Blockchain technology has developed considerably over the last decade. Bitcoin, the first blockchain network, was introduced as a solution to the financial crisis in 2008. The bitcoin blockchain is the first generation of blockchain technology. Since then, there are several layer-1 and layer-2 blockchains. Each blockchain serves a distinct purpose and solves a distinct challenge.
Four types of blockchain
Organizations employ blockchain technology to get the most out of their business. Why would a project select one blockchain over another? There are different reasons for this. The most important factors are privacy, speed of transactions, scalability, security, and the environmental impact associated with running the network.
In a public blockchain, anyone can join and engage in the network. A good example is the Bitcoin blockchain. One major challenge with this is the excessive computational power that is needed to run these blockchains. There’s little or no privacy for transactions. Typically, transactions are verified using consensus algorithms like proof of work and proof of stick. At the core, we have nodes that participate in making the blockchain run. These nodes do the heavy lifting, which includes verifying transactions.
The private blockchain is also a decentralized peer-to-peer network. But the difference is in how they are governed. There is a single entity that determines who is allowed to participate in the blockchain. And there is a shared ledger that is maintained on this blockchain.
This has the advantage of increasing trust and confidence based on the reputation of the entity that governs the blockchain. One advantage of private blockchains is that they can be operated behind a corporate firewall, or hosted on-premise.
A hybrid blockchain combines the best of both worlds. It allows a private permission-based system in addition to a permissionless system. Only part of the information is made public, while the rest remains confidential.
Because of its structure, it combines, it allows for easy integration with public blockchains. Transactions in the private network section of the hybrid blockchain are validated within the network. Also, the hybrid blockchain is resistant to 51% attacks based on its structure. And it encourages high network performance. This makes it more scalable and cheaper to operate.
In some arrangements, organizations come together to maintain a blockchain. When the business is such that participants need to get permission, the best approach is a consortium blockchain. Generally, consortium blockchain networks have higher transaction speed and scalability. Besides, it allows control across different organizations.
Choosing a blockchain
When choosing the blockchain, there are two key elements to consider. The first one is the access level. Can you work with permissionless access, or is it a mix of both? Does the network corporate globally or concentrated within a particular regional zone? These are questions that will help to decide which blockchain will best suit your purpose.
The most popular and successful blockchains to date have been public. The likes of Bitcoin Ethereum, Solano, Cardano, and Polygon are public blockchains. Each one has a different consensus mechanism, which helps to tackle the issue of scalability and security. In practice, it is difficult to have both to have it all there, usually neck in one aspect or the other.
For proof of work blockchain, the challenge is usually scalability and speed of transactions. In proof of stake blockchains, transactions are typically faster. Yet, there is the challenge of security, which is very important. So, there’s a kind of tradeoff between security and performance.