The Blockchain is powering up the digital and economic spheres.
To begin with, the blockchain technology is a shared and trusted public ledger of economic transactions that are grouped into blocks. This distributed database maintains a continuously growing list of transactions and data records which are cryptographically secure.
The Blockchain is an unhackable data storage system. The data is not kept in one secure place, rather in a decentralized ledger. So, companies rely on blockchain development for all their business needs.
Now, apart from cryptocurrencies, most of the possibilities in blockchain take the form of smart contracts. Smart contracts might sound similar to digital contracts, but they are two different things altogether.
Smart contracts are self executing contracts wherein the terms of the agreement between both the parties are directly written in the form of codes. And these codes and agreements exist in a blockchain-based platform.
But, when we talk about digital contracts, the parties only need to specify two things — the condition of the deal and the terms of violations. Even if some of the conditions are terms are not fulfilled, the contract will still hold true and the deal can still take place.
Whereas in smart contracts the deal itself will not be possible unless each and every term and condition is fulfilled. They are designed in such a way that if either of the party decides to intervene, it will be considered a breach of contract. And once the contract is breached, the contract will be optimized all over again. This will make sure that none of the terms and conditions are violated. As they offer transparency and fraud resistance, smart contract development is in demand.
Now, that you have got an idea about smart contracts, let’s move forward to the different types of blockchain networks. Blockchain networks are mainly classified into three categories.
The three major types of blockchain technology that are in use are:
1. Public Blockchain Network
Public blockchains are completely decentralized.
In a public blockchain, any user around the world can read, write and audit the blockchain. In a public blockchain, the transactions are open and transparent. Any user can run a full node and start mining in a public blockchain. The users can also make transactions, review and audit the blockchain.
For accessing the public blockchain, no permission is required and anybody around the world can participate in the transaction. No individual or company is in charge of the public blockchain network.
So, if no one is in charge, who verifies the transactions?
Well, in a public blockchain, The transactions are controlled by various decentralized mechanisms like POW(Proof of Work) and POS(Proof of Stake).
- POW(Proof of Work) — In POW algorithm, The probability of mining a block is determined by how much computational work is done by the miner.
- POS(Proof of Stake) — In POS algorithm, the probability of validating a new block is determined by how large of a stake an individual possesses.
Public blockchains are mainly used for two things: trust less time stamping of messages and value routing. But, one of the main disadvantages of public blockchain is that they are slow and inefficient.
Thus, public blockchain is preferred by a majority of users around the world because they don’t have to place their trust in a third party unlike the other networks.
Examples of public blockchain — Bitcoin, Litecoin
2. Consortium Blockchain Network
A consortium is a blockchain where the consensus is controlled by a set of nodes that are preselected.
There are a group of companies that which come together and make decisions for the whole network. These groups are known as consortiums. Hence, this type of blockchain is called consortium blockchain or federation blockchain.
Consortium blockchain differs from public blockchain because in a public blockchain, anyone with an internet connection can become a part of the blockchain. Whereas in consortium blockchain, access is restricted and only those companies that are a part of the consortium can access the network.
Consortium blockchain network also removes the autonomy granted to a single entity in a private blockchain network.
So, the companies that are a member of this blockchain network have the authority to run a full node and start mining. They can also make transactions on the commissioned blockchain.
Let’s see how consortium blockchain works. Assume that there are 20 companies in a consortium blockchain. So, the companies can decide beforehand in the smart contracts that if something has to be added to the blockchain or if any transaction is to be verified, it has to be voted by at least 15 companies.
Thus, the consortium blockchain permits the companies to share selected data amongst the network in a secure and seamless manner. As a result, it is time-saving, cuts costs and increased trust amongst the member companies.
Examples of consortium blockchain — Quorum, Hyperledger, Corda
3. Private Blockchain Network
This type of blockchain belongs to an individual or a company and they have full control over the network. They have the authority to revert transactions, modify balances and add new blocks.
In private blockchain networks, the write permission is kept centralized to one company. But, the read permission can be public or restricted to a certain extent. Since the access is restricted, it provides the highest level of privacy as compared to the other networks. Also, in private blockchain networks, not every user can run a full node or start mining.
The main advantage of private blockchain is that it reduces transaction costs and replaces legacy systems.
As the private blockchain development is comparatively costly and time-consuming in comparison to the other networks, be sure to hire only the best private blockchain development company.
Private blockchain is secure and solve fraud problems efficiently. They are the safest amongst all the three types of blockchain network.
Example of private blockchain — Bankchain
Endnote:
Each blockchain network has its own set of advantages and disadvantages. Depending on the type of industry, you can choose the best suited network for your business.
If your business demands privacy and control, private or consortium blockchain network is the best option for you. But, if you require openness and censorship resistance, public blockchains are the best.
Make the best choice and leverage the benefit of blockchain networks for your business!