Contact us anytime to know more — Abhishek P., Founder & CFO CISIN
In the same way, the blockchain-related realm has specific guidelines for creating distributed and decentralized ledger systems.
The majority of these diverse protocols are needed for different scenarios. This article will concentrate on the top blockchain protocols and platforms to help you better understand the current market conditions.
What is Blockchain Technology?
According to Merriam Webster, blockchain technology refers to "an open distributed ledger that allows you to document exchanges between parties quickly and securely and reliably." It is possible to break down the definition into smaller sections to be easier to understand.
If blockchains are called "open," the term typically refers to the open-source nature of the base code that is the basis of most blockchain protocols.
There is a possibility of having both private and public chains constructed using open-source software. We'll talk about the differences in the future. The phrase "distributed ledger" refers to the fact that the ledger upon which transactions are stored is shared by a variety of users of the blockchain.
This means that it isn't controlled or owned by a single entity. Entirely controlled by a single company.
The most important elements in blockchain technology include:
Distributed Ledger Technology
Everyone on the network has accessibility to the ledger distributed and its immutable records of transactions. Transactions are only recorded once through this shared ledger, thus eliminating the duplicate work required by traditional business networks.
Immutable records
A person cannot alter or alter the transaction after it has been recorded in the common ledger. If the transaction record has an error, a second transaction is required to rectify the error, and both transactions will be accessible.
Smart contracts
To speed up transactions, a set of rules -- also known as smart contracts, is recorded on the blockchain and then executed by a computer.
Smart contracts can set conditions for bond transfer to corporations and the terms of travel insurance to be paid, as well as others.
Why Do We Need Different Blockchain Types?
If you are aware that blockchain is a kind made up of the distributed ledger system (DLT), and you understand that, it is clear that its primary purpose is to transmit information safely.
For example, in Bitcoin, the transmission is a financial transaction. That is when people claim to have Bitcoin but don't own any digital files like they own private videos on their smartphone.
Instead, the user has access to the asset that is secured and paid to miners who help verify the transactions of the blockchain network that are unlockable with a Bitcoin public key or a different private key format based on blockchain.
Thus, this kind of network provides a safe and monetary borderless platform for the general public. But, this is just one example of a blockchain-based application.
There are two main types of blockchains: public and private blockchains. However, there are many variations, such as Consortium and Hybrid blockchains.
Before we dive into the various kinds of blockchains, let's first understand what characteristics they have. Every blockchain comprises a cluster of nodes operating in a peer-to-peer (P2P) network. Each node of the network is a replica of the common ledger that is regularly updated.
Every node can check transactions, initiate or accept transactions, and create blocks.
Now let's take a look at the four different types of available blockchains.
Private Blockchain
Private blockchains are one-way or permission-based blockchain which operates only in a closed system. Private blockchains are typically used within an organization or enterprise where only selected members can be part of a blockchain network.
The security level and authorizations and permissions access is the responsibility of the organization that controls it. Therefore, private blockchains have the same capabilities as public blockchains but are smaller and less restrictive networks.
Private blockchain networks can be used to vote and supply chain management. Digital identity, asset ownership, etc.
Hybrid Blockchain
Hybrid blockchains are a mix of both public and private blockchains. It combines the advantages of both kinds of blockchains.
It is a private permission-based system and an open permission-less system. With a hybrid network, users can decide who has access to the stored data on the blockchain.
Only a small portion of records or data from the blockchain will be granted access to the public blockchain, and the rest remain private within the secure network.
Blockchain's hybrid system allows users to be flexible and join private blockchains and various public blockchains.
Public Blockchain
The public blockchain is an open, unrestricted, permission-free distributed ledger. Anyone with access to the internet may join the blockchain platform to be a node authorized and join blockchain networks.
A node or user that is a member of the blockchain public can access past and present records, verify transactions or create proof-of-work for an inbound block, and perform mining.
The most basic usage of public blockchains is to mine and exchange cryptocurrencies.
Consortium Blockchain
The blockchain of a consortium has multiple organizations that oversee a blockchain. This is in contrast to what we have seen in a private blockchain controlled by one organization.
