Before delving into the different types of blockchain architecture, it is important to first understand what blockchain is and what blockchain architecture entails.
To start with, the term blockchain refers to a form of database (data storage) where data is stored in blocks that are interconnected to form a chain of blocks; hence the term “blockchain.” The technical aspects of blockchain architecture are designed to manage valuable data like in a financial transaction where it records the amount of the transaction and who sends or receives the transaction.
Blockchain use cases include cryptocurrencies, non-fungible tokens, supply chain logistics, and healthcare record keeping, among many others.
Characteristics Of a Blockchain
There are three main characteristics of a blockchain that makes the blockchain architecture different from the architecture of an ordinary database and they are cryptography, immutability, and distributed consensus.
Cryptography plays a key role in maintaining the security and transparency of a blockchain. In a nutshell, it is a technique that entails a set of protocols that secure information from any third party during the process of communication (exchange of data). It involves encryption (conversion of normal text to a random sequence of bits) and decryption (the conversion of the random sequence of bits back to plaintext/normal text).
There are two types of cryptography namely symmetric-key cryptography and asymmetric-key cryptography. Blockchains mainly use asymmetric-key cryptography that uses public and private key methods. The public key method, in particular, helps parties to share information without disclosing their actual identities.
Blockchains use cryptographic hashing where when a transaction is verified, a hash algorithm adds a hash to the block. Hashing continues to combine and add new hashes while maintaining the original footprint. The hash function links the blocks and also maintains the integrity of data inside the block by ensuring the stored data is immutable. Some of the commonly used hash functions are SHA-1 and MD5.
In simple terms, once data is verified, stored in a block, and the block added to a blockchain, it can’t be reversed. Nobody can roll back or edit existing data.
Unlike traditional ledgers which are run by centralized institutions like banks, blockchains are run by decentralized nodes, which are network stakeholders and their devices. This decentralized nature of blockchains is what makes blockchain technology to be referred to as distributed ledger technology.
There are two main types of nodes in blockchain namely “full nodes,” and “lightweight nodes.”
Full nodes (also called complete nodes) store all blockchain transactions on their devices and are in charge of validating blocks and transactions while lightweight nodes have low storage requirements because they are only required to download block headers to verify transactions.
Some blockchains however have regular nodes and Masternodes where the Masternodes are superior and in addition to validating, preserving, and broadcasting transactions may also assist other events on the blockchain, depending on their nature. For instance, Masternodes are responsible for providing protocol execution, enforcing the rules of the respective blockchain, and managing voting events.
The primary job of a node in the network is to validate data blocks before they are added to the blockchain. Based on the legitimacy of the data in a block, nodes might through consensus reject or accept. When nodes through consensus accept a new block of transactions, the block is saved and stored on top of the existing blocks.
There are different consensus methods used in validating data with the main ones being Proof-of-Work (PoW), Proof-of-Stake (PoS), and Delegated Proof-of-Stake (DPoS).
The PoW was the first consensus algorithm to be developed by Bitcoin and later adopted by Ethereum which on September 15, 2022, successfully shifted to Proof-of-Stake through an upgrade referred to as “The Merge.” Other blockchains that use the PoW mechanism are Bitcoin Cash, Monero, Litecoin, Ethereum Classic, and Dogecoin.
In Proof-of-Work, miners (full nodes responsible for creating new transaction blocks) solve cryptographic puzzles to validate blocks. On the other hand, in PoS, nodes are required to stake tokens (cryptocurrencies) to become validators (block creators). In PoW, miners earn mining rewards while in PoS, validators earn staking rewards.
Irrespective of the consensus algorithms, blockchains have different thresholds of the minimum number of nodes that need to validate a transaction for the transaction to be marked as complete.
With an understanding of what cryptography, immutability, and decentralized consensus in blockchain means, you have an understanding of how blockchain architecture works. Let us now look at the different types of blockchain architecture.
Types Of Blockchain Architecture
There are three main types of blockchains based on the types of blockchain architecture. The three types of blockchains are public blockchains, private blockchains, and hybrid blockchains.
Public blockchains are completely open and anyone with a computer and internet connection can participate in the network. They follow the idea of decentralization fully and there is no single platform or individual that maintains the network; instead, every user has a copy of the ledger.
Additionally, node participants are not required to interact and each of the nodes can be located at different geographic locations.
On the flip side, however, the rate of processing transactions is slow due to the large network size. Examples of public blockchain networks are Bitcoin and Ethereum.
Private Blockchains are not as decentralized as public blockchains since only select individuals are allowed to participate. The blockchains are operated in a closed network meaning they are permissioned networks where participants require permission to validate transactions or data.
The main advantages of private blockchains are that they have increased privacy levels and have a high rate of transaction since the networks are smaller in size compared to public blockchains. Also, they are scalable since the size of the network can be decided manually.
The disadvantages of private blockchain include higher chances of manipulation since the number of nodes is limited, centralization which makes trust building challenging, and increased downtime since there are few nodes and if nodes go offline the entire system of blockchain could be endangered.
Private Blockchains are used by companies for internal auditing, asset management, and voting. An example of a private blockchain is the Hyperledger, Corda.
A hybrid blockchain is a combination of a private and public blockchain network. Some part of the blockchain is controlled by an organization while the other part is visible to the public. It uses permission-based and permissionless systems and users access information through smart contracts (programs stored on a blockchain that run when predetermined conditions are met).
The advantages of hybrid blockchains include low transaction costs since only a few nodes are involved in verifying transactions and a highly customizable.
On the flip side, access to information on hybrid blockchains depends on whether the organization controlling the network allows it meaning it is not fully decentralized.
Hybrid blockchains have become helpful in providing blockchain solutions to governments, the health care industry, the real estate industry, and financial institutions. An example of a popular hybrid blockchain is the Ripple Network.
Organizations and businesses can choose from the three types of blockchain architecture when it comes to developing their blockchain networks or selecting a blockchain network from the already existing blockchain depending on their needs. To a huge extent, the choice of a blockchain architecture is determined by the level of privacy required in the transactions or exchange of information.