Types of Blockchain Technology: A Complete Overview

The blockchain is a technical infrastructure with diverse uses and applications. At its core, it is simply a database distributed across various networks of computers. However, this database can be structured, organized, or governed in different ways. 

The different ways that people approach blockchain software development or use the distributed ledger system built on blockchain technology have led to the creation of different blockchain types. Each blockchain type has its unique uses, merits, and demerits. In this post, we’ll provide a comprehensive overview of the different types of blockchain.  

Summary

• The distributed ledger technology that forms the basis of blockchain systems can be structured and governed in different ways. 
• Blockchain technology can include public, private, hybrid, consortium, permissioned, or permissionless blockchain.
• Each blockchain type has its unique attributes, pros and cons, and these influence their specific use cases or applications.
• Public blockchain systems are the most popular today, but alternatives like private and hybrid technologies are fast gaining prominence too. 

Why Is It Useful to Have Different Blockchain Types?

All blockchains consist of a network of computers connected via nodes that execute transactions by adding new blocks to a previous block. While the underlying technology is the same, the structure of these nodes and the pathways that govern them can vary in different instances. 

A blockchain network can be structured in different ways depending on its intended usage. Each scenario or use case requires a specific level of access, processing speed, security, and privacy.

For instance, consider a digital currency like Bitcoin, which serves as a secure and borderless monetary system or utility asset for the public. The digital ledger technology that powers this monetary system is open to anyone from anywhere in the world, which means anyone can join in to verify other nodes through a “proof of work system.” 

Compare this to a blockchain network owned by a bank, where the private network and associated blockchain data are only open to approved users within the local network. This shows that different blockchain types develop as a result of the potential uses of the blockchain. 

Having different types of blockchain makes it possible to have different blockchain platforms with different levels of control, security, and privacy while still maintaining the main principles of a distributed ledger system. 

Different Types of Blockchain

Depending on how they’re structured or governed, a blockchain system can be public, private, or a mix of both. Other types of blockchain technology include consortium, permissioned, and permissionless blockchain. Each blockchain type has its distinct benefits and disadvantages, which largely drive its ideal uses. Here’s a detailed overview of different blockchains and the key components of the blockchain network in each instance.

Public Blockchain

As the name suggests, a public blockchain network is open to the public. This type of blockchain technology fully embraces one of the main attributes of the blockchain system, which is decentralization. In this type of distributed ledger system, every member of the peer-to-peer network has an immutable copy of the ledger. 

Anyone with an internet connection can join a public Blockchain network to become a node. All nodes have equal access rights, which allows them to participate fully in creating and validating blocks. To do this, the participating nodes in a public blockchain have to complete or solve complex computations to verify transactions. 

A public blockchain often has an open source code, which means anyone can check transactions to uncover problems and suggest possible fixes. Public blockchains are mainly used for cryptocurrency mining and exchange. These technologies use a proof-of-work or proof-of-stake consensus mechanism to secure transactions. 

Pros 

• Fully decentralized system: In a public blockchain network, users can take specific actions beyond the scope or control of even the developer’s authority. 
• Trustable: All transactions on the public blockchain are verified by the proof-of-work or proof-of-stake system, which ensures that there are no fraudulent transactions.
• Secure: The distributed ledger records transactions on all participating nodes, securing transactions and making it more difficult for hackers to access the entire network. 
• Open and Transparent: In a public blockchain system, data is publicly stored on every authorized node and can be viewed by anyone.  

Cons 

• Slow processing speed: Due to the large number of nodes involved on public blockchain networks, the number of transactions per second tends to be very low, leading to longer transaction validation times. 
• Scalability: The network gets slower as it grows bigger 
• High Energy Consumption: The consensus system (especially POW consensus mechanism) can be energy-intensive with high transaction fees. 

Private Blockchain

A private blockchain is a type of blockchain network operated in a restricted environment and controlled by a single entity. Although the distributed network is still powered by a peer-to-peer connection, the blockchain ledger is only opened to a few predetermined nodes and not to the general public.

