What Are the Types of Blockchain Technology? Explaining and Comparing Different Blockchain Types

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.

Blockchain applications are transforming industries such as finance, supply chain, and organizational management by improving security, transparency, efficiency, and privacy.

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.

• The distributed ledger technologies that form 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.

Introduction to Blockchain

Blockchain technology has revolutionized the way organizations approach data security, transparency, and trust. At its foundation, a blockchain is a decentralized network that allows multiple parties to record, verify, and share transactions without relying on a central authority. This is made possible through distributed ledger technology, which ensures that data is stored across a network of computers rather than in a single, centralized location. The decentralized nature of blockchain not only enhances security but also fosters transparency and accountability among participants.

Over time, the evolution of blockchain technology has led to the development of various types of blockchain, each designed to meet different needs and use cases. Public blockchains are open and accessible to anyone, while private blockchains restrict participation to selected users. Consortium blockchains are managed by a group of organizations, offering a collaborative approach, and hybrid blockchains combine features of both public and private systems. Understanding these different types of blockchain is essential for organizations looking to leverage blockchain technologies for their unique requirements.

Distributed Ledger and Blockchain Architecture

A blockchain network is built upon a robust architecture that ensures security, transparency, and reliability. At the heart of this architecture is the distributed ledger, which is maintained by a network of nodes. Each node in the blockchain network holds a complete copy of the ledger, and every time a new transaction occurs, it is broadcast to all nodes for validation. This process ensures that all records are consistent and up-to-date across the entire network.

The blockchain architecture relies heavily on cryptographic hash functions, which secure each block of data and link it to the previous one, creating an immutable chain. In public blockchains, this decentralized network of nodes works together to validate and record transactions, making the system highly resistant to tampering. Private blockchains, in contrast, are typically managed by a single entity, providing greater control and privacy for internal operations. Consortium blockchains strike a balance by allowing a group of organizations to jointly manage the network, combining the security of private blockchains with the collaborative benefits of a shared ledger. This flexible architecture allows blockchains to be tailored to a wide range of applications and industries.

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. Blockchain protocols govern how these transactions are executed and recorded. 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. Organizations adopting blockchain often select between public, private, or permissioned blockchains to address their unique requirements for security, privacy, and operational efficiency in business contexts.

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. The choice of blockchain type directly impacts the transparency and confidentiality of financial transactions, making it crucial for organizations to select the appropriate system for their needs. 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 and is a type of permissionless blockchain. 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 internet access 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. Users with internet access can access current ledger records and participate in transaction verification. 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, as well as the trading and management of digital assets such as NFTs and other tokenized items. These technologies use a proof-of-work or proof-of-stake consensus mechanism to secure transactions, with the Bitcoin network being a leading example of a Proof-of-Work system. Public blockchains and smart contracts can also serve as alternatives to traditional financial systems.

Public blockchains allow users to view current and past records, ensuring transparency. This means that authorized nodes can access historical transaction data, verify the integrity of the ledger, and contribute to the security and transparency of the blockchain network.

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.
• Trustworthy: 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, with the ability to access past records for verification.

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 centralized entity. Although the distributed network is still powered by a peer-to-peer connection, the blockchain ledger is only open to a few predetermined nodes and not to the general public.

In a restricted network like this, only network nodes approved by the centralized 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 a private blockchain.

These companies use the private blockchain system for various purposes like internal auditing, asset management, internal voting, and so on. Enterprise blockchains are a type of private or permissioned blockchain used by organizations to provide a secure, controlled environment for internal data management and transaction processing. 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 make 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 operates within a closed ecosystem to enhance security and privacy, protecting against external threats while still allowing interactions with third parties for scalability and efficiency.

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 transactions on the blockchain, ensuring the integrity and privacy of user data.

A hybrid blockchain system is preferred by entities that want the best of both worlds. Companies operating in highly regulated markets such as finance and healthcare often prefer this type of system, as it ensures compliance, data security, and privacy while allowing some public transparency. 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, multiple organizational members form the consortium and jointly govern and validate transactions within the decentralized blockchain. Each member node in the consortium plays a crucial role in maintaining network transparency and security. Consortium blockchains combine features of private and public blockchain systems, offering both controlled access and collaborative transparency.

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. Stable and verified network participants are essential for maintaining security and reducing vulnerabilities in the system.

