Before we dive further in to what the different types of blockchains are, we should address the question of what blockchain technology is first. In this article, we will cover the different types of blockchains. The benefits of blockchain. And why Blockchain as a Service (BaaS) is the preferred solution for enterprises and developers.
What is blockchain technology?
According to Merriam-Webster blockchain technology is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” We can break down this definition into more manageable portions to make it easier to understand .
When a blockchain is described as “open”, it is typically in reference to the open-source nature of the code base that underlies most blockchain protocols. You can have both public and private chains that are built using open source code—we’ll discuss the differences between them later. The term “distributed ledger” refers to the fact that the ledger on which transactions are recorded is shared by several participants in the blockchain. As such, it is not owned or fully controlled by a single entity.
Any time a transaction takes place between two parties, it can be made more efficient by blockchain. This is due to the simple fact that there is no need for a third party to be involved in the transaction (e.g. a bank), which results in reducing friction and lowering costs. Transactions are agreed to by the participants in the blockchain when entered into the ledger and said transactions cannot be changed. The cryptography behind blockchains allows these transactions to be provably verified and helps ensure the permanency of the records. Now we know what blockchain technology is, let’s have a look at the different types of chains that are available to develop on today.
Need a more in-depth guide to what blockchain is exactly?
The different types of blockchains.
There are three primary types of blockchains, which do not include traditional databases or distributed ledger technology (DLT) that are often confused with blockchains.
- Public blockchains like Bitcoin and Ethereum
- Private blockchains like Hyperledger and R3 Corda
- Hybrid blockchains like Dragonchain
What is a public blockchain?
Let’s explore the different types of chains. And start with public blockchains, which are open source. They allow anyone to participate as users, miners, developers, or community members. All transactions that take place on public blockchains are fully transparent, meaning that anyone can examine the transaction details.
- Public blockchains are designed to be fully decentralized, with no one individual or entity controlling which transactions are recorded in the blockchain or the order in which they are processed.
- Public blockchains can be highly censorship-resistant, since anyone is open to join the network, regardless of location, nationality, etc. This makes it extremely hard for authorities to shut them down.
- Lastly, public blockchains all have a token associated with them that is typically designed to incentivize and reward participants in the network.
What is a private blockchain?
Another type of chains are private blockchains, also known as permissioned blockchains, possess a number of notable differences from public blockchains.
- Participants need consent to join the networks
- Transactions are private and are only available to ecosystem participants that have been given permission to join the network
- Private blockchains are more centralized than public blockchains
Private blockchains are valuable for enterprises who want to collaborate and share data, but don’t want their sensitive business data visible on a public blockchain. These chains, by their nature, are more centralized; the entities running the chain have significant control over participants and governance structures. Private blockchains may or may not have a token involved with the chain.
What is a consortium blockchain?
Consortium blockchains are sometimes considered a separate designation from private blockchains. The main difference between them is that consortium blockchains are governed by a group rather than a single entity. This approach has all the same benefits of a private blockchain and could be considered a sub-category of private blockchains, as opposed to a separate type of chain.
- This collaborative model offers some of the best use cases for the benefits of blockchain, bringing together a group of “frenemies”- businesses who work together but also compete against each other.
- They are able to be more efficient, both individually and collectively, by collaborating on some aspects of their business.
- Participants in consortium blockchains could include anyone from central banks, to governments, to supply chains.
What is a hybrid blockchain?
Dragonchain occupies a unique place within the blockchain ecosystem in that it’s a hybrid blockchain. This means that it combines the privacy benefits of a permissioned and private blockchain with the security and transparency benefits of a public blockchain. That gives businesses significant flexibility to choose what data they want to make public and transparent and what data they want to keep private.
- The hybrid nature of Dragonchain blockchain platform is made possible by our patented Interchain™ capability, which allows us to easily connect with other blockchain protocols. Allowing for a multi-chain network of blockchains
- This functionality makes it simple for businesses to operate with the transparency they are looking for, without having to sacrifice security and privacy.
- Also, being able to post to multiple public blockchains at once increases the security of transactions, as they benefit from the combined hashpower being applied to the public chains.
Why do we need blockchain technology?
