It is the most common and fundamental question that what Blockchain exactly is? What are the different types of blockchain and on what principle blockchain actually works? This article is written for you to answer such questions.
What exactly is Blockchain?
Blockchains are the famous and well-known reason behind most of the cryptocurrencies.
What is the difference between Permission less and Permissioned Blockchain?
How many types of Blockchains are there?
Based on the working mechanism and the need of the time three are three different types of blockchains. The very first one was Bitcoin blockchain which was introduced in 2009 and known as public blockchain.
This bitcoin blockchain used for any kind of value transaction like P2P insurance, P2P energy trading, P2P ride sharing, etc. Later, the Ethereum project decided to create their own blockchain by introducing the concept of smart contracts.
Public blockchains work on incentive mechanism. These blockchain has the potential to replace most functions of the traditional financial system with. Basically, public blockchains are permissionless, and anyone can participate without any need for permission from anyone.
Public Blockchains, allow any person with access to the Internet to participate in the process of verifying transactions. These are open source and its protocols based on Proof of Work (PoW) consensus algorithms.
Examples: Bitcoin, Ethereum, Monero, Dash, Litecoin, Dogecoin, and so on.
Private blockchains are more valuable for solving efficiency, security and fraud problems within traditional financial institutions. When it comes to scalability and compliance of data privacy rules and other regulatory issues private blockchain shows great potential. These are suitable for organizations where write permissions to kept centralized needed. This one factor can put you at the risk of security breaches in private blockchains just like in a centralized system.
Examples: MONAX, Multichain
Federated / Consortium Blockchains
These blockchains are intermediate, Federated Blockchains are faster, higher scalability and provide more privacy. Consortium blockchains are mostly used in the banking sector. These blockchains are controlled by a group of organizations. The consensus mechanism is controlled by a pre-selected set of nodes.
Example: Corda, R3 (Banks), EWF (Energy), B3i (Insurance)
What the Principles of Blockchain Technology?
Basic Principle of Blockchain Technology
There are few basic underlying principles behind blockchain technology. The following is an explanation of how these principles.
It is blockchain’s most attractive quality. In Blockchain based there is no central authority and communication take place between the nodes directly in decentralized P2P architecture fashion. Every node or party has access to the entire data or records and each node can verify the records without any intermediate party. Each participant node stores and forwards an identical copy of the information to all other nodes.
Cryptography & Computational Logic
The digital nature of ledgers enables users to establish algorithms and rules that automatically trigger transactions between nodes. Each block on blockchain contains a cryptographic hash to add in linear, chronological order of transactions, it ties blockchain technology to computational logic. Blockchain technology creates a secure digital identity based on the combination of public and private cryptographic keys. The combination of public and private keys creates a useful digital signature which provides strong control of ownership.
Transactions occur between blockchain addresses. Blockchains produce a unique alphanumeric address for the user or node which helps in identifying as well as makes every transaction and its associated value visible to anyone in the network.
Irreversible & Static Records
The records in blockchain are almost impossible to alter once a transaction is entered and updated into the database. The reason is simple every transaction record is linked to the each other in the form of a chain. The participants in the network record the ongoing digital transactions into a shared ledger.
Is Bitcoin a type of Blockchain? or What is a Bitcoin Blockchain?
The Bitcoin Blockchain is public and permissionless. Anyone can download its code. Anyone on the network can start verifying transactions as well. Who verifies the transaction through the concept of “Mining” being rewarded with bitcoin in return.