The 4 Types of Blockchains Explained
When people talk about blockchains, they often refer to the public ledgers behind cryptocurrencies like Bitcoin or Ethereum. However, not all blockchains are created equal. There are several types of blockchains that each function differently.
But first, what is blockchain? Simply put, a blockchain stores information. More specifically, it’s an immutable, distributed digital ledger. That means the information is shared among several participants in the network. These participants must reach a majority consensus regarding the validity of each piece of data on the blockchain.
Once data is added to the blockchain, it can’t be altered or reversed. As a result, blockchains preserve data integrity and security without oversight from centralized authorities like banks or governments.
Blockchains can store any kind of tangible or intangible data. So, they’re useful for other things besides recording cryptocurrency transactions. For example, blockchain facilitates the transfer of digital assets like NFTs. It serves as the immutable ledger that NFTs need to track records of authenticity.
Outside of the digital realm, blockchain has many real-world applications. It can verify election polls, store healthcare records, or increase the efficiency of electricity grids. It can even track the journey of food from the farm to your table.
Below, we’ll dive deeper into the different types of blockchains and their use cases. If you’d like to learn more about blockchain technology in general, read our complete guide here.
The 4 Main Types of Blockchains
Since there are so many different use cases for blockchain, several different types were developed. Each one serves a specific purpose. Some prioritize security, while others focus on privacy or scalability.
The four main types of blockchains are public, private, hybrid, and consortium (also referred to as federated).
1. Public blockchains
Public blockchains are open to everyone and operate on a decentralized network. No permission is needed to interact with a public blockchain.
Essentially, anyone with an internet connection can read data on the public ledger or conduct transactions. They can also participate in the consensus process through activities like mining or staking.
Public blockchains are often used for cryptocurrency. For example, Bitcoin’s blockchain is public. That means all BTC transactions are published, and anyone can access these transaction details. You can even go back and view the very first block transaction ever recorded.
- Public blockchains are highly decentralized. Since anyone can participate in the network, no central authority decides which transactions are recorded on the blockchain. This also makes them censorship-resistant.
- They have a greater chance of widespread adoption since no third-party verification is required. The larger the network, the more secure it is.
- People are incentivized to act in the best interests of the network because it keeps it operating efficiently. Reward mechanisms for participation are also common.
- Public blockchains offer the greatest level of transparency.
- Public blockchains can often have slow transaction speeds due to the large size of the network.
- They also face scalability issues. The larger a blockchain grows, the more validators are required to confirm transactions. This clogs the network.
- Some public blockchains, like Bitcoin’s proof of work algorithm, consume high amounts of energy. However, more energy-efficient models like proof of stake are becoming increasingly popular.
Cryptocurrency: Public blockchains are primarily used to secure cryptocurrency networks and facilitate crypto transactions. Two of the most popular consensus mechanisms are Proof of Work and Proof of Stake.
Voting: Blockchain-based voting preserves trust and integrity in the results. Results cannot be tampered with, even by powerful authorities.
Fundraising: Raising funds on a public blockchain improves transparency.
2. Private blockchains
A private blockchain is governed by a central authority. This organization controls who can participate in the network and maintain the ledger. Only those with permission can gain entry to the network and view transaction data.
Each private blockchain can be tailored to suit the needs of its governing body. They’re often used by commercial enterprises that prioritize privacy and transaction efficiency. Since these companies may not want outside actors to access their blockchain, the permissioned system keeps the blockchain data secure.
While private blockchains are controlled by a single entity, they still need multiple network nodes. Each one keeps a copy of the blockchain and verifies transactions. In this way, the ledger is distributed but not decentralized.
- Private blockchains have fast transaction speeds. Since there are limited network participants, the nodes can reach a quicker consensus.
- They’re also more scalable than public blockchains. Even as the network grows, the same authorized nodes can still be used to confirm transactions.
- The controlling authority can modify a private blockchain’s structure at any moment. This makes them more flexible, as they can be adjusted to suit any requirements.
- Since private blockchains are governed by a central authority, it’s difficult to achieve trust in the network.
- A limited amount of validator nodes means a lower level of network security. This makes private blockchains more susceptible to fraud and bad actors.
Asset ownership: Private blockchains make it possible to track and verify asset ownership records. Participants can share this data with trusted parties.
Internal data management: Organizations like financial institutions require the handling of large amounts of sensitive data. As a result, these organizations can benefit from the privacy and scalability of a private blockchain.
3. Hybrid blockchains
Hybrid blockchains combine the privacy of a private blockchain with the security of a public blockchain. Usually, they’re controlled by a single organization. Still, the network requires a level of oversight from public validators.
It allows organizations to keep some data private while still taking advantage of greater security and transparency of public blockchains.
- Hybrid blockchains offer both privacy and scalability.
- Despite being transparent to some degree, the blockchain is still flexible and can be modified if needed.
- Hybrid blockchains are not as transparent as public blockchains since they still rely on a central authority.
- There is little incentive for outside users to participate in a hybrid blockchain network.
Banking: Banks can keep certain types of sensitive data private while still sharing other records with their customers.
Commercial enterprises: Most industries, from real estate to retail, can benefit from hybrid blockchain technology. For example, real estate companies can hide ownership data and share public property details simultaneously.
Supply chain management: Businesses can track inventory and shipment data on a hybrid blockchain. Some data can be shared with consumers, such as expiration dates, while other sensitive data can be private.
4. Consortium/Federated blockchains
Consortium blockchains are similar to private blockchains. They require specific permissions to join and interact with the network. However, the network is governed by a group, not a single organization.
These blockchains offer the same benefits as private blockchains, such as privacy, speed, and scalability. However, they are more secure than private blockchains due to the higher level of decentralization.
Consortium blockchains require different organizations to cooperate and act in the best interest of the shared network. This can be challenging but removes total control from the hands of a single party.
- Compared to private blockchains, consortium blockchains are semi-decentralized. This results in greater levels of security.
- Compared to public blockchains, consortium blockchains are faster and more efficient. This is because they only require consensus from a trusted group of validators.
- Consortium blockchains allow for collaboration between companies within the same industry.
- Consortium blockchains are more decentralized than private blockchains. However, they still suffer from some security vulnerabilities. Since there are a limited number of trusted validators, the entire network can be breached if a single validator’s security is compromised.
- Establishing a consortium blockchain can be difficult. It relies on a strict set of rules that all members must agree on.
Financial industry: Banks and payment processors can form a consortium to increase payment processing efficiency and transaction validation.
Supply chains: Shipping companies and logistics providers can establish consortium blockchains to share data and operate more collaboratively.
Research: Consortium blockchains enable greater collaboration between universities and research institutions. It allows them to share private data amongst their trusted peers.