Guide to the 4 types of blockchain networks
Blockchain is becoming increasingly popular for many applications that companies can use on a variety of networks. It is best known for its central role in cryptocurrency, but blockchain has many more uses.
Blockchain networks can be used to customize their functionality and suit the needs of a company. The technology may seem confusing at first, but blockchain is mainly broken down into two major categories and four unique types of networks.
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Blockchain network categories
Blockchain networks usually fall into one of two categories: permission or unauthorized. Each of the four unique types can be sorted into one of these categories. although some may include both.
Companies considering using blockchain technology should start by deciding whether a licensed or licensed network will work best for them. Networks in these two major categories work differently and have their advantages and disadvantages.
Unauthorized networks
Unauthorized blockchain networks are probably the first thing that comes to mind when most people think of blockchain today, even though they may not be aware of it. They are the classic decentralized general ledger made known by cryptocurrencies. Anyone can join the network and create new data nodes. Everyone on the network is anonymous, and there are no rights restrictions from one node to another.
Unauthorized blockchain networks are generally more secure than permitted because they are decentralized. There are so many nodes that it is challenging for bad actors to inflict damage on the entire system. They are open source and easier to access, so there is also a level of transparency that increases reliability. Everyone can see every transaction on the blockchain, even if they can not see who did it.
Of course it’s a double-edged sword. For some businesses, the openness of unauthorized networks can be too much of a privacy compromise. They are also so large that they tend to work much slower. It takes longer for the networks to process data, which is not energy efficient.
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Allowed networks
Allowed blockchain networks are less decentralized and open, with restrictions on who can access what. Users may only be able to work in certain nodes, and only specific individuals can validate transactions. Their identities are not anonymous on the blockchain.
Many companies prefer licensed blockchains because they have much better privacy than unlicensed networks. They are more secure in their own way since only some users can create, edit and validate transactions. The number of nodes is limited, just like the number of users, so allowed blockchain networks also run faster than unauthorized networks.
However, it is worth noting that the limited number of nodes can make them vulnerable to attack since they are more confined.
Types of blockchain networks
1. Public blockchain
The first of the four main types of blockchain networks is public blockchain. This is the only completely unauthorized type of network and the type most commonly used for cryptocurrency applications. One of the most important benefits of this distributed ledger technology is the inherent security.
The general ledger is open source and is not stored in one place. Everyone who has access to it has their own copy, so it is very difficult to destroy some of the data on the public blockchain. Once a transaction is validated, it cannot be changed.
Many computers connected to the public blockchain validate the transactions and confirm that all the data is legitimate. This requires significant data capacity and is notorious for requiring massive energy. In fact, the entire cryptocurrency community is facing controversy over the carbon emissions generated by verifying blockchain transactions on all of these computers. The slow processing speed and the enormous computational power required are major disadvantages of a public blockchain.
The most common applications for public blockchain networks are cryptocurrency and document validation. For example, blockchain technologies such as smart contracts and NFTs can use them.
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2. Private blockchain
Private blockchains, also known as managed blockchains, are permitted networks with limited access and user rights. They are pseudo-centralized in that a single authority can control them. Unlike public blockchains, these networks do not use open source code. Only authorized users or nodes can view, create, edit or validate data as determined by the party overseeing the system.
Private blockchain networks tend to be an attractive choice for businesses. A business can use this technology while limiting who can see their network, including keeping competitors out of their data. Private blockchains also run much faster than public versions because there are fewer nodes to work with.
Of course, some critics of these networks say that they may be less secure. Any savvy user can analyze open source on a public blockchain and find and repair bugs and security vulnerabilities. This is not the case on a private network. Companies that use this type of network must take it upon themselves to ensure that it is designed and operated securely.
It is also worth acknowledging that a smaller number of nodes on private networks can be a vulnerability in itself. This concentration means that there is more risk if some of them go offline, and it may be easier for a hacker to cause serious damage if they break into the network.
3. Hybrid blockchain
Some blockchain networks have aspects of both permitted and unauthorized versions. These are hybrid blockchains. This type of network can find a good balance because they offer many important benefits of blockchain for businesses, such as the ability to use smart contracts and quickly verify transactions. They do this without being completely open or public.
Hybrid networks have one central authority, but at least some of the nodes are open to public validation, adding a level of transparency without relinquishing control. People can use the network without having the access required for a hostile takeover. Some nodes and transactions may be published, while others may not. This configuration is up to the controlling authority.
There are many applications for hybrid blockchains. They are already gaining popularity in real estate, but also have utility cases in healthcare, government and retail. For example, citizens can vote for a hybrid blockchain, where identities and legitimate voices are impossible to duplicate or falsify. Election officials can then view and validate the data without the risk that they may change anything in the process.
Similarly, a hybrid blockchain in healthcare can allow medical personnel to view and access patient records while maintaining enough privacy to keep unwanted users away from these nodes.
4. Consortium blockchain
The last type of blockchain network is a consortium. They are also known as federated blockchains and are similar to private systems, but with a few important differences. Consortium networks are managed by a group of authorities instead of a single controlling entity. Several organizations can even monitor the same consortium blockchain.
A consortium network is somewhat decentralized while maintaining the characteristics of a private network with full permission. This type of blockchain is becoming increasingly popular with companies, with the likes of IBM using it.
Consortium network requires a high level of cooperation among all parties, and they can be an effective model for supply chain, finance and business applications. The organizations involved can maintain access controls and gain the processing speed, security and scalability of a private network.
Of course, consortium networks also have disadvantages to consider. For example, all organizations that manage the network must approve changes. This can limit the adaptation a company gets and the time it takes to push through proposed protocols.
Like private networks, a lack of transparency can be a problem for some businesses. Vulnerabilities from even one of the supervisory organizations can open the door for a breach of the entire system. It is also worth considering the possibility that all the companies that manage the blockchain together can hide data from each other. As such, maintaining a consortium blockchain requires a high level of trust among partners.
Blockchain for companies
Blockchain technology can be extremely valuable to businesses. They can use a blockchain network to quickly and seamlessly verify transactions, validate contracts and manage data.
Each type of network has its advantages and disadvantages, but there is a model for each use situation companies have. Choosing the right one simply requires finding the right balance between openness, security and access control.
