of public blockchains:

  • Bitcoin
  • Ethereum

Private

A private blockchain is "permissioned," meaning only some people are allowed to participate in it. This kind of blockchain is controlled by a company or organization, which determines who is granted access and enables read and write access to permissioned users on the network. The size of the private blockchain is generally smaller because it is a restrictive environment. As such, a private blockchain functions within the network of the controlling entity.

Pros:

  • Privacy – Private blockchains prioritize privacy, security and confidentiality of all the data stored within the system.
  • Speed and scalability – With fewer nodes and participants who can control the network, the system can support more transactions per second and make the decision-making process faster.
  • Security – Unlike public blockchains, private blockchains are highly protected against illegal activities, because of their rigorous authentication process for members to participate.

Cons:

  • Not completely decentralized – Private blockchains rely on a centralized system and on third-party management systems.

Example:

Hybrid

A hybrid blockchain is a kind of blockchain network that combines features of both public and private blockchains. The blockchain network is controlled by one entity. It provides an organization with control over who can access specific data stored in the blockchain and what data will be open to the public.

For instance, XinFin’s hybrid blockchain makes it versatile in solving any underlying challenges within the finance and global trade sectors.

Its current blockchain infrastructure has both a public and private state. XinFin’s private state ensures that sensitive financial data remains secure, while the public state makes data transparent and verifiable.

Xinfin’s system has been used for remittance, peer-to-peer trading platforms, blockchain-powered insurance and online digital asset-linked identity, showing the versatility and various use cases of a hybrid blockchain.

Furthermore, members of the hybrid blockchain can also decide who can engage within the blockchain and which transactions are revealed to the public.

Pros:

  • Closed ecosystem – This kind of blockchain works in a closed ecosystem, allowing private information to be maintained and verified within the network but not available outside of it.
  • Flexibility – Hybrid blockchain offers a flexible process of customizing the ledger according to your own needs and the needs of the network.
  • Privacy with communication – The hybrid blockchain protects users from privacy-related issues but still allows third-party communications, specifically to shareholders and the public.
  • Better scalability – The scalability of this blockchain can be better than public blockchains, and its transactions are cheaper because it uses a few nodes to verify the transactions.

Cons:

  • Lack of transparency – This blockchain lacks transparency, because the information stored cannot be accessed sometimes.
  • Lack of incentives – Participants within this network won't be given rewards for their contribution to the blockchain like miners in a public blockchain.
  • Slow upgrades – Upgrades and development can be a challenge for this network. It lacks the prerogative to undergo the extensive and challenging adoption process.

Example:

Consortium

A consortium blockchain or a federated blockchain is more decentralized than a private blockchain. Unlike the hybrid blockchain with one controlling entity, a consortium blockchain is designed by a group of multiple entities that want to use a decentralized network to collaborate. Users outside of the consortium cannot get access to the blockchain network.

One of the largest systems using the consortium blockchain is R3, which includes Fortune 500 companies among its member entities. The purpose of R3’s network is to promote collaboration globally among organizations, such as creating apps built on their network.

Pros:

  • Security – Information on the chain isn't accessible to the public; only the participants of this network can access the information.
  • Control – This blockchain isn't controlled by one authority. Instead, a particular group of authentic participants of the network has control over the blockchain.
  • Validation – In this blockchain, the number of participants is known and verified. Authentication is conducted to reduce the risks of data and privacy threats.
  • No transaction fee – As opposed to other blockchains, this network charges no service or transaction fees to its participants.

Cons:

  • Framework – This blockchain lacks the features of a unified framework, and with its centralized network structure, the blockchain is vulnerable to participants who are secretly corrupt.
  • Slow upgrade – When there is an increase in participants, upgrading the protocols is often a problem on this network.
  • Lack of cooperation – The development speed of this blockchain also depends on the cooperation of the participants, and if participants can’t reach an agreement, that will stall progress.

Example:

This article was originally published on Jul 13, 2022 at 7:48 p.m. UTC

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Mike Antolin was CoinDesk's SEO Content Writer for Learn.

CoinDesk - Unknown

Mike Antolin was CoinDesk's SEO Content Writer for Learn.


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