Blockchain Explained: Battle of the blockchains: What makes one different from another?
In the latest of our Blockchain Explained series we explain why all blockchains are not made equal
While the world might be most familiar with Bitcoin at this point, it’s worth remembering that by now there are hundreds of blockchain networks out there. Some are extremely popular, others not so much. Some are high profile enterprises, aiming to change the world of finance, while others operate in relative anonymity with their true purpose hidden through rarified choices of jargon.
Likewise some blockchains are used by millions of people, becoming encumbered in network overload and high gas fees, while others fly by unhindered, the preserve of a few hundred ‘inside-trackers’ who got the tip, and – if you’re lucky – will share the latest hotness, but at a price.
But why is that? Aren’t all blockchains the same? (Spoiler: they’re not.)
Here’s our explanation on the differences between blockchains, from public to private and anything and everything in-between.
What is a blockchain?
OK. Baby steps, but it’s always worth quickly going over the definition of blockchain as the basics contain a few essentials that shape and define the crypto world as things inevitably start to get a little more tricky to compute.
As the name suggests, blockchains consist of blocks of information. These blocks are long strings of records of every transaction made on the chain. Once forged (computed and verified) this information cannot be altered, and is distributed among a network of peers all holding copies of the chain, which effectively provides us with a verifiable digital ledger.
Blockchains are kept in balance with copies at every node. Permanently tweaking, editing or corrupting a block (for purposes either noble or evil) is therefore impossible as a blockchain’s multiple, decentralised copies will betray any such changes.
Although we tend to view a blockchain mostly as a technique used for monetary transactions (cryptocurrencies), they can be used in different ways. To manage Walmart’s supply chain, for example. That is, after all, the core of blockchain technology: to create an automated system that operates 24/7 with (hopefully) zero discrepancies.
Different blockchain types
The best way to explain differences between blockchains is by separating them into four different types: public, private, hybrid, and consortium blockchains.
Blockchain type one: The public blockchain
A public blockchain means that anyone can join. This may attract a very large number of participants, which helps to keep it decentralised and safe. After all, the more people who come on board, the more people who can validate new transactions, and less risk of any single party being able to control the network.
Then again, “anyone” really means anyone, including people with bad intentions. Also, it takes a lot of energy and a properly functioning consensus mechanism to verify every transaction. (See our guide to Proof-of-Work and Proof-of-Stake here.)
Blockchain type two: The private blockchain
A private blockchain, on the other hand, is – surprise, surprise, strictly invite-only. Naturally, this means that this type of blockchain has a central authority; a person or organisation that determines which people have access, and what they have access to. Unlike a public blockchain, the private one can be edited by its owner and bypasses any notion of decentralisation.
As decentralisation is regarded as one of the core values of blockchain technique – there is no one person or party in charge – this may seem somewhat strange. The trick is to remember that this system is meant to securely store data within a small network, most commonly a single company. There’s a risk of human error (or bad actors gaining access) but overall, it’s an efficient tool for spreading information and sharing knowledge in fields like supply chain management or accounting.
Blockchain type three: The hybrid blockchain
Then there’s the hybrid blockchain, which combines the two types mentioned above. It’s typically used by companies that wish to allow some degree of access to third parties, but also maintain a highly private network. In other words, the hybrid blockchain consists of a permissioned and un-permissioned part. For example, a hospital may want to keep their data securely stored on their private blockchain, but also share some of their records with their patients.
Although the hybrid blockchain has a central authority, it still relies on a verification method, and the transactions cannot be altered.
Blockchain type four: The consortium blockchain
Finally, there’s a fourth type called the consortium blockchain. These are quite similar to the hybrid form, but the structure is different. In this case, several different groups will share a decentralised network, each with limited access. This system is great for banking, as it allows different banks to create transactions between each other in a secure way that keeps the outside world out.
As there are typically few nodes on a consortium blockchain, the pool of validators is also small. That doesn’t have to be a problem though, as every entity is equally powerful. Think of it as a federation, similar entities with the same goal who need a shared platform to operate.
What makes a blockchain unique?
Naturally, the blockchain’s ‘type’ isn’t the only thing that makes it unique. Public blockchains Bitcoin and Ethereum aren’t the same, after all. So let’s go over a few more characteristics that set blockchains apart from each other and give each a ‘unique selling point’ when attracting users.
- Popularity. This is very important to public blockchains, as it affects their reliability.
- Consensus mechanisms. Who verifies new blocks? And what verification methods are used? There’s obviously a major difference between private and public blockchains, but even public blockchains use vastly different systems (most commonly proof-of-work or proof-of-stake – see here).
- Speed. Some blockchains are faster than others. Usually, the bigger and more complex the blockchain – ironically – the slower the processing rate. Just because something gets bigger it doesn’t necessarily get faster. With more and more transactions to process blockchains can become overloaded leading to bottlenecks in transactions and higher gas fees, especially during popular, well-signposted sales and offers from big names as users frantically seek to close the deal and get into a new investment early.
- Function. Let’s emphasise it once more; different blockchains have different functions, and not always related to cryptocurrency. But even when that’s the case, there are differences; Bitcoin is focused on monetary transactions, while Ethereum is all about smart contracts – simple pre-defined, pre-agreed trades that allow value to move around in an automated fashion allowing all kinds of uses for the blockchain.
- Sustainability. Blockchains (and crypto at large) have a bad rep for burning through electricity in – what’s widely perceived to be – a waste of time and energy (literally) purely to line the pockets of a cabal of crypto bros… Ironically while crypto seeks to go ‘mainstream’, its wasteful eco-credentials repel the exact switched-on, intelligent audience it seeks to attract. Thus the rise of more eco-friendly currencies such as Solana – where a transaction takes less energy than two Google searches, and 24 times less energy than charging your phone – and Ethereum’s recent switch to proof-of-stake validation (rather than proof-of-work) which has resulted in it using around 1% of the energy it was previously.
Take your pick. There’s a perfect blockchain waiting for you.