Types of Blockchain

There are various types of blockchain, depending on the way the blockchain has evolved, as shown in Figure 7.2. Table 7.1 shows the main types. They are as follows:

Public Blockchain

"Public” blockchain means that anyone in the world can contribute to the block- chain, participating in the transaction process as a node. This type of blockchain is also called “permissionless.” Economic incentives for cryptographic verification may or may not be present. Some popular examples include Bitcoin, Ethereum, and so on.

Types of Blockchain Network

FIGURE 7.2 Types of Blockchain Network.

TABLE 7.1

Comparison between Main Types of Blockchain

Property

Public

Consortium

Private

Consensus

All peers

Designated peers

One organization

Security

Immutable

Could be altered

Could be altered

Efficiency

Low

High

High

Centralized

No

Partial

Yes/hierarchical

Semiprivate Blockchain

This type of blockchain is semiprivate in nature and is run by single organization or group of individuals. These organizations or individuals can grant access to any user for organizational purposes. This blockchain is semiprivate, because it has a public part that is exposed to everyone for participation.

Private Blockchain

“Private” blockchain gives one organization, or a certain group of individuals, the permission to write. The read permissions are public or restricted to large set of users, and transactions are verified by a very few' nodes in system. Some popular examples include the Gem health network, Corda. etc. [20,21,22,23].

Consortium Blockchain

“Consortium” blockchain is consensus based, where consensus power is restricted to a set of people or nodes. This type of blockchain is also known as permissioned private blockchain. There are no economic rewards for mining in this type of blockchain. but approval time is fast, because there are fewer nodes in the chain. Some examples include financial institutions such as Deutsche Boerse and R3 [24].

Advantages and Disadvantages of Blockchain Technology

The following are major advantages and disadvantages of blockchain.

Key Characteristics/Advantages of Blockchain Technology

Blockchain has various characteristics:

Decentralization

The first and foremost characteristic of blockchain technology is decentralization, meaning data is spread across the network without the need for a central authority, as compared to conventional centralized transactions, which are validated by a central trusted agency, such as a bank. Blockchain mainly uses a long random string of numbers, called a public key. However, it may also use private keys, w'hich could be used as passwords, so the owners can access digital data. The data in blockchain technology is very safe and incorruptible, and with blockchain’s decentralization characteristics and omission of a central authority, no individual is preferred over another. The basic characteristics of centralized and decentralized networks are illustrated in Figure 7.3, and their main differences are summarized in Table 7.2.

Immutability/Persistence

Another important characteristic of blockchain technology is that it can create immutable ledgers. Transactions performed in blockchain are not only validated quickly but are nearly impossible to alter, as a majority of the nodes/computers involved must accept changes in the ledger, as compared to a centralized database, which can easily be

Centralized vs. Decentralized Network

FIGURE 7.3 Centralized vs. Decentralized Network.

TABLE 7.2

Differences between Centralized and Decentralized Networks

Centralized

Decentralized

A core authority is present to dictate to and control other participants in the network.

There is no core authority present.

The authority needs to provide access for the users, so the participants can access transaction history and/or new transactions.

Every participating user can access transaction history and/or new transaction [25].

corrupted. All the parties involved in blockchain transactions go through the mathematical calculations, and hence transactions are validated very quickly. Only those transactions are added to the chain that succeed in the process of validation. This way, invalid transactions are discovered immediately and are never accepted into blockchain.

Higher Capacity

Because blockchain technology uses peer-to-peer technology, it combines the power of all the computers connected in the network and hence has a greater capacity than traditional centralized servers do [26,27].

Higher Security

Blockchain technology is considered a well-secured form of technology. Reportedly, it has never been hacked. While there are situations w'here keys used in the technology are sometimes hacked, since the technology uses a network of computers that confirm transactions, the blockchain is impossible to break into and is always safe and secure. By comparison, this is unlike traditional servers, which could be hacked because all the attacker needs to do is to hack one server [28,29].

Anonymity

Each user in blockchain interacts with others with a generated address that has no name associated with it. Therefore, the transactions performed are anonymous.

Auditability

Another important key characteristic of blockchain technology is its auditability. Every transaction in blockchain refers to previous transactions and stores data about user balances. The transaction status is unspent and spent, so any transaction is easily verifiable and tracked.

Faster Processing

Blockchain technology is very fast in terms of processing, unlike traditional banking, which can take a long time to settle transactions, depending on the institution’s policy. With the use of blockchain, processing time is much faster, and money transfers can even be settled instantly, which ultimate benefits financial institutions, saving time and resources.

Cheaper Transactions

Blockchain technology utilizes the computing power in a network and hence is distributed between lots of users, with a much simpler transaction verification process, compared to centralized systems.

Transparency

With blockchain technology, all transactions are performed with public addresses and encrypted via complex algorithms. Identities are hidden and represented by the public addresses. Because the addresses are public, all transactions can be seen directly, which provides great transparency in financial transactions. This level of transparency within a financial system has never existed before. It encourages more trust by users.

Disadvantages of Blockchain Technology

There are various disadvantages of using blockchain technology, some of which are explained here:

Blockchain Technology Is New

Even though blockchain was introduced back in the 1990s, its popularity increased only after Bitcoin was introduced in 2009. So, the technology is still considered new, which can be a disadvantage. Unlike other technologies, blockchain needs the participation of a majority of users. Everyone should be encouraged to understand this, so they can contribute to improving blockchain. Because the technology is new, it is unfamiliar to people. Also, since blockchain is computer related, the public needs to be updated about new developments, or in time, the technology could fail.

Blockchain Technology Can Be Expensive

As with any other technology, moving to blockchain is somewhat expensive in the initial stage, because businesses must switch from what they are currently using.

which could require improvements and investments to accomplish. This might not be the case every time, however, depending on how the business is planning to use the technology.

Blockchain Technology Is Unregulated

While the lack of regulation has been discussed as a key feature of this technology, it could also be considered a disadvantage. If for any reason we lose from using block- chain, there is no way to go and ask any authority or administrator for help, a fact that might scare some people. Even though people have a full control on this technology, everyone needs to take care, on their own, as to how best to use it.

Security Risk

Blockchain is considered a secure technology, because it is a large network of computers and because it has the requirement that a majority of computers accept transactions in order for the transactions to be validated. However, this might not always be the case. As blockchain keeps developing, attackers also are constantly working on ways to hack it. As with any other technology, this system is computer-based, so there is always some form of risk involved. Even though there is no record yet of the system being hacked, there is also no guarantee that people or attackers will be unable to penetrate the system in one way or another. One possible approach, for example, would be through the hash used in each block.

Technological Risk

Like any other technologies, blockchain is always at technological risk, meaning there might be situations where this technology could be replaced by another, better technology that can override the advantages or characteristics of this one. Since technology always keeps changing, one that is currently doing well might not stay trouble-free forever. Table 7.3 presents in brief some of the advantages and disadvantages of blockchain.

Summary of Advantages and Disadvantages of Blockchain Technology

TABLE 7.3

Advantages

Disadvantages

Decentralization Immutable/Persistence Higher Capacity Higher Security Anonymity Auditability Faster Processing Cheaper Transactions Transparency

New Technology Expensive in Some Cases Unregulated Security Risk Technological Risk

 
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