3 Types of Blockchain Explained

Since Satoshi Nakamoto unleashed the original Bitcoin Blockchain, several different variations of blockchains have emerged.  Depending on the configuration of each blockchain, different types of content can be stored on the blocks. What users can do on each blockchain also depends on the configuration.

The 3 main types of blockchain

In this article, we’ll cover the three basic types of blockchains: public, private (permissioned), and consortium. You’ll learn what their features are, the pros and cons of each, and some example use cases. We start with public blockchains.

Public Blockchain

Public blockchains are just that:  open to the public. Anyone is welcome to become a user of the network and take part in the core activities. They are sometimes referred to as ‘permissionless’ blockchains because no one grants authority for someone else to interact with the protocol.

But by being open and public does not mean users are less secure than with private blockchains. In fact, it’s the other way around. What’s actually public is not any identifying information about a user or trader. Only the transaction information is openly viewable, such as the wallet number, the date and the amount. The ability for people everywhere to actively read, write and audit the blockchain’s code lends to its self governance and a higher level of security.

On public blockchain protocols like Bitcoin, you have a decentralized network. By decentralized, we mean that the computers running the network are distributed amongst many nodes. The actual number of nodes is not really accessible because there are some closed-port nodes that can’t be probed and counted. But anyone can join the Bitcoin Network, regardless of geographic location, income level or age.

types of blockchain
The Bitcoin Blockchain is a perfect example of a public blockhain.

Why public blockchains are secure

One of the main reasons public blockchains are more secure is because the ledger containing all the transaction information can be loaded up by each node. This makes it even more difficult to hack the Network because you’re not just targeting one site, but hundreds or thousands.

Additionally, public blockchains are immutable. This means they cannot be modified without changing the entire blockchain record of all transactions. Public blockchains like bitcoin use an incentivization model which, in general, incites users to be good actors on the network.

Public blockchains can be victims of hacks but the chances are so slim because, as with bitcoin, it would be exceedingly time and resource intensive to hack it. So much so that it would not even be worth it.

Possibly the best thing about public blockchains

Maybe the best feature is the peer to peer nature of public blockchain networks. A user from one country can transact any time of day or night, directly with another user in a different country with great speed and a pittance of a fee. That’s the kind of financial freedom that public blockchains allow. Peer to peer functionality can be available in private and consortium blockchains. But it is to a lesser extent and only available to allowable members within those types of blockchain.

Consensus Mechanism

In every type of blockchain, a consensus is a method of determining which transactions are legitimate and which are ready to go onto the blockchain. So every blockchain has some sort of consensus mechanism.

A feature that is unique to public blockchains is its network-wide consensus mechanism. This means that to achieve consensus, the control and decision making is spread across the Network. Examples of this type of consensus mechanism include bitcoin’s Proof of Work (PoW) and Dash’s Proof of Stake (PoS).

Public Blockchain Use Case

Bitcoin is probably the best example of an open, public blockchain. Anyone can run a node with some equipment, electricity and a bit of tech savviness. The transactions on the ledger are open to the public on the Blockchain Explorer. The consensus mechanism keeps the Network running smoothly in a decentralized manner.

While many people think of Monero as a privacy coin, it does reside on a public blockchain. Other examples of public blockchains include Ethereum, Stellar and Dash.

Private (Permissioned) Blockchain

While public blockchains offer transparency, immutability, global accessibility, and a distributed network, private blockchains are a horse of a different color. They are more geared toward internal auditing with some level of cryptography for an enterprise. So private businesses may want a private blockchain where they can enable access only for the users they verify.

A central authority (the enterprise or business) is in charge of writing and validating transactions as well as determining who can read the transactions. That same entity decides what the mining rights are and can also override or otherwise modify entries on the blockchain ledger. This is in stark contrast to the Bitcoin Network, where data cannot be changed or deleted.

