Introduction

Blockchain technology is often touted as one of the most innovative and disruptive inventions. There are many reasons for cryptocurrency investors to learn about the basic composition and types of blockchain networks. This article is going to explain the types of blockchain technology and how it operates. 

What is a Blockchain Network?

A Blockchain network is a type of DLT or distributed ledger technology. The first blockchain project Bitcoin was a DLT project. DLT means that blockchains can store transaction records in the form of a distributed ledger. 

It is a contrast to the traditional financial networks that store all their data in a consolidated location. Blockchains leverage DLT technology to ensure that they can maintain a verified and authenticated ledger without needing a centralized controller. 

How does Blockchain work?

Blockchains exist in the form of distributed databases. The blockchain issues cryptocurrencies in finite or infinite amounts. Users on the blockchain can conduct transactions on the platform using its native cryptocurrency. 

Each transaction maker has to specify a transaction fee to pay the validators or miners. Miners or validators work for authenticating the transactions on the blockchain. 

In PoW blockchains, miners compete against each other to find the encryption key first to verify a transaction. Meanwhile, in PoS blockchains validators examine the transaction record and vote to approve the correct transaction records. 

All transactions are present on a block, once these blocks are verified they are added to a chain. Miners and validators earn rewards for their efforts. 

Types of Blockchains 

Here are four basic types of blockchains:

1. Public Blockchains
2. Private Blockchains
3. Consortium Blockchains 
4. Hybrid Blockchains

1. Public Blockchains:

Public blockchains allow anyone with internet access and suitable hardware capabilities to connect with the blockchain network. There are two main types of Public Blockchains:

1. Permissioned Public Blockchains:

Permissioned public blockchains have all the qualities of a public blockchain but they only allow everyone to read the transactions on the network. They grant anonymity to their users and only a few nominated individuals are allowed to conduct transactions on them. 

2. Permissionless Public Blockchains:

Permissionless public blockchains allow everyone to join the network. They are a trustless network that offers complete transparency and discards all middlemen. 

2. Private Blockchains:

Private Blockchains are closed networks and it has all the features of a public blockchain but it is not open to everyone. Since these blockchains are used for private and commercial operations they are usually much smaller in comparison to public blockchains. There are two main types of private blockchains as under:

3. Permissionless Private Blockchains:

This type of blockchain has a nominated set of members that are allowed to perform and approve transactions. In this scenario, only the approved executives can perform and validate transactions but all the allowed stakeholders on the platform can read them. This type of blockchain is not decentralized but they are still distributed. 

4. Permissioned Private Blockchains:

Permissioned private blockchains are used by commercial enterprises when they require one node to handle all the computations for only specified or authorized operations. Companies can grant permissions to new authorized nodes depending on their requirements. 

3. Consortium Blockchains:

Consortium or federated blockchains have mixed features from both public and private blockchains. However, it exists in the form of a consortium meaning that many different companies or commercial entities can exist on the network while maintaining its decentralized nature. 

It is a private blockchain but it refrains from granting centralized control to one group or individual. In this manner, the governance of this network is evenly distributed among all participants. 

4. Hybrid Blockchains:

A hybrid blockchain incorporates some features of both public and private blockchains. They are sometimes not public but they can grant access to only authenticated users on account of smart contracts. Hybrid blockchains allow their issuers to enact any type of blockchain governance mechanism they require. 

Conclusion

Blockchain technology has been around for more than a decade. However, innovations are added to the sector every day. To benefit from blockchain technology fully, cryptocurrency investors should learn about the basic classification and inner workings of a blockchain network.