Introduction

At the time of its launch, Bitcoin laid the foundation for the entire crypto industry, which is based on the technology behind the protocol - the blockchain. Energetic innovators have already discovered the potential of this technology and are exploring its applications in all possible industries.

Bitcoin is a cryptocurrency, a digital form of money that is not controlled by any organization. Instead of a traditional system, a combination of distributed database technologies, financial incentives and cryptographic techniques are used to allow a wide ecosystem of participants to coordinate their activities, avoiding all possible managers and administrators.

The data structure used by the Bitcoin network has gained widespread popularity in the more than 10 years since its inception. Blockchain technology is currently being experimented with across sectors, from finance and supply chains to legal systems and public administration.

In case you missed our beginner's guide to blockchain technology, a blockchain is a simple data structure whose records cannot be edited, only extended. You can think of it as a spreadsheet in which each cell points to the previous one, so that any attempt to change a previously created cell is immediately obvious. Blockchain typically stores information about financial transactions, but it can be used with any digital data.

Continuing our analogy with using a spreadsheet, the record document itself will be held by many parties. Each participant runs specialized software on their device, which connects and synchronizes with other devices with the program already running, so that everyone has an updated database at their disposal.

For this reason, in such a system there is no main source from where the participants draw all the information (it is a distributed type of network). This means that the spread of information is much slower, but this in turn makes the network somewhat stronger in terms of security and redundancy.

In the next part of the article, we will look at three types of blockchains: private, public and consortium. Before that, let's take a look at some of the key features that all three types have:

• Register only for data entry. For a network to be classified as a blockchain, the system must follow a block chain structure in which each block is linked to the previous one. If our blockchain is a set of cells in a spreadsheet, then blocks are individual cells.

• A network of pores. Each member of the network has a copy of the blockchain. These participants are called nodes, and they interact on a peer-to-peer basis.

• Consensus mechanism. In this system, there must be a certain mechanism of interaction for nodes, in order to achieve a general agreement on the correctness of transactions distributed over the network. It is necessary to confirm the absence of false data recorded in the blockchain.

The table below lists some of the main differences.

Public blockchains

If you've used cryptocurrency recently, chances are you've interacted with public blockchains. They make up the vast majority of distributed ledgers in existence today. We call them public because anyone can view the transactions taking place, and joining the block validation is simply a matter of downloading and installing the necessary software.

We also often use the term "inclusive" in conjunction with "public." No one will be able to prevent you from participating or becoming part of a consensus mechanism (eg by mining or staking). Since anyone can join and be rewarded for their role in reaching consensus, we should see a highly decentralized network topology built around a public blockchain.

In the same vein, we expect a public blockchain to be more resistant to censorship than a private (or semi-private) blockchain. Since anyone can join the network, the protocol must have some mechanisms to prevent attackers from gaining an anonymous advantage.

However, the security-oriented approach to public blockchains comes with performance trade-offs. Many face scaling hurdles and bandwidth can be relatively weak. Also, making changes to the network without splitting it can be a problem, as it is rare for all participants to agree to the proposed changes.

Private blockchains

Unlike the inclusive nature of public blockchains, private blockchains set rules that determine who can see and write data to the blockchain (such blockchains are exclusive). These are not decentralized systems because there is a clear hierarchy of control. However, they are distributed because many nodes still keep a copy of the blockchain on their devices.

Private blockchains are best suited for enterprise spaces where an organization wants to use blockchain properties without making its network accessible to the outside world.

Although the Proof of Work algorithm is wasteful, it has proven to be necessary for the proper functioning of an open and public environment, given the security model. However, in a private blockchain, the threats prevented by PoW are not so dangerous - the identity of each participant is known, and the management is in one hand.

In this case, a more efficient algorithm is one with pre-assigned validators, which are nodes chosen to perform certain functions and verify transactions. In general, this is a set of nodes that must sign each block. If nodes start to behave maliciously, they can be quickly detained and removed from the network. Given the bottom-up control of the blockchain, it is fairly easy to coordinate a reversal.

Consortium blockchains

A consortium blockchain sits at the border between public and private blockchains, combining elements of both. The most noticeable difference from previous systems can be observed at the level of consensus. Instead of an open system in which anyone can verify blocks, or a closed system where only one organization appoints block producers, a consortium blockchain has several equal parties as validators.

Therefore, the rules of the system are flexible: the visibility of the blockchain can be limited only to validators, available for viewing by authorized persons or everyone. Provided validators can reach consensus, changes can be easily deployed. As for the functioning of the blockchain, as long as a certain part of these parties are functioning honestly, the system will not face problems.

A consortium blockchain would be most useful in situations where multiple organizations operate in the same industry and need a common framework to perform transactions or transfer information. Joining this kind of consortium can be beneficial for organizations as it allows them to share information about their industry with other players.

Which blockchain is better?

Public, private and consortium blockchains do not contradict each other, as they are completely different technologies:

• Well-designed public blockchains are better when it comes to censorship resistance at the expense of reduced speed and bandwidth. They are best suited to provide better security for transaction settlements (or smart contracts).

• Private blockchains can prevail due to the speed of the system, as there is no need to worry about central points of failure like public blockchains do. They are ideal for situations where a person or organization must maintain control and information must remain confidential.

• Consortium blockchains reduce some of the risks of a private blockchain (by removing centralized control), and the smaller number of nodes usually allows them to operate much more efficiently than a public blockchain. Consortia are suitable for organizations that want to simplify interactions between themselves.

Results

There are many blockchain network options for individuals and businesses engaged in various activities. Even within the categories of public, private, and consortium blockchains, there are a number of complexities that lead to different user experiences. Depending on the use case, users will need to choose what works best for their goals.