Several organizations can be the node of this kind of blockchain. They can exchange information or perform mining.
Blockchains used in consortiums are usually used for governments, banks, other agencies, etc.
What are Smart Contracts in Blockchain?
A smart contract, just like every contract, specifies the conditions of an arrangement. But, unlike a traditional contract, the terms of a smart contract are implemented as code that runs on a blockchain, such as Ethereum.
Smart contracts let developers create an application for blockchain that take advantage of the security, reliability, and security offered by blockchain and accessibility. They also offer advanced peer-to-peer capabilities, including insurance and loans to gaming and logistics.
Benefits of Smart Contracts
Smart Contract blockchains offer a variety of benefits such as the speed of operation, efficacy, precision, and trust, as well as security, transparency, and savings, as explained in the sections below.
Smart contracts use computers to automate procedures, which can save time in different commercial procedures. These agreements are automated, which reduces the risk of manipulation by third parties because they do not require agents or intermediaries to sign legal contracts that have already been signed.
Additionally, the absence of the intermediary requirement in these contracts helps save money. Furthermore, all parties have full visibility and access to the contract's terms and conditions.
Contracts. Thus there is no option to rescind the contract after signing the contract. This means that the transaction will be completely transparent to everyone involved.
Additionally, all the documents stored in the blockchain are replicated several times, which permits the restoration of original documents when there is a loss of data.
Smart contracts are secure, and cryptography secures all documents from being altered. Furthermore, smart contracts remove errors because of manual filling out multiple forms.
Essential Concepts of Blockchain Protocol Technology
Protocols are the most important component of Blockchain technologies that allow data to be exchanged seamlessly across cryptocurrency networks safely and safely.
In computer science, the protocols are the fundamental rules that govern how data can transfer between computers. Protocols specify how data should be structured to be accepted into the system. They also provide safeguards to stop malicious users from causing harm.
In reality, some protocols have been used before the World Wide Web was even established. The widely-used Hypertext Transfer Protocol, for example, is a way to define how online packets are constructed and what content they might contain.
Blockchain protocols Blockchain is similar in that they allow server nodes to share information on the web so that all the systems within an internet network can understand.
51% Attack
The majority of distributed cryptocurrency projects depend on consensus to be achieved by anonymous network participants using the voting system.
The power of each member's vote is determined by the number of coins they hold. So every distributed cryptocurrency project is potentially vulnerable to an attacker who takes control of the network by taking control of a large percentage of the coins available and then using this control to undermine the security and security of the entire network.
For larger projects, like Ethereum or bitcoin, attacks of 51 percent are impossible, but such attacks have occurred before using tiny coins.
Proof of Work
While the idea that proof of work has become popular due to cryptocurrency's rise, the concept has been in use for more than fifty years.
The protocol is a brief piece of information that is difficult for computers to generate but is easily verified by third organizations. Proofs of work make bitcoin mining challenging while making it possible for anyone to prove the new coins were made legally.
In the traditional cryptocurrency, proofs of work are also used to verify the legitimacy of transactions. Nowadays, new technology in corporate governance, finance, and various other fields is being developed based on proof of work to bring about innovation.
Coins vs. Tokens
Moving money between wallets requires technical expertise and poses security issues for those who aren't experts on Blockchain protocols.
Moving physical coins could also cause problems with regulatory compliance. This is why most Blockchain services, including trading platforms and exchanges, use tokens to transfer value among users.
In systems that use tokens, the service provider can hold many coins. Ownership of these coins is transferred to users whenever they conduct transactions. Tokens are a way to make transactions simpler.
However, the issue is that ownership is with the service provider and not the individual users.
Distributed Ledger
The distributed ledger represents a publicly visible record of all transactions, which anyone can observe in most cryptocurrency projects.
Smart Contracts
Smart contracts build upon the blockchain technology that bitcoin developed to establish a contract that can be signed and developed securely.
The purpose of the smart contract is to help facilitate the efficiency of digital commerce by allowing parties to sign contracts with a programmatic approach in less than seconds.
Top Examples of Blockchain Protocols That You Must Know
They are also considered the top blockchain platforms available. Let's take a look at each of them.