In a restricted network like this, only network nodes approved by the controlling entity of the blockchain get to participate and contribute to the computing power of a private blockchain. In addition, the participating nodes do not have equal rights to execute functions on the network. 

Private blockchains also tend to be closed-source, which means the general public does not have access to the code that powers the blockchain network, limiting the chances of data tampering and other related issues.

The main allure of private blockchain networks is that they’re effective for securing information. Therefore, companies that want to leverage the advanced security and access controls that blockchain technology offers without exposing their information to the public eye tend to go for private blockchain. 

These companies use the private blockchain system for various purposes like internal auditing, asset management, internal voting, and so on. Examples of private blockchains include Corda and Hyperledger. 

Pros 

• Speed: With very few nodes verifying transactions, private blockchains tend to be very fast and they require less computing power. 
• Scalability: Companies that use a private blockchain network can easily adjust the number of nodes on the network to their preferred size. 
• Privacy: Private blockchain networks are preferred by organizations that want to retain a level of privacy and confidentiality while still leveraging blockchain technology.

Cons 

• Centralized: A private blockchain system is controlled by a central entity that has full administrative control and monitoring capabilities.
• Security: Fewer nodes makes private blockchain projects more vulnerable compared to public blockchains with more nodes.
• Trust issues: With fewer participants verifying transactions, trusting the integrity of transactions can be a little difficult. 

Hybrid Blockchain

A hybrid blockchain combines elements of both public and private blockchain systems. It is managed by a central entity, with a private permission-based system alongside a public system. This will restrict access and while giving central authority control over the specific data that will be opened to the general public. 

A hybrid blockchain system is private in the sense that transactions and records are not public. However, they can be verified by approved users through a smart contract system when necessary. Also, the private entity that controls a hybrid blockchain system cannot alter or make any changes to transactions on the blockchain. 

A hybrid blockchain system is preferred by entities who want the best of both worlds. Companies operating in highly regulated industries like the banking sector often prefer this type of system. It is also used in industries with systems that serve a large section of the public where transparency is important, but access has to be regulated, such as real estate, retail, and the healthcare industry. 

Pros

• Flexibility: A hybrid blockchain network has both public and private elements that can be customized to fit specific needs
• Security: With a hybrid blockchain, you get to enjoy the data integrity that a private blockchain network offers while leveraging the security of a decentralized system.
• Transparency: It provides a higher degree of transparency compared to private systems, fostering trust between participants in the network.

Cons

• Complexity: Managing and maintaining hybrid blockchains can be more complex compared to private and public blockchains.
• Not a fully decentralized network: The level of control offered by some hybrid blockchains might raise concerns about censorship or manipulation

Consortium Blockchain

Also known as a federated blockchain, a consortium blockchain is managed by multiple entities instead of just one. In this case, the organizational members that form the consortium collaborate to manage the decentralized blockchain. The consortium blockchain system eliminates the problems associated with having just one controlling entity for the network like in private blockchains 

A consortium blockchain is governed by consensus mechanisms controlled by preset centralized nodes. The validator node in a consortium blockchain initiates, receives, and validates transactions on the blockchain network. 

This system of managing blockchain transactions is commonly used by banks and other players in the financial services industry. Multiple banks can come together to form a consortium blockchain, with the participating parties deciding which nodes validate transactions. It may also be used by supply chains and research organizations. 

Pros 

• Secure and private: The verified blocks in a consortium blockchain are hidden from public view, making them more secure and private. 
• Scalable and efficient: Consortium blockchain tends to be more efficient than public blockchains because they’re controlled by a single validator node.
• Access control: The level of access controls in consortium networks is similar to what you get in a private or hybrid blockchain system. 

Cons 

• Lack of transparency: A consortium blockchain isn’t open to the public.  
• Security vulnerability: With a single peer node validating transactions, consortium blockchains have a high risk of being compromised. 

Permissionless Blockchain

A permissionless blockchain is open to everyone or anyone to join. This is usually the case with most public blockchains, where there’s open participation of all users. Permissionless blockchain networks are fully decentralized. All participating nodes in a permissionless blockchain are on the same level, with no gatekeepers or permission requirements. 

