What is blockchain?
A blockchain is a distributed database that maintains a continuously expanding list of ordered entries, called blocks, and these blocks are linked using cryptography. A timestamp, transaction information, and a cryptographic hash of the previous block are included in each block. A blockchain is a decentralized, distributed, and public digital ledger that is used for logging transactions across numerous computers in a way that prevents changes to the record from being made in the past without also changing all blocks that come after them and getting network consensus.
Advantages of using blockchain :
- It provides greater trust among users.
- It provides greater security among data.
- Reduce the cost of production.
- Improve Speed.
- Invocation and tokenization.
- It provides immutable records.
- Smart contracts
- Types of Blockchain
Disadvantages of using blockchain :
It is not possible to modify data.
It requires large storage for a large database.
If the owner forgets or misplaces their private key, they will be unable to access it again.
There are 4 types of blockchains:
- Public Blockchain
- Private Blockchain
- Hybrid Blockchain
- Consortium Blockchain
Permissioned blockchains have the following disadvantage
Not truly decentralized as it requires permission
Risk of corruption as only a few participants are involved.
Anytime owner and operator can change the rules as per their need.
Public Blockchain
They don’t have any restrictions, anyone having a computer and internet can participate in the network.
a public blockchain is open to the public, which means it is not owned by anyone.
All the computer in the network hold the copy of other nodes or block present in the network
In this public blockchain, we can also perform verification of transactions or records
Advantages:
- Trustable: There are algorithms to detect no fraud. Participants need not worry about the other nodes in the network
- Secure: This blockchain is large in size as it is open to the public. In a large size, there is greater distribution of records
- Anonymous Nature: It is a secure platform to make your transaction properly at the same time, you are not required to reveal your name and identity in order to participate.
- Decentralized: There is no single platform that maintains the network, instead every user has a copy of the ledger.
Disadvantages:
- Processing: The rate of the transaction process is very slow, due to its large size. Verification of each node is a very time-consuming process.
- Energy Consumption: Proof of work is high energy-consuming. It requires good computer hardware to participate in the network
- Acceptance: No central authority is there so governments are facing the issue to implement the technology faster.
Use Cases of Public Blockchain:
Public Blockchain is secured with proof of work or proof of stake they can be used to displace traditional financial systems. The more advanced side of this blockchain is the smart contract that enabled this blockchain to support decentralization. Examples of public blockchains are Bitcoin($BTC) and Ethereum($ETH).
An example of public blockchains, are BTC, ETH, BTC Cash, etc.
Private Blockchain
These blockchains are not as decentralized as the public blockchain only selected nodes can participate in the process, making it more secure than the others.
- These are not as open as a public blockchain.
- They are open to some authorized users only.
- These blockchains are operated in a closed network.
- In this few people are allowed to participate in a network within a company/organization.
Advantages:
- Speed: Due to the transaction's tiny size, the rate is high. Each node's verification takes less time.
- Scalability: The scalability can be changed. The network's size can be chosen manually.
- Privacy: Due to business demands for confidentiality, the level of privacy has increased.
- Balanced: The transaction is more balanced because only a select few users have access to it, which boosts network efficiency.
Disadvantages:
- Security Risk- Because there are fewer nodes of this type, there is a potential that they could be manipulated. These blockchains have higher security risks.
- Due to its centralization, one of the key drawbacks is the difficulty of establishing trust. This is a tool that businesses can employ for misconduct.
- Due to the limited number of nodes, the blockchain system as a whole may be in danger if any nodes go down.
Use Cases of Private Blockchain
With proper security and maintenance, this blockchain is a great asset to secure information without exposing it to the public eye. Therefore companies use them for internal auditing, voting, and asset management.
An example of private blockchains businesses like IBM, Hyperledger, R3 Corda, and Tezos offer private blockchain services.
Consortium Blockchain
The benefits of both worlds are combined in a public and private blockchain called consortium blockchain. The main distinction between the two systems may be found in the degree of unanimity.
- Also known as Federated Blockchain.
- This is an innovative method to solve the organization’s needs.
- Some part is public and some part is private.
- In this type, more than one organization manages the blockchain.
Advantages:
- Speed: A limited number of users make verification fast. The high speed makes this more usable for organizations.
- Authority: Multiple organizations can take part and make it decentralized at every level. Decentralized authority, makes it more secure.
- Privacy: The information of the checked blocks is unknown to the public view. but any member belonging to the blockchain can access it.
- Flexible: There is much divergence in the flexibility of the blockchain. Since it is not a very large decision can be taken faster.
Disadvantages:
- Approval: All the members approve of the protocol making it less flexible. Since one or more organizations are involved there can be differences in the vision of interest.
- Transparency: It can be hacked if the organization becomes corrupt. Organizations may hide information from the users.
- Vulnerability: If a few nodes are getting compromised there is a greater chance of vulnerability in this blockchain
Use Cases of Consortium Blockchain:
It has high potential in businesses, banks, and other payment processors. Food tracking of the organizations frequently collaborates with their sectors making it a federated solution ideal for their use. Examples of consortium Blockchain are Tendermint and Multichain.
Hybrid Blockchain
It is the mixed content of the private and public blockchain, where some part is controlled by some organization and other makes are made visible as a public blockchain.
- It is a combination of both public and private blockchains.
- Permission-based and permissionless systems are used.
- User access information via smart contracts
- Even if a primary entity owns a hybrid blockchain it cannot alter the transaction
Advantages:
- Ecosystem: Most advantageous thing about this blockchain is its hybrid nature. It cannot be hacked as 51% of users don’t have access to the network
- Cost: Transactions are cheap as only a few nodes verify the transaction. All the nodes don’t carry the verification hence less computational cost.
- Architecture: It is highly customizable and still maintains integrity, security, and transparency.
- Operations: It can choose the participants in the blockchain and decide which transaction can be made public.
Disadvantages:
- Efficiency: Not everyone is in a position to implement a hybrid Blockchain. The organization also faces some difficulty in terms of efficiency in maintenance.
- Transparency: There is a possibility that someone can hide information from the user. If someone wants to get access through a hybrid blockchain it depends on the organization whether they will give it or not.
- Ecosystem: Due to its closed ecosystem this blockchain lacks the incentives for network participation.
- Use Case: It provides a greater solution to the healthcare industry, government, real estate, and financial companies. It provides a remedy where data is to be accessed publicly but needs to be shielded privately.
- Examples of Hybrid Blockchain are the Ripple network and XRP token
Private Blockchain vs. Consortium Blockchain:
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