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Introduction:
In this article, we will provide you an overview on the various types of blockchains that revolve around decentralisation, centralisation and distributed network. However, it is crucial to grasp that while all blockchain is a type of Distributed Ledger Technology (DLT), not all Distributed Ledger Technology (DLT) are blockchains. In this article, our focus is on distinguishing the different types of blockchains, setting aside the broader topic of Distributed Ledger Technology (DLT) for another day. Let’s dive into the nuances and understand the unique characteristics that make each type of blockchain distinct.
So let’s dive in!
Note:
- All blockchains are a form of distributed ledger technology, But not all Distributed ledger technology are blockchains.
- There are mainly 3 types of blockchains, Public blockchain (Decentralised), Private blockchain(centralised) and distributed blockchains.
Decentralisation in Blockchain:
Decentralisation is a cornerstone principle of blockchain technology. Unlike traditional centralised systems where a single authority holds control, decentralised networks distribute authority among multiple participants. In the context of blockchain, this means that no single entity governs the entire network. Instead, consensus mechanisms, such as Proof of Work (PoW) or Proof of Stake (PoS), enable participants to validate transactions, ensuring transparency and security.
Examples: Bitcoin blockchain and Ethereum blockchain
Note:
- Participants indicated here are mainly node validators, those who validate transactions within the blockchain by verifying, voting and maintaining a record of the transactions.
- Proof of Work (PoW) and Proof of Stake (PoS) are different consensus mechanism that ensures transactions within the blockchain are secured
- Decentralisation provided by blockchain is one key reason why crypto enthusiasts support it.
Benefits of Decentralization:
- Enhanced Security: Decentralised networks are resistant to single points of failure as there is no central repository vulnerable to breaches. Making them more secure against cyber threats.
- Transparency: Every participant within the network has access to the same information, promoting transparency and trust.
- Censorship Resistance: Decentralised systems are less susceptible to censorship, as there is no central authority controlling access.
Example: Ethereum and Bitcoin
Centralization in Blockchain:
While decentralisation is a fundamental aspect of many blockchain networks, some systems incorporate elements of centralization. Centralised blockchains may have certain components or governance structures controlled by a central authority. This hybrid approach can provide benefits such as faster transaction processing but raises concerns about potential vulnerabilities and a single point of control.
Example: Central Bank Digital Currencies (CBDC) , Ripple (XRP) (generally considered centralised) and Amazon Web Services
Note:
- Some ways in which central authority can build a centralised blockchain is by changing the mechanism of node validation and consensus mechanism.
- Node validators are mainly themselves
Distributed Networks in Blockchain:
Distributed networks refer to systems where data and processing tasks are spread across multiple nodes often geographically dispersed. In the context of blockchain, distributed ledgers ensure that each participant has a copy of the entire transaction history. This redundancy enhances reliability and fault tolerance, as the network can continue to function even if some nodes fail.
Example: BitTorrent, a distributed network used for peer-to-peer file sharing
Note:
- Distributed networks are considered more centralised than decentralised networks.
Differences between Distributed Networks vs Decentralised Networks
Both Distributed Network and decentralised networks have differences in their network architecture.
Distributed networks have nodes in which work or cooperate with other nodes. The tasks and responsibilities are often spread across multiple nodes, which means different nodes have different duties. This essentially can be centrally influenced.
On the other hand, Decentralised networks have nodes which work independently from each other. Which results in the decision-making authority being distributed among multiple nodes.
(image showing Distributed network With 10 circles each with different duties as A,B,C while decentralised networks have ABC in all the nodes)
Use Cases for various networks:
- Decision-Making:
- Decentralised networks: Distribute decision-making authority, promoting inclusivity and a diverse range of perspectives
- Distributed networks: Share decision-making tasks across multiple nodes, combining local.
- Centralised systems: Rely on a single authority for decision-making, allowing for quicker implementation but risking potential biases.
- Security:
- Decentralised networks: Offer robust security through consensus mechanisms and the absence of a single point of control.
- Distributed networks: Enhance security by spreading tasks and responsibilities across nodes, reducing the risk of a single point of failure.
- Centralised systems: May face security challenges if the central authority is compromised, as a single breach can impact the entire system.
- Efficiency:
- Decentralised networks: Prioritise security over speed, resulting in slightly slower transaction times but ensuring a high level of resilience.
- Distributed networks: Balance between local autonomy and collaboration, offering a middle ground in terms of efficiency and security.
- Decentralised networks: prioritise security over speed, resulting in slightly slower transaction times.
Conclusion:
The distinctions between blockchain decentralisation, centralization, and distributed networks play a crucial role in shaping the landscape of modern technology. As blockchain continues to evolve, Businesses, developers and enthusiasts are required to understand these concepts. Whether it’s the security of decentralised networks, the efficiency of centralised systems, or the reliability of distributed networks, each approach has its advantages and considerations. The future of blockchain technology lies in finding the right balance between them.
Now after reading this article, you should be well-informed and able to distinguish the differences between each of them. You can always refer back if you encounter any difficulty understanding any sections.
