Blockchain technology is an advanced database mechanism that allows transparent sharing of information within a business network. So how does Blockchain Technology work and what are the 4 types of Blockchain. Let’s find out by reading the article below.
What are the 4 types of blockchain?
There are four main types of blockchain networks: public blockchains, private blockchains, consortium blockchains, and hybrid blockchains. Each of these platforms has its pros, cons, and ideal uses.
How does Blockchain Technology work?
Public Blockchain: The first type of blockchain technology is the public blockchain. This is where cryptocurrencies like Bitcoin originated and helped popularize distributed ledger technology (DLT). It eliminates the problems that come with centralization, including less security and transparency. DLT does not store information in any one place, but distributes it in a peer-to-peer network. Its decentralized nature requires some way to verify the authenticity of the data. The method is a consensus algorithm whereby participants in a blockchain can agree on the current state of the ledger. Proof of Work (PoW) and Proof of Stake (PoS) are two common consensus methods.
Public blockchains are unrestricted and permissionless, anyone with internet access can log into the blockchain platform to become an authorized node. This user has access to current and past records and performs mining activities, complex calculations used to verify transactions and add them to the ledger. No valid records or transactions can be altered on the network, and anyone can verify transactions, find bugs, or propose changes because the source code is usually open source.
Private Blockchain: A blockchain network that works in a restrictive environment like a closed network or under the control of a single entity is a private blockchain. While it operates like a public blockchain network in the sense that it uses peer-to-peer connections and is decentralized, this type of blockchain is much smaller. Instead of anyone joining and providing computing power, private blockchains typically run on small networks within companies or organizations. They are also known as permissioned blockchains or enterprise blockchains.
Consortium Blockchain: Also known as a federated blockchain, it is similar to a hybrid blockchain in that it features both private and public blockchains. But it differs in that multiple organizational members collaborate on a decentralized network. Essentially, a consortium blockchain is a private blockchain with limited access to a specific group, thereby eliminating the risk of having only one entity control the network on a private blockchain.
In the consortium chain, the consensus process is controlled by preset nodes. It has a validator node to initiate, receive and validate transactions. Member nodes can receive or initiate transactions.
Hybird Blockchains: Sometimes organizations want the best of both worlds and they use a hybrid blockchain, which is a blockchain technology that combines elements of both private and public blockchains. It allows organizations to build a private permission-based system alongside a public permissionless system, allowing them to control who has access to specific data stored on the blockchain, and which data will be publicly available.
Typically, transactions and records in hybrid blockchains are not made public, but can be verified when required, for example by allowing access through smart contracts. Confidential information is kept inside the network but remains verifiable. Even though a private entity may own a hybrid blockchain, it cannot alter transactions.
When users join the hybrid blockchain, they have full access to the network. Users' identities are protected from other users unless they participate in transactions. Then, their identities are revealed to each other.
I hope this article will help you to learn how does Blockchain Technology work and what are the 4 types of Blockchain. Blockchain technology can also be adapted and implemented in other activities such as healthcare, insurance, supply chain, IoT, etc.