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.
• Regulatory constraints: Regulatory constraints can hinder the network’s functionality, affecting overall performance and operational capabilities.

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.

Permissionless blockchains are specifically designed for immutably recording transactions, ensuring transparency and reducing risk by allowing all activity to be tracked on a distributed ledger. 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 mean 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. A permissioned blockchain securely records and verifies transactions, maintaining data integrity by ensuring that only authorized participants can add or modify information. 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.

Blockchain Security and Scalability

Security is one of the most significant advantages of blockchain technology. By leveraging cryptographic hash functions and a decentralized network, blockchains make it extremely difficult for malicious actors to alter or manipulate transaction data. Each transaction must be verified by multiple nodes before being added to the blockchain, ensuring a high level of trust and integrity.

However, blockchain security is not without its challenges. For example, consensus mechanisms like proof of work, while effective at securing the network, can be energy-intensive and susceptible to certain attacks, such as the 51% attack. To address these issues, hybrid blockchains have emerged, combining the strengths of public and private blockchains to offer enhanced security and scalability. Techniques such as sharding and off-chain transactions are also being developed to improve the scalability of blockchain networks, allowing them to handle a larger volume of transactions efficiently. Private blockchain networks, designed for internal use, can further enhance security and scalability by limiting access to trusted participants and optimizing network performance for specific organizational needs.

Blockchain Interoperability and Adoption

As blockchain technology continues to evolve, the ability for different blockchain networks to communicate and interact—known as interoperability—has become increasingly important. Solutions such as cross-chain transactions and blockchain bridges are being developed to enable seamless data and asset transfers between separate blockchain systems. This interoperability is crucial for unlocking the full potential of blockchain technology across various industries.

The adoption of blockchain technology is being driven by its proven benefits in real-world applications, such as supply chain management and digital identity verification. Public blockchains like the Bitcoin blockchain have demonstrated the power of decentralized networks for secure, transparent transactions on a global scale.

At the same time, organizations are exploring ways to combine private and public blockchains to create systems that are both secure and transparent, tailored to their specific needs. As more industries recognize the value of blockchain networks, the pace of blockchain adoption is expected to accelerate, leading to innovative solutions and new business models.

4 Types of Blockchain Networks Compared

There are four main types of blockchain networks: public, private, hybrid, and consortium. Each type offers distinct features and benefits, catering to various use cases and industry needs. When comparing these blockchain types, several key factors stand out:

• Decentralization vs. Centralization: Public blockchains are the most decentralized, allowing anyone to participate without restrictions. In contrast, private blockchains are highly centralized, controlled by a single entity, which can limit trust and transparency. Hybrid blockchains strike a balance by offering both public and private elements, while consortium blockchains distribute control among multiple organizations, providing a middle ground.
• Transparency and Privacy: Public blockchains offer the highest level of transparency, with all transaction data accessible to anyone. Private blockchains prioritize privacy, restricting access to authorized users. Hybrid blockchains provide customizable transparency levels, making them suitable for industries that require both public oversight and private data handling. Consortium blockchains offer controlled transparency, with data shared among participating entities.
• Security and Efficiency: Public blockchains are secure due to their decentralized nature, but they can be less efficient, with slower transaction speeds and high energy consumption. Private blockchains are more efficient, with faster transaction processing, but may be less secure due to centralization. Hybrid blockchains combine the security of decentralization with the efficiency of private networks. Consortium blockchains offer efficiency through collaboration but may face security challenges from centralized control points.
• Use Cases and Flexibility: Public blockchains are ideal for applications requiring openness and trust, such as cryptocurrencies. Private blockchains are suitable for organizations needing secure, internal data management. Hybrid blockchains offer flexibility for industries with both public and private requirements, such as healthcare and finance. Consortium blockchains are best for collaborative industries like banking and supply chain management, where multiple entities need shared control and data access.

By evaluating these factors, organizations can determine the most suitable blockchain network for their specific objectives and operational needs.

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. Blockchain applications are transforming industries by improving security, transparency, efficiency, and privacy in areas such as finance, supply chain, and healthcare. 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. In addition, smart contracts are widely used on public blockchains to automate and secure transactions, reducing third-party costs and increasing transparency.

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 and other digital assets, which can be managed and traded securely on blockchain platforms, 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. The future of blockchain looks promising, with predictions suggesting 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, like for instance, blockchain app development or blockchain and IoT. Exciting times ahead!