Why private blockchains are centralized

Private blockchains function in a closed ledger that uses cryptography to secure it. It’s not even possible for all users to have the ability to run a node, like with bitcoin. Instead, certain activities are meted out as different ‘permissions’ and only certain participants have these permissions. This makes sense within a large business that wants to improve efficiency without making their blockchain and transactions public.

This type of system allows businesses to add in restrictions they feel necessary so they may fully control all activities and roles within the network.

Sample of activities in a private blockchain

  • Access – who can access the blockchain to read and write transactions?
  • Visibility – when transactions are broadcast, who do they go to?
  • Storage – how will they store the data?
  • Execution – who has permission to begin a process, or stop or restart one?

These types of blockchains are also called permissioned. This is because the central authority (i.e. the business owner) grants permission to the users of the network. No one outside of the network can access the blockchain.

Members of the private blockchain network are known to each other but the transaction details are private. Kind of the opposite of public blockchains. In a nutshell, private blockchains offer more efficiency and faster transactions for private enterprises but the security is not as strong as with public blockchains.

Consensus Mechanism

Consensus on private blockchains usually happens via one single party or a select few. So while there is a level of cryptographic security on the ledger, consensus is far from the distributed model and thus can lead to manipulation.

Use case – Hyperledger Fabric

IBM’s Hyperledger Fabric is a permissioned blockchain that enterprises can deploy in their own private network. Once users in this type of private blockchain receive an invitation into the Network, they can then participate in the network according to the permissions the central authority grants them. The network participants engage in the private blockchain in a somewhat decentralized manner. But even with authoritative nodes set up, a central authority is in full control.

As one example of a private enterprise utilizing Hyperledge Fabric, Walmart partnered with IBM to use this blockchain to track food from the original source all the way to the shelf. In cases of food recalls, this type of blockchain could help retailers quickly determine the source of a food in question.

So with the global food supply chain, all the people who participate in this private blockchain – from farmers to distributors to retailers to customers – could have permissioned access to data concerning the origin and current tracking information of their food products.

Consortium Blockchain

The next item in our types of blockchain review is the consortium blockchain. Sometimes called a federated blockchain, a consortium blockchain is a semi-public, permissioned system that is controlled by certain preselected nodes. It’s a bit of a hybrid between public and private blockchains.

Like private blockchains, the network is centralized with one point of failure in the case of a hack. But consortium blockchains utilize a greater degree of cryptography and they use it to effectuate enhanced auditability and security. Control over a consortium blockchain is not within one central authority, but a number of approved users.

Consortium blockchains do contain some of the same cryptographic features of their public counterparts, but they enable much greater control from a centralized source of a specific few nodes.

Consensus Mechanism

With consortium blockchain, we see a blend of centralization and decentralization. It basically allows for a certain number of nodes that must sign off on each transaction for verification. So while control is not completely centralized, it doesn’t fully embody decentralization either. Consortium blockchains basically consist of a certain number of nodes that have pre-approval from the network.

By providing enhanced efficiency and transaction privacy, consortium blockchains mimic the benefits of private blockchains. But they don’t consolidate authority over read/write and permissions with just one company, as their private blockchain counterparts do. 

Use Case – J.P. Morgan Coin / Quorum

In the case of JPMorgan’s cryptocurrency, they plan to unite their JPM coin with many other banks on their Quorum Blockchain. While many are viewing this as a private blockchain, it is open to the public to a small extent, the public being the other member banks  They’ve been developing this enterprise version of the Ethereum Blockchain for several years and according to their Valentine’s Day press release, they have already tested out a few transactions.

Institutional payment customers of J.P. Morgan will be first to utilize the JPM coin on the Quorum Blockchain. When they join this consortium blockchain, they can use it to make faster international or local payment transfers, which they can do anywhere, at any time of the day or night, and with less cost.

We hope this article on the different types of blockchains has given you some clarity into the different types of blockchains. Be sure to follow us on Twitter to get all the latest, updates, news and tutorials.

trade predictions