Since the advent of Bitcoin, its underlying technology—blockchain—has also encountered significant development opportunities. The potential of this technology has permeated various industries, inspiring numerous innovators to explore its diverse applications.
As a cryptocurrency, Bitcoin embodies the characteristics of digital cash and operates without the control of any central authority. What sets it apart from other technologies is its combination of distributed databases, economic incentives, and cryptographic mechanisms, enabling the ecosystem to function effectively without a central manager.
Since the launch of the Bitcoin network over a decade ago, the data structure it employs has garnered considerable attention across different sectors. Today, blockchain applications have expanded from finance and supply chains to legal and government domains, with many industries conducting related experiments.
If you missed our beginner's guide to blockchain, you can think of blockchain as a scalable data structure where data, once recorded, cannot be altered. A helpful analogy might be comparing this structure to a spreadsheet: each cell points to the previous one, allowing any modifications made to earlier cells to be immediately reflected. While blockchain is primarily used for storing financial transaction information, it can also be applied to various types of electronic data.
To continue this analogy, imagine that this spreadsheet can be collaboratively edited by multiple users. Everyone can run specialized software on their devices that connect with one another, enabling all participants to access the latest version of the database.
In this scenario, central authorities cannot access this information (because the network is decentralized). As a result, although the speed of information dissemination may be slower, this design significantly enhances the network's security and redundancy.
Next, we will explore three types of blockchain: private chains, public chains, and consortium chains. But first, let’s summarize the common characteristics and key features shared by these three types:
Key Characteristics
Append-only Ledger - According to the characteristics of blockchain, the system must follow a chain structure where each block is linked to the previous one. If we consider our blockchain as a collection of spreadsheet cells, each block functions as an independent cell.
Peer-to-Peer Network - Every participant in the network possesses a copy of the blockchain data. These participants are referred to as nodes, and they communicate in a peer-to-peer manner.
Consensus Mechanism - A mechanism must exist that allows nodes to reach a consensus on the correctness of transactions in the network, ensuring that false information is not written into the blockchain.
- Public Blockchain
If you've recently used cryptocurrencies, you have likely interacted with public chains. This type of blockchain encompasses the vast majority of distributed ledgers currently in use. We refer to them as "public" because anyone can view the transaction history and join simply by downloading the corresponding software.
In public chains, we commonly use the term "permissionless." No regulatory authority can prevent users from participating; everyone can engage in the consensus mechanism through methods such as mining or staking. Because anyone can join freely, we typically aim to form a highly decentralized network structure on public chains.
At the same time, public blockchains often outperform private or semi-private chains in terms of auditability. Because anyone can join the network, their protocols must be designed with mechanisms to prevent malicious users from gaining undue advantages while remaining anonymous.
However, public chains also face trade-offs between security and performance. Many servers on public chains encounter scalability bottlenecks, resulting in relatively low throughput. Additionally, pushing changes to the network and preventing network splits present challenges, as it is relatively unlikely that all participants will come to an agreement simultaneously.
- Private Blockchain
In stark contrast to public blockchains that have no entry restrictions, private blockchains establish clear access rules, defining who can view and write data on the blockchain. This type of blockchain typically operates in permissioned environments and lacks complete decentralization, having distinct control hierarchies. Nevertheless, private chains remain distributed, with many nodes maintaining copies of the blockchain on their own computers.
Private blockchains are often more suitable for enterprises, as businesses seek to leverage the advantages of blockchain technology while protecting their internal data from external networks.
In certain private chains, the proof-of-work (PoW) mechanism may be deemed unnecessary based on security models. However, PoW is indispensable in open environments. In the context of a private chain, the risk of not adopting PoW is relatively low since the identities of each participant are known and managed manually. In such cases, a more effective approach is to utilize designated validating nodes responsible for transaction verification. Typically, these nodes are required to sign each block, and if any node is found to be acting maliciously, it can be quickly removed from the network. Through this top-down control approach, cooperation within the entire system becomes more straightforward.
- Consortium Blockchain
Consortium blockchains are positioned between public and private chains, incorporating features of both. There are notable differences in consensus mechanisms among consortium chains, public chains, and private chains. Consortium chains typically permit only a select few participants with equal authority to act as validators, unlike public chains, which are open to everyone, and private chains, which are entirely controlled by a single entity.
In consortium chains, the establishment of rules is relatively flexible; access to the chain can be restricted to validators, authorized users, or made public to all. As long as all validators reach consensus, corresponding rules can be easily modified. If these participants adhere honestly to the predetermined standards, the system will operate smoothly.
Consortium chains are an ideal choice for peer organizations needing to share infrastructure for transactions or communication of information. Joining a consortium chain facilitates the sharing of industry insights among organizations, enabling deeper collaboration.
Which Type of Blockchain Holds More Advantages?
Essentially, there is no conflict among public chains, private chains, and consortium chains; they simply employ different technologies:
Well-designed public chains generally perform better in terms of auditability but may have lower speed and throughput, making them an optimal choice for secure guarantees in transaction settlements or smart contracts.
Private chains can focus more on system speed, as there is no concern regarding core failures as in public chains. Ideally, private chains should be used in environments where individuals or organizations can control and keep information confidential.
Consortium chains can reduce counterparty risks in private chains (by eliminating centralized control) and tend to be more efficient than public chains due to their typically smaller number of nodes. Consortium chains are especially well-suited for organizations that require communication with each other.
Conclusion
For individuals and businesses engaged in various activities, there are numerous options when it comes to selecting the appropriate blockchain solution. Even within public, private, and consortium chains, user experiences can vary due to differences in complexity. Users can choose the solution that best aligns with their objectives based on their specific needs.
Risk Warning
While the cryptocurrency market offers significant growth potential and innovation opportunities, it also carries a high level of market risk and price volatility. The value of crypto assets can fluctuate dramatically in a short period, potentially leading to substantial financial losses for investors. Additionally, the cryptocurrency market faces multiple risk factors, including technical risks, legal and regulatory uncertainties, cybersecurity threats, and market manipulation. We strongly advise users to conduct thorough research and due diligence before making any investment decisions and to consult professional financial advisors. All investment decisions are made at the user’s own risk. Thank you for your trust and support of Venkate!
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