The second of our three-part series on Blockchain basics looks at its underpinning technology and the different types of Blockchain.
Blockchain Tech: The Key Components
Various elements and concepts work together to create a Blockchain, principal among them being “nodes”. A node is a device on the network that runs the Blockchain’s protocol software, communicates with other nodes, and validates transactions and blocks.
“Miner nodes” are responsible for generating new blocks on the chain; they do so by solving complex mathematical problems. They consume lots of power, and are rewarded with newly-minted cryptocurrency.
Consensus mechanisms are another critical aspect; these ensure that all nodes on a Blockchain network agree on the validity of transactions, as well as the order in which they’re added to the chain.
Consensus is achieved through various algorithms, the most well-known being Proof of Work (PoW) as used by Bitcoin, and Proof of Stake (PoS) as employed by Ethereum.
Types of Blockchain
There are four main types of Blockchain: Public, Private, Consortium and Hybrid.
A public Blockchain is decentralized and accessible to anyone, supports a wide range of applications, but can also suffer from slower transaction speed. Major cryptocurrencies like Bitcoin and Ethereum operate on public chains.
Private Blockchains limit participation to select members, but are often controlled by a single entity, while hybrid combines elements of public and private chains. Consortium Blockchains are permissioned and share control and governance between a group of organizations.
The descriptions provided above are all based on publicly available information, and cannot be considered as financial advice or encouragement to invest. Sources of information used in this post include Investopedia and blockchain-council.org. All transactions involving digital assets involve certain risks, which you should familiarize yourself with prior to any investment.