WHAT IS BLOCKCHAIN? PART 3
Today, we continue to study blockchain technology, the prospects for its use, and the potential that has long gone beyond the world of cryptocurrencies. Blockchain technology can radically change not only the current banking financial system but also the property and other social spheres of human interaction.
In the previous article of the blockchain cycle, we discussed how encryption works in the blockchain, what types of encryption exist, and also studied what encryption keys are and how they work.
We have studied some innovative encryption technologies in the blockchain that are used in the decentralized, anonymous, quantum computing-resistant cryptocurrency QRAX, which is a new form of digital online money that can be easily distributed around the world, instantly and with reliable confirmation of transactions by the network within one block (about 60 seconds).
Today we will discuss the types of blockchains, analyze the features of their functioning, advantages, and disadvantages.
Types of blockchain networks
Blockchain networks are classified according to the availability of the data registry for network participants. The separation of the blockchain into types is conditional since the technology itself remains unchanged.
Before proceeding to the discussion of these types, let’s consider why different types of blockchain networks are needed at all.
In 2009, the first cryptocurrency appeared — Bitcoin, based on a blockchain that guarantees anonymity, confidentiality, transparency, and security of operations to network participants.
These principles laid down back in 2008 in the manifesto “Bitcoin: a digital peer-to-peer cash system” by the creator of the first cryptocurrency — Satoshi Nakomoto, are the basic ones for cryptocurrencies.
Blockchain is a type of distributed information storage system (DLT). The main feature of any DLT system is the distribution of data between users of the system.
The concept of distributed data storage has changed the way people interact and introduced new ways to solve problems of social relationships. The use of blockchain has allowed people and companies to work independently of a centralized system.
The distributed method of storing information eliminates the disadvantages of centralization, but it has several problems in certain scenarios.
Such problems include the inefficient, energy-consuming Proof-of-Work consensus algorithm, which is used in many blockchains. For mining on a blockchain-based on the Proof-of-Work (PoW) consensus, special expensive mining equipment is needed, which requires complex technical skills for installation and configuration.
Initially, the use of this algorithm was not a problem. But the ever-increasing complexity of mining requires more powerful equipment, time, and energy costs. Such factors make the use of this algorithm inefficient for any system.
For example, according to the report of the largest independent analytical company The Nilson Report, banks conduct more than 1 billion card transactions every day around the world. To carry out such a large number of operations on a blockchain using the Proof-of-Work algorithm, a huge amount of electricity would be required, which production would harm the environment.
There were other problems associated with the first generation of blockchains, including scalability, lack of computerization and some other shortcomings that make it difficult to use the blockchain in large independent systems.
The rapid development of blockchain technology has led to the creation of a new, improved, flawless Proof-of-Work algorithm — the Proof-of-Stake (PoS) consensus model.
The PoS consensus model is safer for the environment and does not require expensive equipment. PoS has low economic barriers and provides the most reliable, energy-efficient, and long-term sustainable means of network protection.
The QRAX network currently operates on the PoS 3.0 protocol algorithm, which uses staking instead of mining. The PoS algorithm used in QRAX allows you to get profit in a passive mode using coin staking.
But, despite the improved PoS consensus algorithm, not all organizations are suitable for a public blockchain, due to the specifics of the work of a particular company.
There are certain types of information and aspects of the business that companies cannot make publicly available. This type of information may include, for example, representing data of corporate or other secrets. In the case of using such an open blockchain, this information would become available to a wide range of users, which could harm or destroy the company’s work.
The combination of the above factors predetermined the appearance of different types of blockchain networks, depending on the access of network participants to the information stored in the system.
Experts in the field of blockchain have decided to distinguish 4 basic types of blockchain networks:
- Public blockchain networks;
- Private networks;
- Blockchain Consortium.
Public blockchain networks
Public blockchain networks are classic public networks that form the basis of many cryptocurrencies. Public blockchain networks do not have access levels.
The public blockchain does not restrict or require permissions to connect to the network. This means that any users who have access to the Internet can connect to such networks and perform transactions. All network participants connected to the public blockchain are equivalent nodes.
All data in the public blockchain is stored in a distributed form on devices connected to the network. Each member of the network has a full copy of the blockchain stored on the device. Every time a change is made to the blockchain, for example, a transaction is made, the database is automatically updated on all nodes of the network.
The decentralized nature of data storage in public networks requires authentication of transactions, which are otherwise called consensus algorithms. The most popular consensus algorithms for cryptocurrencies are the PoW and PoS models. We recently discussed the advantages and disadvantages of each of these algorithms in one of the articles.
Advantages of public blockchain networks
The most important advantage of public networks is their complete decentralization and independence from the central authority. This means that even if the creators of the public blockchain leave the network, it will continue its work as long as other participants are connected to it.
Another important advantage of an open blockchain is its general accessibility. Any user with Internet access can connect to such a network, perform transactions, as well as take part in confirming the reliability of the operations carried out.
Disadvantages of public networks
The disadvantages of public blockchains include the high energy consumption required for mining coins, the problem of low scalability, as well as vulnerability to an attack 51%.