New version — Flash Trade on swaps.io (demo)
While strongly associated with crypto, blockchain technology has transformed our approach to storing, verifying, and securing data even beyond this booming industry. Following the emergence of Bitcoin, blockchains have undergone swift growth, extending their reach from cryptocurrencies to various other sectors of the traditional economy. With the expansion of use cases and environments, blockchains have been adjusting and evolving. Let's explore the types of blockchains and their strengths and weaknesses.
This blockchain type is probably one of the most widespread, particularly within the crypto landscape. Public blockchains are decentralized networks open to anyone wanting to participate in their operation, either as a node holder or miner. Such blockchains promote trust and transparency, making them the perfect framework for crypto ecosystems such as Bitcoin, Ethereum, Binance Chain, and many others.
The central benefit of public blockchains is their complete independence from individuals or organizations. This approach helps to secure said blockchain and ensure that it can continue to operate even if the founding organization dissolves or the main ideologist disappears, as long as there are enough blockchain supporters and contributors with connected computers that can keep up the chain's work. Additionally, public blockchains provide transparency within the network, with every transaction inevitably transcribed in its ledger.
Among the most critical disadvantages of public blockchains are scalability issues. These blockchains do not scale effectively, and as more users join the network, the network experiences slower performance, sometimes making the whole network completely unusable. Many projects are currently working on solutions that can make chains quicker and more effective, but the time is needed to finish those solutions and implement them successfully. Another critical problem is security. Hackers who gain 51% or more of the computing power in a public blockchain network can unilaterally alter it. Another feature of public networks that may be disadvantageous in some cases is their openness. Companies cannot limit access or usage of such blockchains, which is not ideal in some cases.
Apart from cryptocurrencies, public blockchains can also be used to establish an immutable record with a verifiable history, for instance, by digitally notarizing affidavits and maintaining public property ownership records. This kind of blockchain is well-suited for organizations prioritizing openness and confidence, like support networks and non-governmental organizations. Due to the publicly accessible nature of the network, private enterprises will probably want to avoid it.
By contrast, permissioned networks, known as private blockchains, have limited access and are controlled by the organizations that own them. These networks have the capability to set up security measures, permission levels, authorizations, and accessibility they need for their specific objective, making such blockchains a powerful tool for, for example, corporate settings where centralized control and privacy are crucial.
Apart from enhanced flexibility and improved control over its operation, public blockchains have one more important advantage - the speed. Due to their limited size and consequently limited number of participants, private blockchains can process transactions and other data more swiftly and efficiently than public counterparts. Among the disadvantages of public blockchains is, of course, the lack of decentralization.
Critics argue that private blockchains do not embody the true nature of blockchain, which is based on decentralization. However, this is not necessary in all cases. Achieving complete trust in the information is also more challenging, as centralized nodes determine validity; again, in some settings, this is not a priority. The smaller number of nodes can also pose a security risk, as the consensus method can be compromised if a few nodes behave deceitfully. Therefore, companies using private blockchains should pay great attention to audits and the team overseeing the blockchain's work.
Private blockchains are suitable for situations where the blockchain needs to be cryptographically secure, but the controlling entity wants to keep the information private rather than accessible to the public. For example, companies could opt to utilize blockchain technology while keeping their competitive edge hidden from outside entities. They have the option to utilize private blockchains to manage proprietary information and perform assessments. Other uses of private blockchains include overseeing supply chains, establishing ownership of assets, and conducting internal voting.
The hybrid blockchain incorporates characteristics from both private and public blockchains, allowing organizations to create a private, permission-based system in conjunction with a public, permissionless system. This setup provides them with the ability to regulate access to specific data stored in the blockchain and determine which data can be made accessible to the public.
In a hybrid blockchain, transactions and records are typically not publicly disclosed but can be authenticated when necessary, for example, by granting access through a smart contract. Confidential information is kept within the network but is still verifiable. Even if a private entity owns the hybrid blockchain, it cannot manipulate transactions. Users who become part of a hybrid blockchain are granted full access to the network. The user's identity is concealed from other users unless they participate in a transaction, at which point their identity is revealed to the other party.
Hybrid blockchain provides significant benefits, such as preventing outside hackers from launching a 51% attack due to its operation within a closed ecosystem. It safeguards privacy while enabling interaction with third parties. Additionally, transactions are both affordable and rapid, and it boasts superior scalability compared to a public blockchain network. On the other hand, this kind of blockchain lacks complete transparency since information can be obscured. Upgrading can present challenges, and there is no motivation for users to actively engage or contribute to the network.
Hybrid blockchain can be effectively used in fields where private information that should be kept secret and secure is intertwined with data that should be easily accessible to people. For instance, real-estate companies can utilize a hybrid blockchain to operate systems privately while displaying specific information, such as listings, to the public. Highly regulated industries like financial or medical services can also derive advantages from the usage of such blockchains. Governments could also employ hybrid blockchain to privately store citizen data and securely share the information among institutions.
Consortium blockchains represent a hybrid approach, combining elements of both public and private blockchains. The main difference is that these networks are governed by a group of organizations, providing a greater degree of control and security than public blockchains while still maintaining some level of decentralization.
A consortium blockchain is typically more secure, scalable, and efficient compared to a public blockchain network. It also provides access controls like private and hybrid blockchains but also allows for collaborations between projects, companies, institutions, etc.
Banking and payments are two areas where this type of blockchain is utilized. Multiple banks can collaborate to create a consortium, determining which nodes will validate the transactions. Similar models can be adopted by research organizations. Consortium blockchain is well-suited for supply chains, especially in applications related to food and medicine.
In response to the scalability challenges faced by blockchains like Ethereum, developers have been actively working on Layer 2 solutions. These solutions, such as Optimistic Rollups and ZK-Rollups, aim to enhance the network's capacity to process transactions while reducing gas fees. By moving transactions off-chain and settling them on the main chain, these Layer-2 solutions significantly increase transaction throughput and enhance the overall efficiency of the blockchain network.
Other Layer-2 solutions are nested blockchains and sidechains. The former is one of the scalability solutions that was mentioned earlier. A blockchain solution with nested architecture comprises several interconnected blockchains. The main blockchain establishes the network protocols, while the secondary or child chains execute transactions and communicate with the main blockchain. These chains can be structured into multiple tiers. The main chain only steps in when issues or conflicts arise. This method notably lessens the workload on the main chain, enhancing the scalability and efficiency of the system.
Sidechains function as separate blockchains that run in parallel with a main blockchain and frequently enable the transfer of assets between the two chains through a two-way peg system. They are valuable for improving the scalability and interoperability of existing blockchains but also can be very useful for testing out novel features and consensus mechanisms.
Blockchain technology is constantly advancing, and new developments are tackling numerous challenges. As it matures, it is expected to become a key component of different industries, fostering creativity and changing how we engage with digital assets and data. However, in order for blockchain technology to be widely adopted, it will be essential to tackle challenges such as scalability, regulation, and security.
Kinetex Network: Website | Kinetex dApp
