Since its introduction, cryptocurrency and blockchain technology has exploded in popularity. Millions of people are investing in crypto as an asset, and it has become an essential part of many portfolios. The rise in investment has also led to developers and creators experimenting with the technology, customising it to serve various sectors such as governance and supply chains. This has led to the emergence of different types of blockchains, each with its own set of parameters and functionalities that can be used for various tasks.

The three most prominent kinds of blockchains being used are:

Public blockchain

Private blockchain

Consortium blockchains

However, before we delve deeper into how these blockchains differ from each other, let us first look at some blockchain basics. This will help us better understand public, private and consortium blockchains and their features and benefits.

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What are blockchains, and how do they work?

A blockchain is a peer-to-peer network that allows data to be stored in multiple locations instead of one central server or location.

Without a central entity to govern the database, the job of updating, maintaining, and securing the data is done by the various parties or nodes within the network. You can think of a blockchain as a public ledger whose copy is stored by multiple individuals. Each data entry in the ledger is linked to the previous, so any alteration to any entry will affect all the other data entries. In addition, the ledger is kept by multiple nodes, so any modifications to a single ledger would be meaningless as it needs to be verified by the other nodes in the network.

The blockchain system might not be as fast as a central database due to the need for consensus from all the nodes in the network, but it is more immutable, transparent, and secure.

The three different blockchains we are about to discuss will all have these key features of a decentralised blockchain network.

All of them will have a chain structure, where each block that contains data is connected to the previous block.

Every node or participant in the network will hold a copy of the blockchain, and they will be connected in a peer-to-peer topology.

For any action taken, like storing transactions, there must be a consensus mechanism so that all nodes in the network can agree before the action occurs.

Public blockchains

In a public blockchain, anyone can participate in the consensus mechanism without any restrictions or rules. Anyone who is connected to the internet can become a node. All they need to do is, download specific software that allows them to join the network. For this reason, they are known as permissionless networks.

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Public blockchains make up the majority of networks we see today. The most prominent example of a public blockchain would be the bitcoin network. Being public, anyone can see the transaction record in the bitcoin network. The nodes that participate in bitcoin's consensus mechanism are also rewarded in bitcoin tokens. Ethereum and Litecoin are other popular public blockchains.

But public blockchains are not without their downfalls. The large number of nodes operating in the network can hinder performance, resulting in slow transaction speeds. Scalability is also a big issue with public blockchains, as all nodes needs to agree before any major changes can be made to the network. Also, most public blockchains use the proof of work consensus mechanism, which is an energy consumption nightmare.

Private blockchain

Private blockchains are governed by rules and restriction and operate in a closed network. Single or multiple authorities choose the nodes that participate in the consensus; this is unlike a public blockchain where anyone can become a node. Further, the chosen nodes also have rules and restrictions on what role they play and the freedom they have within the network. Private blockchains are not truly decentralised, even though they have nodes that store a copy of the blockchain.

These blockchains are mostly used by businesses and enterprises that seek the features of a blockchain but also want to have absolute control. The authority can override transactions, and there is a limitation on who is authorised to engage in the network. Some examples of private blockchains are Corda, Hyperledger Fabric, and Hyperledger Sawtooth.

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Private blockchains have better scalability and high transaction fees because there are fewer nodes in the network and increased control over their functionality. They can be instrumental in the supply chain sector, where an enterprise could monitor every aspect of a product's journey, from a manufacturing plant to a store shelf.

Consortium blockchain

Consortium blockchains straddle the line between private and public blockchains. They incorporate features from both, giving the best-decentralised experience in a controlled environment. There are multiple central authorities in this type of blockchain instead of just one. However, the fact that there are central authorities means it is more in line with a private blockchain than a public blockchain.

Typically, consortium blockchains are used by multiple organisations to govern an industry. All these organisations have equal power, so all of these organisations have to reach a consensus to make changes to the blockchain. If one of the organisations is involved in any illicit activities, other organisations will know about it and take the appropriate action.

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Using a consortium blockchain encourages cooperation and gives better control of resources. The collaboration between different organisations leads to more exposure and innovation within the industry. It also has almost all the benefits of private blockchains, such as faster transactions, better scalability, and low energy consumption. Some examples of consortium blockchains are Energy Web Foundation and IBM Food Trust.

Use cases

The three blockchains mentioned have their advantages and limitations, but they also serve a specific purpose. Private blockchain and consortium blockchains are highly effective for enterprise companies, while public blockchains are great if you are looking for unfettered public participation.

(Edited by : Priyanka Deshpande)

First Published:Feb 18, 2022 2:16 PM IST