What are the Different Types of Blockchains? ??

As mentioned in the last article that we will be discussing about the challenges of blockchain and the current solutions to tackle these challenges. Before we discuss about the challenges, we need to know what types of blockchains there are.

There are 3 main types of blockchains: public, private, and consortium. The main difference in the 3 blockchain types is about who can access the network. A public blockchain opens to anyone who wants to participate and there is no single entity controlling the network (highly decentralised). A private blockchain is a restricted network and controlled by a single entity. A consortium blockchain is a semi-decentralised network governed by a group of entities rather than a single entity. I have summarised these blockchains in the table below:

Currently, the popularity and adoption of public blockchain is the highest out of all due to its cryptocurrency use and applications. From the table, the examples of public blockchains are Bitcoin and Ethereum. As mentioned from my last article, Bitcoin and Ethereum are different blockchains with underlying cryptocurrencies (BTC and ETH).

Bitcoin

Bitcoin is the most well-known blockchain due to its cryptocurrency use. Its blockchain technology is the fundamental of the entire cryptocurrency and blockchain community. The main usage of the Bitcoin blockchain is to process BTC transactions. It uses Proof of Work (PoW) to validate transaction and add transaction to the existing/new block.

Ethereum

Ethereum is like another Bitcoin blockchain. The difference is that its co-founder, Vitalik Buterin has invented the smart contract, a computer program that is intended to automatically execute, control, or document information according to the terms of a contract. This allows new applications (dApps) to be built and run on the Ethereum blockchain, not only processing ETH transactions. It also uses Proof of Work, but currently transitioning to Proof of Stake (PoS) which is a mechanism to validate transaction based on the amount of cryptocurrency they hold (stake) in the network.

Bitcoin and Ethereum are the main ecosystems in the blockchain and cryptocurrency space. They are also called the Layer 1 blockchain, which is the foundation of a blockchain ecosystem, providing the basic infrastructure and security that enables the creation of decentralised applications (dApps) and smart contracts. However, they all face the same challenge.

Blockchain Trilemma

The Blockchain Trilemma, a term coined by Vitalik Buterin, refers to the challenge of achieving 3 critical attributes simultaneously in a blockchain network: decentralisation, security, and scalability. Improving any two of these aspects typically compromises the third.

• Decentralisation: Achieving a fully decentralised network with no central control.
• Security: Ensuring the network is secure from attacks and fraud.
• Scalability: The ability to process a large number of transactions quickly and efficiently.

Whilst Layer 1 blockchain is highly decentralised and secure due to its consensus mechanism (PoW & PoS). But the need to maintain high levels of decentralisation and security compromises the scalability. For example, in PoW, miners compete to solve complex mathematical problem to validate transactions. This process is intentionally resource-intensive to secure the network against attacks, leading to slower transaction processing times. Also, PoW and PoS require extensive communication and validation among nodes, which slows down the process.

To address the Blockchain Trilemma, various solutions are being explored i.e. Layer 2. Layer 2 blockchains build on top of Layer 1 blockchains to enhance scalability and efficiency. In the next article, I will explain what Layer 2 blockchains are and discuss their pros and cons.