Blockchain is one of the technologies changing the banking industry in 2021. There are four different forms of blockchain, each having its own advantages and disadvantages.
A public blockchain network uses distributed ledger technology (DLT). The use of DLT removes the issues of limited security and transparency that come along with centralization. Public networks are open to anyone to participate, meaning that anyone can read and write on the ledger. Bitcoin is a prime example of a public blockchain network.
The great thing about a public network is that all users are guaranteed anonymity as long as rules and regulations are being followed. In addition, public blockchains are independent of organizations completely; if the organization that created the blockchain shuts down, the network will still be able to run.
The downfall of a public network is that there is weaker security as well as little to no privacy on transactions, leaving room for hackers to get in. The network has the potential to be slow since it is not centralized. As seen with Bitcoin mining, there is also a great level of computational power required to run a public blockchain network which is not great for the environment.
A private blockchain network is on a much smaller scale than a public network in that it allows only a single organization to read and write on the ledger while the network is still decentralized and uses peer-to-peer connections just like a public network.
A benefit of private networks is that they tend to be faster since they are more centralized, allowing the network to be pretty fast. The owner is fully aware of the participants of the network, meaning participation cannot be anonymous at all. The organization running the network can set security authorizations to prevent third parties from accessing data within the network.
The fact that the owner is aware of the participants of the network can be considered a downfall for users who want to keep their identity anonymous. In addition, this form of blockchain is more centralized, ruining blockchain’s staple for being decentralized.
The hybrid blockchain network combines elements of both private and public blockchain. This form of blockchain allows an organization to create a private system along with a public system to control what information is open to the public and which is only for certain users to see. The hybrid network allows anonymity to its users until they complete a transaction. Their identity is then revealed to the person on the other side of the transaction.
An advantage to using a hybrid blockchain is that organizations don’t have to choose whether to use a private or public network, they can have the best of both worlds. This form of blockchain also is more preventative against hackers since it works within a closed system.
The great disadvantage is that there is no anonymity once a transaction is completed. Users looking to keep their identity anonymous cannot do so unless they do not complete any transactions in the networks. Many also do not want to use a hybrid blockchain because information can be shielded from them since it is a ‘semi-private’ network.
A consortium blockchain network combines features from both private and public blockchain, just like the hybrid network does. Instead of one organization governing the platform, many organizations do so.
An advantage of using a consortium blockchain would be that the network is faster and more secure than a public network. It also offers security and access control just like a private blockchain does. Its ability to act as a cross-company solution, with multiple organizations governing at once, makes it desirable to many.
The blockchain network is centralized, making it still breachable. Also, the process of launching this form of the network involves all members approving the protocol set in place, which can be a very sensitive process.