Introduction
Blockchain is basically a chain of blocks that contains information. The type of blockchain decides which type of data will be stored inside it. The main purpose of blockchain is to solve the duplicacy of records without the existence of a central server. Blockchain is a software protocol that cannot be run without the internet. It comprises several segments like a database, software application, connected computer systems, etc.
Blockchains are designed to be immutable with the use of hashing and a few lines of java code. The first block in the blockchain is generally known as a Genesis block and is mostly hardcoded into the software applications that utilize its blockchain. For every new block generated after it the previous block’s hash is used along with its own transactions, as input to find its block hash
Types of Blockchain:
There are mainly 4 types of blockchain that include:
Public Blockchain: A public blockchain has an open network and the information is stored in the public domain. The data is accessible to everyone and as there are no permissions involved so anyone can view, read or write the data. No particular person has the authority over this kind of blockchain. This is mainly used for mining and exchanging cryptocurrencies. They are secure only if the user follows all the security rules and regulations but if the rules are not followed strictly, this blockchain is very risky. It is named public because it is decentralized and there is no particular entity that controls it. The most popular examples of public blockchain are Bitcoin, Litecoin, Ethereum.
Private Blockchain: A private blockchain can be operated inside a closed network only. It is restrictive in nature and requires permission to be accessed. They are mostly used when only some users are to be allowed to access the blockchain like in organizations, only the members of the organization can access the blockchain. They are more secure in comparison to public blockchains as the level of security, accessibility and authorization is limited to a closed network only. It is centralized in nature. It can be used in processes like digital identity or asset ownership. The main examples of private blockchain are hyperledger and Ripple(XRP).
Consortium Blockchain: When more than one organizations have to access the same blockchain network, then we use consortium blockchain as it is semi-decentralized in nature. In this blockchain many organizations can simultaneously do mining or exchange information by acting as nodes. It is somewhat similar to private blockchain in terms of restrictions. The only difference lies in the involvement of organizations. This type of blockchain is mostly used in government organizations and banks. The examples of consortium blockchain are Quorum and Corda.
Hybrid Blockchain: A hybrid blockchain is formed from the combination of public and private blockchains as it consists of features of both private and public blockchains. It can be either permission-based as a private blockchain or permission-less as public blockchain. There are segments of data that are exposed publicly and rest are kept confidential in the closed network. It is flexible in nature as it allows users to join a private blockchain with multiple public blockchains. The transactions are usually verified within the private network. But the users can also release these transactions in the public network to get verified. The security and transparency of the hybrid blockchain network is enhanced as the hashing is increased by the public blockchain and more nodes are available for verification.
Major example of hybrid blockchain is supply chain management in IBM food trust.
Why do we need blockchain?
Blockchain is used mainly for transactional systems because it maintains a cryptographically secure, shared and distributed database for transactions. It brings trust, accountability and transparency to digital transactions.
How does blockchain work?
- A transaction is requested by the user. The transaction can involve cryptocurrency, contracts, records, or other information.
- With the help of nodes, the transaction is broadcasted to a P2P network.
- The transaction and the user’s status are validated by the network of nodes with the help of known algorithms.
- Once the transaction is complete the new block is then added to the existing blockchain. In such a way that is permanent and unalterable.
Conclusion:
Since blockchains are decentralized there is no set of rules for acceptable transactions. Blockchain involves a level of trust as these transactions are stored in an open network.
Blockchain is a modern solution for technical and complex transactions.