Understanding the Different Kinds of Blockchain and Their Purpose

The blockchain has made quite a splash, beginning as the technology that powers Bitcoin before branching out into different use cases that many businesses are already taking advantage of. Let’s go over the benefits—and shortcomings—of the various varieties that blockchain now comes in, and how they are commonly used.

The blockchain first gave us a look at what the benefits of a decentralized ledger could be, and the many ways they could be put into practice. However, some of the aspects of Bitcoin (namely, how much energy it requires to operate, amongst other shortcomings) made that form of blockchain a poor choice for many businesses and their needs.

While we’ll discuss it in more detail momentarily, this is because Bitcoin operates on the public blockchain… something that obviously can’t be used to store sensitive information or proprietary data. As such, other forms quickly emerged to meet these needs, so there are for all intents and purposes now four varieties of blockchain to consider.

Public Blockchain

The public blockchain is the most open form of blockchain, where anyone can participate in transactions and maintain their own copy of the ledger so long as they can access the Internet. This was the first form of blockchain, as we mentioned, and commonly powers the assorted cryptocurrencies that suddenly became all the rage to talk about. Other potential uses for the public blockchain involve voting and fundraising, thanks to the openness of the system as a whole.

This openness is one of the public blockchain’s greatest advantages, along with its inherent transparency and trust-based nature. However, the public blockchain does have a few issues. For one, it can only register transactions at a very slow rate. This compounds into a second disadvantage: the fact that the blockchain network itself is limited in scope, simply to prevent the rate of transactions dipping down further.

Private Blockchain

A private blockchain is very similar to the public blockchain, with a few key differences setting it apart and resulting in a different sample of advantages and disadvantages, alike.

Instead of being accessible by anyone, a private blockchain is kept in a closed network and maintained by a singular entity—typically, a business that wants to see a similar level of trust and security within its own operations—requiring permissions to be extended to any participants. Apart from this more centralized nature, the private blockchain is made in very much the same way that the public one is.

While adding this level of centralization to the blockchain makes the entire system much more efficient, it also requires the sacrifice of some of its security. This is important to consider as a private blockchain is often used for key internal processes like supply chain management, internal voting, and asset ownership.

Hybrid Blockchain

Combining public and private blockchains, a business can take advantage of the capabilities that each presents in concert. These capabilities make it possible to connect to public networks while maintaining privacy, with customizable rules allowing an organization to keep its data close to the chest.

For all these advantages, there are some drawbacks to hybrid blockchains—namely, the fact that the hybrid blockchain lacks some of the transparency of other blockchains, and there is no prerogative for a business to undergo the extensive and challenging adoption process. However, there are still effective use cases in real estate, retail, and various other markets that are beholden to steep regulations.

Federated Blockchain

Finally, we come to federated blockchains. Similar to the hybrid blockchain, the federated blockchain combines the beneficial features present in both the public and private blockchains. This makes some records open, while maintaining the security and privacy of others. This is effective because multiple organizations will hold a stake in the network, allowing it to remain decentralized.

This makes the federated blockchain a customizable and efficient option that allows your business to utilize access controls, despite being somewhat more vulnerable, less transparent, and less anonymous than the other options out there. Regardless, there are many potential uses that the federated blockchain is suited for, like banking, research purposes, and food tracking.

Blockchain’s benefits become more apparent each day, so don’t discount how your business may be able to embrace them to its own advantage. For more assistance in optimizing your business’ use of technology, reach out to our team by calling (631) 285-1527.