The 21st century has seen the biggest groundbreaking advancements in technology and one of these is blockchain technology. Since the internet’s inception, it stands as one of the most important technological innovations of the modern age.
For most people, blockchain can only offer solutions in the financial sector and process digital currencies. However, did you know that this versatile invention can also improve upon issues in information sharing, data security and even the voting system?
If you’re interested to know more about blockchain and how it can change the way we live now, continue reading below.
What is blockchain?
Blockchain technology is a decentralized system that can record massive amounts of information stored in blocks. Protected by walls of cryptographic codes, the blockchain is an immutable network that cannot be hacked, altered or tampered with.
To keep the network robust and functioning, the blockchain is managed by multiple participants in the DLT or Distributed Ledger Technology. As an added security, each transaction logged in the chain is stamped with algorithmic signatures called a hash.
Whenever a transaction occurs in the system, it’s validated by all participating nodes in the network, verified by a mining node and then added to a single block. Once the block reaches its maximum capacity, it is added to the chain and all transaction data are recorded in the ledger.
What are the different types of blockchains?
Ever since the creation of blockchain, various types have emerged, each one boasting different features that make them unique from the rest. The most common types include public, private, consortium and hybrid blockchains. Take a look at each of them in detail below:
Public blockchain
Public blockchains are networks where anyone can participate and join. Usually, this type of ledger is massive and contains huge amounts of transactions. One of the most common examples of this is the Bitcoin blockchain that has an open-sourced code managed by its community. Other common examples of public blockchains are Ethereum, Litecoin and NEO.
Because public blockchains can be accessed by anyone, it fosters a sense of trust among its members. However, the network lacks speed and scalability since anyone with the resources can participate in the ledger.
How they work
Each member of the public blockchains have their own copy of the ledger where they can access all the records of transactions in the network.
A public blockchain is able to execute transactions through consensus protocols such as Proof of Work (PoW) and Proof of Stake (PoS). These ensure that all information to be uploaded in the blockchain is true and legitimate.
If participants cannot reach a consensus, it will be rejected. However, this process varies per consensus protocol and each blockchain can have its own consensus mechanism or copy another’s.
Private blockchain
A private blockchain is a network powered by a native token where the members of the network can vote before a transaction is executed.
Moreover, compared to its public counterpart, a private blockchain has more restrictions since it only allows the members of the company or entity running it to join the network. Some of the most common examples of private blockchains include Multichain, Hyperledger Fabric, Hyperledger Sawtooth and Corda.
Private blockchains are usually designed for privately-held assets or organizations that want to use a streamlined system for their work process. The company or entity managing a private blockchain can set its own rules and parameters when it comes to accessing the data stored.
Unlike public blockchains that have a fully decentralized ecosystem, there’s an authority overseeing the function of a private blockchain. This is considered as one of its disadvantages because it eliminates the blockchain’s decentralized nature.
In terms of advantages, speed is one of its most important features. Since there is a limited number of nodes in the chain, it’s more scalable and robust in executing transactions.
Consortium Blockchain
A consortium blockchain, also known as a federated blockchain, is a type of network that can utilize the features of both public and private blockchains depending on the needs of the network.
Several companies or organizations can be a member in a consortium blockchain. Each node in the network has the capacity to validate transactions as well as receive them.
Some of the most common examples of consortium blockchains are Marco Polo, Energy Web Foundation and IBM Food Trust.
Since consortium blockchains are managed by more than one entity, they can be utilised to allocate resources. Additionally, they have more security and better scalability because nodes have more than one function.
One disadvantage of this type of blockchain is its high dependence on the participants. If a member goes rogue, the whole system can collapse. Furthermore, because it has more censorship and regulations, the overall functionality of the network is also affected.
Hybrid Blockchain
A hybrid blockchain is a combination of both private and public blockchains. This type of blockchain can function in a private ecosystem even if it’s connected to a public network.
Additionally, a hybrid blockchain’s rules can be altered depending on the needs of the organization. It also has competitive security features, making it immune to 51% of breaches and hacking attacks.
Some of the most common examples of hybrid blockchains are Dragonchain and Xin Hybrid blockchain.
Where can blockchain be utilised?
Payment processing and money transfers
Blockchain technology can be integrated into payment processing and money transfers. Without the need for third parties, people can easily send bank transfers or pay their bills without waiting for long validation processes. Additionally, it also cuts the cost, resulting in cheaper fees.
Monitoring supply chains
Monitoring supply chains is one of the major uses of blockchain technology in the industry. Instead of using paper-trail in managing chains, businesses can manage their other branches by using a system powered by blockchain. Not only will this streamline the process, but it also eliminates the inefficiencies in tracking their products.
Digital IDs
Blockchain technology can be used to create all-in-one digital IDs for people. Through the power of blockchain, people can have virtual IDs they can use for identification or processing important papers. Additionally, it can be renewed instantly without having to line up in government offices and pay expensive fees.