Now that we understand what a blockchain is and the different types of blockchains let’s discuss why we even need blockchains to begin with. There are a variety of blockchain use cases and benefits to blockchain implementation, the most well-known being value transfer over the Bitcoin protocol. For cryptocurrencies like Bitcoin, blockchain solves a very specific problem that had hampered previous efforts at developing a digital currency. That problem is known as the “double spend” phenomenon. We all understand that the typical way in which we share things in the digital world is to create a copy of what we have, such as a pdf or image, and sending that to another person.
- As you can imagine, if this pdf were a dollar, both the sender and recipient would have identical copies of this dollar and conceivably could both spend it.
- Blockchain technology solved this by ensuring the recipient knows that only they have the dollar and the sender knows that they no longer have it.
- Anyone who tries to spend the dollar knows that only the next recipient now has the dollar.
What is the difference between blockchain and cryptocurrency?
Many people are confused on the differences between blockchain and cryptocurrency. A relatable way of framing this relationship is to compare it to an application on your phone (e.g. Uber or Whatsapp), and the platform on which that application is running (IOS or Android). Blockchain is the platform and cryptocurrency is an application that runs on the blockchain platform. The confusion stems in part from the fact that the platform (blockchain) and cryptocurrency (Bitcoin) launched at the same time.
Distributed ledger technology (DLT).
A blockchain is a database but it differs from a traditional database in that the information stored on it is not centralized in one location. Instead, a record of the ledger is held by all of the participants in the chain that can verify the provenance of all of the data that is entered. Think of it as a database without an administrator. This means that participants don’t have to rely on any single individual or entity as for the veracity of data.
Distributed Ledger Technology, or DLT, is a category of database technology that includes blockchain technology or characteristics of a blockchain. But not every blockchain is a distributed ledger. In the case of Dragonchain, there is not one single blockchain. Each business node and each blockchain application has its own blockchain, that can interact with any other blockchain or system if you’d like, using Interchain tech. On Dragonchain there is also no need for proof of work, or proof of stake, similar to distributed ledger technology. See how easy it is to get confused?
- The terms are sometimes used synonymously, but there are other types of distributed ledgers that are structured differently from blockchains.
- Some examples of these include Iota and Hashgraph, which are more accurately described as DAGs or Directed Acyclic Graphs.
- While blockchain was the first distributed ledger technology (DLT), it is not the only type of DLT one can consider.
- Blockchain is just one type of distributed ledger. A blockchain is a sequence of blocks, distributed ledgers do not require such a chain.
- Distributed ledgers do not need proof of work or proof of stake, and offer – theoretically – better scaling options compared to blockchains like Bitcoin and Ethereum.
What is blockchain used for?
Cryptocurrency is just one application which can be built using this technology platform. There are many other applications that can be built, all leveraging the benefits of blockchain. From supply chain to accounting, to identity management, and more.
- Enterprises like Walmart are looking to leverage the immutability and shared ownership or consortium features of blockchain to enable enhanced tracking and traceability of food products, resulting in better food safety in its stores
- Banks are using private blockchains to tokenize (digitize) their own internal assets, allowing them to move funds internally saving millions of dollars in costs
- Companies like Bitpesa are enabling businesses in regions with poor banking services to move funds more efficiently across borders
- Accounting firms are seeing the potential that transparency and immutability offer their audit and accounting teams
Why Blockchain as a Service (BaaS) is gaining adoption from enterprises
Early adopters of blockchain technology, like other early technology adopters, have had to bear the brunt of the challenges with building on any new platform. Setup challenges, poor developer tools and operational issues have long been the standard with standing up new implementations.
We’ve now reached a point, however, where Blockchain as a Service offerings can make building a blockchain application more accessible to anyone. As defined by Investopedia, Blockchain as a Service (BaaS) is an offering that allows customers to leverage cloud-based solutions (like Dragonchain) to host, build and use their own blockchain application and smart contracts.
Service providers like Dragonchain manage all of the backend infrastructure and handle scaling, allowing businesses to focus on their applications. Similar to Software as a Service offerings, this approach offers a low risk vehicle for businesses experimenting with blockchain for the first time to get up and running quickly. Blockchain as a Service makes this possible without requiring a great deal of blockchain expertise and providing a low barrier of entry to get started.
Not all blockchains are the same, and pricing and business models for blockchain platforms are all over the shop at the moment. Blockchain as a Service providers like Dragonchain bring some much-needed stability and ease of use to the blockchain ecosystem. This gives developers and businesses the certainty and minimized risk that they to begin their journey into the world of blockchain.
To learn more about Blockchain as a Service, be sure to read about the Dragonchain Platform.