What Is A Hybrid Blockchain And Why You Need To Know About It?
By Tom Zilavy on ALTCOIN MAGAZINE
With the rapid development in the world of blockchain, we can observe 2 ‘camps’ arising. On one side of the trench, there is a big community of supporters of public blockchain arguing for decentralization. On the other side, there is a community (mostly corporates and their clients) that supports private blockchain operated mostly by a single entity with its permissions.
As it was with the cloud in the past (many say that blockchain actually is the ‘new cloud’), this gives rise to a new approach in the form of the hybrid blockchain.
Let’s first dive into the two already established options before we get to an alternative solution for scaling companies — the hybrid blockchain.
This is probably the type of blockchain you are the most familiar with. It has several specific characteristics and pitfalls:
- It is open to the public. Anyone can join this type of blockchain. The only thing one needs is a client (a wallet) that enables the user to receive, send and store digital assets.
- It is distributed. No single entity ‘owns’ the network, nor centrally stores all the data. Every participant on the network ‘owns’ it, as every node on the public blockchain has a copy of the database.
- Everyone can read and send transactions. This means there are no permissions to the content or actions individuals can take on the blockchain.
- The data is secured by advanced cryptographic methods
- It establishes a method of trust. It is ideal for parties that do not have a natural trust and still want to make transactions.
- Public blockchains often need to use a computationally complex form of consensus that has issues with scalability and fast transaction processing (low TPS — transactions per second — ratio). This might pose a potential threat to enterprise uses.
Most of the projects out there are running on a public blockchain at the moment. Probably the most famous examples are Bitcoin and Ethereum.
This is a type of blockchain that is mostly utilized by large companies these days and there are several reasons for that:
- Private blockchain is a database that exists in an isolated environment among a business network. This is a network of parties that are business partners or are somehow connected through their operations and could benefit from a shared immutable database.
- Participants are known to each other and proven to be trusted.
- The key concept is permissions. These ensure that participants see only what they are supposed to and either can or cannot make transactions based on their competences. Permissions are agreed upon in advance and with every new participant, they are defined before they join the network.
- Criticized for not ensuring decentralization and anonymity that is at the heart of public blockchains.
- Thanks to limiting the number of participants and the scope of consensus, private blockchains can achieve better scalability and processing speed.
One of the most well-known private blockchain platforms is the Hyperledger Fabric that is supported by IBM. IBM defines private blockchain as:
“Blockchain where an invitation to participate is required and must be validated by either network starter or by an agreed and accepted form of consensus.”
First things first, before getting to what hybrid blockchain actually is, we need to get the consortium blockchain out of the way. Often it is perceived as a hybrid blockchain and there is no clear guideline to the distinction.
Consortium blockchains are the ones, where only a certain number of nodes defined in advance have the authority to validate transactions (therefore, it is a different form of consensus to public blockchains). They are sometimes referred to as partly decentralized blockchains. However, this kind is not the hybrid blockchain we are talking about in this article.
For the purpose of this article, we will define the hybrid blockchain as:
“The combination of public and private blockchain, used by an individual entity that reaps the benefits of both approaches.”
Each of the two types of blockchain has its benefits and setbacks and companies should aim to tailor their solution to best suit their specific needs. This model is best explained by an example:
Logistics Industry Use Case:
Large logistics companies such as MAERSK, DHL, UPC have many partners, subcontractors, and clients. This creates a complex and often changing business network and companies need to deal with this complexity.
The private part of a hybrid blockchain solution can be used for transactions among the biggest partners. It will have a classic permissioned setup, where parties can view, transact and make changes based on permissions they are given. This network is fast, scalable and secure. However, adding more parties and establishing their trust takes longer than on a public blockchain.
The public part will contain a large list of subcontractors and small partners (for instance local transport providers) that will be able to make changes on a public network, with an easier process of trust establishment. Since the dynamics of this group will be faster, public blockchain would be an ideal solution.
Implementing a hybrid solution, a logistics company would be able to grasp the benefits of both public and private blockchain and optimize the process. Similarly, any large group of organizations can provide read-only access to their customers and write access internally and to suppliers to improve transparency of their processes.
Often, organizations will pursue the private blockchain solution purely due to lack of knowledge and fears that are not based on true information. Innovative companies will come up with solutions how to fit both public and private blockchain in their operational model to make it more effective. The hybrid blockchain is a complex solution and it is not for everyone. However, it certainly deserves your attention due to benefits and customizability it can bring.
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The purpose of ALTCOIN MAGAZINE is to educate the world on crypto and to bring it to the hands and the minds of the masses. This article was written and composed by Tom Zilavy on ALTCOIN MAGAZINE.