Types of Blockchain and Security Challenges

Types of Blockchain and Security Challenges


There are multiple advantages of blockchain over traditional web2 technology - data integrity, transparency, immutability, no duplication of data, tamper-proof and higher security posture. Blockchain technology is here to stay and has emerged as the follow-on invention, much like the Internet, with its practical applications in supply chains, identity management, cross-border payments, NFTs, Cryptocurrencies, CBDCs, etc.

Blockchain does not need a centralized authority, and its users are in-charge of how it runs. Additionally, it cannot be changed or falsified, creating enormous market excitement and demand. With desirable properties like decentralization, integrity, immutability, verification, fault tolerance, anonymity, auditability, and transparency, blockchain has advanced beyond cryptocurrency and is now getting implemented in various real-world applications.

Blockchain networks can be constructed in a variety of ways. They might be public, private, hybrid, created by a consortium group or even a sidechain. Each business has distinct requirements that call for a particular type of blockchain network. Blockchain technology is available in various network types, each with its unique properties. We summarize these different Blockchain applications in this article.

Public Blockchain Network

A network where anybody can join and participate in the essential operations of the blockchain is a public blockchain. The self-governed, decentralized aspect of blockchain is made possible that anybody can read, publish, and audit the current actions on a public blockchain network. A public network runs on an incentive system that motivates new users to sign up and maintains the network's flexibility. From an operational perspective, decentralized, democratized, and authority-free, public blockchains present a particularly attractive answer to centralized system.

There are some shortcomings of public blockchains, such as heavy energy consumption during mining that requires a large amount of computational power and energy. The Proof-of-work consensus mechanism used by public blockchain networks requires significant energy consumption, leading to environment and sustainability concerns. Though , not all blockchain networks use an energy-intensive validation process.

Public blockchain such as ethereum have scalability issues as it can handle only a limited number of transactions per second, which translates to slow processing time and high transactional fees. Public blockchains allow anyone to view transaction amounts and the addresses involved. If the address owners become known, the user loses anonymity. Most public blockchains are designed for decentralized finance projects like cryptocurrencies, which by nature of their value, are a prime target for hackers. Ethereum, Bitcoin, and Litecoin are some examples of public blockchains.

There are interoperability challenges within different public blockchain networks due to different protocols and standards. It makes it difficult for them to communicate with each other. There are cross-bridges that work as connectors for two blockchain networks to communicate.

User adoption is another challenge due to lack of knowledge about this technology and also lack of trust due to multiple cyber attack incidents. Since there are no proper regulations set for crypto businesses across the geographies, clear legal guidelines are required for good governance.

Private Blockchain

To join a private blockchain, the users must have an invitation with proper identification or other necessary information that is valid and verified. Private blockchain network is a centralized network where access is restricted to only permissioned participants. Private blockchains are typically owned by a certain group or organization or by a group of organizations. The network operator or a clearly defined set protocol implemented by the network using smart contracts or other automatic approval techniques does the validation. Most popular use cases of private blockchain are supply-chain management, logistics, payroll, finances, and accounting, due to greater control and privacy of information.

If the network has mining capabilities, its privacy features limit users' ability to run the consensus process that determines mining privileges and rewards. The owner or operator reserves the right to override, alter, or delete any necessary blockchain entries. Private blockchains emphasize efficiency and immutability—the state of being unable to be changed—while lessening the focus on user identity protection and increasing transparency.

However, private blockchains lack many beneficial features of permissionless systems despite being specifically created for business applications because they are less extensively used. Instead, they are designed to carry out particular activities and responsibilities. Private blockchains are vulnerable to data breaches and other security risks as well.

Similar to public blockchain networks, private blockchain too has limitations of scalability, lack of trust, regulatory issues, and also cost of setting up and maintaining private blockchain is very high. The underlying blockchain Ethereum has a business-focused private blockchain, Enterprise Ethereum is a platform that enables companies to use both the public mainnet and private chains based on Ethereum. Other businesses like IBM, Hyperledger, R3 Corda, and Tezos offer private blockchain services.

Permissioned Blockchain

Permissioned blockchains combine public and private and offer various customization options. In a permissioned blockchain network there is an additional layer of access control that makes it different from public blockchain. The benefit of a permissioned blockchain is that anyone can join the network following a proper identity verification procedure. Some grant exclusive permissions to carry out only particular actions on a network. This enables users to carry out specific tasks like reading, accessing, or entering data on the blockchain. Many activities are possible with permissioned blockchains, but Blockchain-as-a-Service (BaaS)—a blockchain built to scale for the requirements of many businesses- interests firms the most.

Depending on how they are set up, permissioned blockchains can have the same drawbacks as public and private blockchains. Permissioned blockchains have several disadvantages, including the fact that they are susceptible to hacking because they need internet connectivity. Some individuals may employ immutability strategies like validation via consensus methods and cryptographic security measures.

Two examples of permissioned blockchains are Quorum and Corda. While Corda is a blockchain initiative that enables people and organizations to create interoperable blockchain networks to interact and do direct business with other firms, Quorum offers permissioned DeFi services to financial institutions and corporations.

Consortium Blockchain

Several private blockchains from various organizations are combined to form a consortium blockchain. It is a hybrid of public and private blockchains, as it combines the transparency and security of public blockchain with the control and privacy of private blockchain. Each of these blockchains acts as a node on the chain and a stakeholder in the alliance, and it is only possible for them to quit or join the network with the consent of the stakeholders. The data can be viewed, exchanged, and distributed by organizations within the consortium, even though each entity runs its node or blockchain. By doing this, business solutions can be created to enhance their current processes, accountability, and transparency, addressing individual blockchains' problems and difficulties. Typically, only businesses with complementary blockchain technologies and shared goals may successfully unite to form a consortium blockchain. Creating a consortium blockchain makes it easier for a collection of complementary blockchains to work together. As a result, everyone can better handle their unique problems and develop solutions that the entire consortium can use.

However, a consortium blockchain is less transparent. Even if a member node is compromised, the blockchain's rules may cause the network to become inoperable. As this network is controlled by various participating organizations it is still a centralized network. Interoperability remains a challenge for consortium blockchain as it involves multiple blockchain networks. This also makes it complicated to set the governance as it requires a high level of coordination and cooperation amongst the participating organizations. Consortium blockchains generally struggle from scalability issues also due to high transaction volume and participants, the computation power may be limited.

One example of a consortium blockchain is Hyperledger. -All participants have equal power, which is important. Only individuals chosen in advance are accepted, unlike a public blockchain. As a result, this kind of blockchain is semi-private rather than public.

Final Thoughts

Despite the various advantages and disadvantages of different types of blockchain networks, blockchain still needs a stable ecosystem of network participants or a verified consensus process. These networks are vulnerable to cyberattacks and security risks, BlockChainSentry is a leading blockchain security provider that can help with solutions to secure these blockchain networks and decentralized applications. Our custom security tools and solutions help in protecting blockchain protocol, platform, or other independent products.