What are the Different Types of Blockchains?

Photo by Shubham Dhage on Unsplash

Once solely associated with Bitcoin’s peer-to-peer cash system, the breakthrough that is blockchain technology is now finding fertile ground in the mainstream business landscape. After all, blockchain is all about the creation, storage and safe-keeping of data, and as they say, data is the new oil.

This article explores how this transformative technology is extending its reach into various industries with applications that go far beyond the realm of digital currency. It also unpacks one of the most heated debates about the use of blockchain.

Four main types of blockchain

There are four main types of blockchains, each with its own advantages and disadvantages:

1. Public blockchains: Permissionless and open to everyone. Anyone can join the network, validate transactions, and add new blocks to the ledger. This makes them highly transparent and secure, but also slower and less scalable.
2. Private blockchains: Permissioned and controlled by a single entity or a small group of organizations. This allows for faster transaction times and greater scalability, but also reduces transparency and centralization. Private blockchains are often used for internal business processes.
3. Consortium blockchains: Similar to private blockchains, but controlled by a consortium of multiple organizations.This allows for more trust and collaboration than a fully private blockchain, while still offering some of the benefits of a public blockchain. Consortium blockchains are well-suited for supply chain management and other applications that require collaboration between multiple parties.
4. Hybrid blockchains: Combine features of both public and private blockchains. They can have a public portion for certain data and a private portion for confidential information. This allows for a balance between transparency, security, and scalability. Hybrid blockchains are a good option for organizations that need to share some data publicly but also want to keep some data private.

Blockchain types & applications

Public blockchains

Cryptocurrencies like Bitcoin and Ethereum are the most well-known examples of public blockchains, in addition to Solana, Litecoin and Cardano. They allow for secure, peer-to-peer transactions without the need for a central authority. Most prominently, public blockchains enable DeFi applications like lending, borrowing, and asset management without relying on traditional financial institutions.

Consortium blockchains

IBM Food Trust dashboard (Source: IBM)

Multiple companies within a supply chain (manufacturers, distributors, retailers) can collaborate on a consortium blockchain to improve transparency and traceability of goods. One good example is IBM Food Trust, a consortium blockchain which brings together participants in the food supply chain, like growers, processors, distributors, and retailers. It improves transparency and traceability by tracking food from farm to fork, allowing for faster identification of contamination sources and improving food safety.

Another example is R3 Corda, designed specifically for financial institutions. It facilitates secure and private transactions among banks and other financial players, streamlining processes like trade finance and regulatory compliance while reducing paperwork and fraud risks.

Hybrid blockchains

With the number of identity thefts and fraud on the rise, a hybrid blockchain can be used to create a secure and verifiable digital identity that can be used across different platforms. Public data like name and contact information can be stored on the public chain, while private data like social security number remains on the private chain.

One example of a hybrid blockchain is Hyperledger Fabric. This open-source framework allows for the creation of both private and hybrid blockchains.It’s flexible and can be customized to meet the specific needs of an organization. For example, a company might use a hybrid Fabric blockchain where some data is public (like product information) and other data is private (like customer transactions).

To illustrate, it can be used to facilitate secure and efficient energy trading between providers and consumers. Public data on energy usage and production can be on the public chain, while private data on consumer identities and pricing can be kept confidential.

Private blockchains

Companies can use private blockchains for various internal business processes and operations, such as automating and streamlining inventory management and document tracking (e.g., Multichain), as well as securely tracking and managing ownership of intellectual property like patents and copyrights. One particularly interesting use case is for the creation of secure and tamper-proof voting systems, although there are ongoing debates about the practicality and security considerations.

Why do some say that a “private blockchain” is an oxymoron?

There is indeed an argument to be made that “private blockchain” seems like a contradiction in terms. Let’s unpack this.

The core concept of blockchain revolves around a publicly distributed ledger. Anyone can access and verify the information on the chain, ensuring transparency and security through decentralization. Private blockchains, however, restrict access and participation. Only authorized users can see the data, which goes against the original idea of a blockchain i.e. transparency.

In addition, public blockchains prioritize security over speed, leading to slower transaction times. In a private setting, where trust is already established between participants, faster transaction speeds might be more desirable. However, blockchain’s current iteration might not be optimized for this, rendering it a little redundant for private use.

So, is private blockchain an oxymoron?

For those who view blockchain as synonymous with open, permissionless networks like Bitcoin, then private blockchains do seem contradictory. However, blockchain’s core principles — secure, tamper-proof record keeping — can be adapted to private settings. The technology itself isn’t inherently public; it’s the access control mechanisms that differentiate them, and it is irrefutable that in certain use cases, like within a company or consortium, restricting access can be desirable for security or regulatory reasons.

As such, there is validity for the use of private blockchains, which achieve some of the benefits of blockchain technology (security, immutability) within a more centralized structure.

In conclusion

Out of the four main types of blockchains, the most heated debate boils down to a trade-off. Public blockchains are highly secure, transparent, but potentially slower and less scalable. Private blockchains, on the other hand, are faster and more scalable, but less transparent and reliant on a central authority to some degree. Ultimately, the choice between a public or private blockchain depends on the specific needs of the application. There might even be situations where a hybrid approach is most suitable.