Blockchain Network Structures and Technologies

Transactions

Blockchain technology uses two main types of cryptographic keys to provide the security of transactions and data: public keys and private keys. These keys work together to protect the integrity of the blockchain, enabling secure exchanges of digital records and protecting user identities. Consider the example of a mailbox. The public key is your email ID which everyone knows about and can send you messages. The private key, on the other hand, is like the password to that mailbox. Only you own it and only you can read the messages inside.

A public key is a cryptographic code that is openly shared and used by others to interact with your blockchain account. It's generated from your private key using a specific mathematical process. Public keys are used to verify digital signatures and to encrypt data that only the private key can decrypt. This ensures that messages or transactions are intended for the correct recipient.

A private key is a secret cryptographic code that grants access to your blockchain records. It must be kept confidential because anyone with access to the private key can control the records associated with the corresponding public key. This key is used for authorising transactions on the blockchain. When it is necessary to transfer information (make a transaction), you use your private key to create a digital signature that proves you are the owner of those transactions.

Public and private keys work together to secure blockchain operations:

• Encryption and Decryption: When data is encrypted using a public key, only the corresponding private key can decrypt it. This mechanism ensures that even if the data is intercepted, it cannot be read without the private key.
• Digital Signatures: When a transaction is signed with a private key, the signature can be verified by others using the public key. This verification process confirms that the transaction is authentic and has not been tampered with.
• Secure Transactions: Blockchain transactions rely on the interplay between public and private keys. The public key directs the transaction to the correct recipient, while the private key authorizes the movement of transactions.

Categories of blockchain.

There are three categories of blockchain:

Public blockchains, anyone can access the database, store a copy and make changes subject to consensus in the public blockchain. Bitcoin is a classic public blockchain. The key characteristic of public blockchains is that they are completely decentralised. The network is open to any new participants. All participants, having equal rights, can be involved in validating the blocks and accessing the data contained in the blocks.

Public blockchains process transactions more slowly because they are decentralised, as a result, each node should agree on each transaction. This requires time-consuming consensus methods like Proof of Work, which prioritise security over speed.

Private blockchains (in some literature mentioned as managed blockchains) are closed networks that are accessible only to authorised or select verified users. They are often owned by companies or organisations, who use them to manage sensitive data and internal information.

Private blockchain is very similar to existing databases in terms of access restrictions but is implemented with blockchain technology. As a result, such networks are not aligned with the principle of decentralization.

Since it is accessible only by certain people, there is no requirement for mining blocks (validating). As a result, such networks are faster than other types because they do not have the necessary mining, consensus, etc.

Hybrid or consortium blockchains are permission-based blockchains but in comparison to private blockchains control is provided by a group of organisations rather than one coordinator. Such blockchains have more restrictions than public ones but are less restrictive than private ones. For this reason, they are also known as hybrid blockchains. New nodes are accepted based on a consensus with the consortium. Blocks are validated according to predefined rules defined by the consortium. Access rights can be public or limited to certain nodes. User rights might differ from user to user. Hybrid blockchains are partly decentralised.

Blockchain type selection

When choosing the right type of blockchain for a project, it's important to think about how it will be used, who will use it, and how it needs to perform. There are three main types of blockchains, each suited for different situations:

Private Blockchain:

When to Use: If the blockchain is only for use within a single organisation by a specific group of people, a private blockchain is the best option. Advantages: It gives the organisation more control over who can join and see the data. It’s good for internal processes like keeping track of company records or managing internal operations. Performance: Since only a few trusted users are involved, the system can run faster and more efficiently because it doesn't need complex methods to agree on things. Examples: Hyperledger Fabric, Corda.

Consortium Blockchain:

When to Use: If the blockchain will be shared by a group of companies or organisations working together, a consortium blockchain is the right choice. Advantages: It allows several organisations to work together while keeping control of who can access the blockchain. It’s great for industries where businesses need to collaborate and share data securely. Performance: Since only trusted groups are involved, it works faster and more efficiently than a public blockchain. Examples: R3, Quorum.

Public Blockchain:

When to Use: If the goal is to create a completely open and decentralised system that anyone can join, such as for cryptocurrencies, a public blockchain is the best fit. Advantages: It allows anyone to participate and offers complete transparency. This is perfect for things like digital currencies where trust needs to be spread across everyone using it. Performance: Public blockchains can be slower and use more energy because they require complex processes to make sure everyone agrees. However, they are highly secure and trustworthy. Examples: Bitcoin, Ethereum.

To summarize – If in your project the blockchain is only for internal use, go with a private blockchain. If it's for a group of related businesses, choose a consortium blockchain. And if it needs to be open to everyone, a public blockchain is the way to go.