Unlike permissioned systems where access is limited to hierarchy in the system, the transactions in a permissionless blockchain system are fully transparent to all users. Users also enjoy a level of anonymity since they don’t have to receive special permission to be part of the network. 

Pros 

• Transparency: A permissionless system enjoys a high degree of transparency since everyone can access the entire blockchain and check transaction details on the network. 
• Resistance to censorship: Without a central controlling entity, there’s no censorship or limitations for users. 
• Strong security: Permissionless systems are open to the public, which makes it difficult to hack or corrupt all the participating nodes at once. 

Cons 

• Low performance: More users means transaction speed will be slow. 
• Resource intensive: Large amounts of energy and computational power are needed to achieve consensus in a permissionless system. 
• Less privacy: A public permissionless system offers less privacy, which makes it unsuitable for certain use cases. 

Permissioned Blockchain

A blockchain system is said to be permissioned if there’s a limit to the number of users that can participate or engage in transactions and what they can do on the network. To be part of a permissioned blockchain, participants must either be invited or authorized by the controlling entity of that blockchain network. Although private blockchains are often permissioned, public blockchain networks are sometimes permissioned too. 

In permissioned blockchains, data is still stored in a centralized repository that can be accessed by anyone who has the necessary permission to view it. This type of closed ecosystem ensures optimal privacy of the data stored on the blockchain. In many cases, individual users may also have specific permission levels assigned to them, which determines the action they can take on the blockchain. 

Pros 

• Privacy: Since only users with permissions can be part of the network, outsiders cannot access transaction information. 
• Control: It isn’t fully centralized, so the central entity of the blockchain network has the freedom and full control. 
• Flexible: Permissioned systems tend to be flexible and customizable to an organization’s specific needs. 

Cons 

• Increased risk of corruption: By gatekeeping access, there’s a high risk of collusion and corruption in a permissioned system. 
• Not centralized: A permissioned system is not centralized, which means the owners can change the rules to suit their preferences. 

4 Types of Blockchain Networks Compared

Where Can We Use Different Types of Blockchain Networks?

Due to their peculiarities, the different types of blockchains can be linked to specific industries or use cases where their unique attributes will be most relevant. With public blockchains, for instance, the emphasis is typically on open participation, decentralization, and transparency. 

This explains why blockchain technology like Bitcoin and Ethereum have become widely popular in the financial industry, where these attributes are of utmost importance. These blockchain solutions enable secure and decentralized peer-to-peer transactions without relying on traditional financial institutions. 

Similarly, private blockchains are most relevant for industries that prioritize security and control. This makes them ideal for organizations that want to protect their sensitive data from the public eye. Think of a supply chain for instance, participants in a blockchain-based supply chain can benefit from the transparency and ease of tracking transactions without opening up the supply chain data to the general public. Similarly, private blockchains can be used within the healthcare sector to manage patient medical records while granting secure access to authorized personnel only. 

Consortium blockchains offer a middle ground between the public and private blockchain systems. By having multiple entities collaborating, this collaborative approach to blockchain management is most valuable for industries with multiple players like the insurance or banking sector, where multiple companies might need to share data securely for claims processing or banking transactions. All the participants can benefit from faster and more secure blockchain transactions, without giving up control. 

Hybrid blockchains are the most flexible because they combine elements of both private and public networks. A government agency might choose this system to manage a land registry. Here, users get public access to verify asset ownership or retrieve information, but transactions on the same network are kept private and secure. 

Similarly, in blockchain game development where games combine both public and private elements a hybrid blockchain mechanism may be ideal. Public blockchain can be used for things like showcasing game assets such as NFTs, while private elements can be used to manage in-game transactions efficiently.

Conclusion

As the analysis of the blockchain type above shows, each blockchain has unique attributes that determine the level of security, transaction integrity, transparency, and control users get when they adopt them. 

So far, public blockchains like Bitcoin and Ethereum seem to be the most popular. Blockchain future predictions suggest that all of these types of blockchain platforms have unique potential, and they will continue to gain adoption, especially in industries where their merits are most valued.