Quorum
Quorum is a different enterprise blockchain protocol intended to resolve financial sector issues. JP Morgan invented Quorum, which is described as an enterprise-oriented Ethereum blockchain.
This protocol-based platform is essential in solving financial issues. It will change how companies in the financial sector operate and incorporate blockchain within their operations.
Enterprise Ethereum
Ethereum is among the top public blockchain platforms that are available. It provides various options, including intelligent contracts, decentralized App creation, etc.
However, the platform had to be granted permission to enable it for enterprises. This is the point where enterprise Ethereum can help. In actuality, it allows companies to build a private-permissioned network capable of scaling up to meet the needs of enterprises.
Private chains that are created with Enterprise Ethereum are separated from public chains. However, private chains can communicate with public chains if needed.
The primary major difference that separates Ethereum and Enterprise Ethereum is permission. This is why Enterprise Ethereum also offers greater privacy and security and improved performance, and the ability to scale.
The Enterprise Ethereum Alliance maintains it. As of now, it has 300+ member companies representing 45plus nations.
Additionally, it has more than 1400 members who are individuals.
Hyperledger
Hyperledger is an open-source framework for enterprises. It is administered through the Linux Foundation. It is a cooperative project with a wide range of protocols and frameworks.
Because it is open-source, anyone with the appropriate knowledge can participate in the project. Additionally, Hyperledger is all about the permissioned blockchain.
The primary goal is to give enterprises a common system or set of guidelines to implement blockchain. A variety of tech giants participate in the project and work with the same goal of establishing the protocol that business solutions could implement.
It was launched in the year 2015. At present, more than 250 organizations are working on creating an enterprise-grade system.
Hyperledger is a security-focused blockchain protocol. And one of their initiatives, Hyperledger Fabric, is very popular among businesses.
Corda
R3 Corda is also a promising enterprise protocol developed from scratch. It is administered through R3, the R3 banking consortium, and is ideal for finance and banking-related businesses.
It is based on distributed ledger technology. Corda blockchain uses consensus algorithms that ensure transparency, traceability, and verification of transactions.
It also provides smart contracts, which means that most banking services can be automated. The main advantages that R3 Corda offers comprise the following:
-
The capability to design smart contracts
-
Unique services and timestamping using notary pools
-
Flow framework allows enterprises to write complicated protocols and then make them work with users.
Like other blockchain protocols mentioned up to the present, Corda is open-source and has been granted permission.
This makes it a perfect option for companies that wish to get the most value using Corda R3's Corda R3 architecture.
Ripple
This enterprise-level blockchain platform began its journey in 2012. But it wasn't called Ripple at the time it began its way.
Ripple was originally known as Opencoin and was later renamed or changed its name to Ripple in 2015. Additionally, RippleNet can connect banks and other organizations and asset exchanges through their blockchain platform.
They also focus on faster processing of payments.
The key features of Ripple are:
-
Unlimited assets
-
Rapid deployment
-
High security
-
Faster payments
-
Solutions for liquidity
-
Modern messaging
-
Developer friendly
The Ripple is ideal for businesses that operate in the financial industry. Santander, CROSS ENF, and Siam Commercial bank are some of the most popular clients for this protocol type.
The Key Takeaway
Despite their many advantages, blockchains lacking an established network of participants or a verifiable consensus process are susceptible to attacks and central control.
Throughput and decentralization -- the quantity of data that a blockchain can process within a specific time are two important aspects.
The other concerns with blockchain are concerning environmental concerns. One example is blockchain technology, which relies on the proof of work (PoW) consensus technique.
It requires a significant amount of energy to run. Another concern is the technical complexity and fear aspect that blockchain technology could bring to individuals and businesses.
The rapid growth of cryptocurrency in finance was only the start of the integration of blockchain technology into everyday lives.
A growing number of industries are testing blockchain technology, and more and more and more people are beginning to realize the advantages and value blockchain software products and services could offer in their daily lives.
However, the business of blockchain isn't slowing down. Technology has the potential to become an integral part of, or even replace, our digital infrastructure shortly.
