This article will give you a detailed insight into the worlds of Hybrid and Federated Blockchain networks. Although the Blockchain market is expected to shrink in 2020 due to restrictive containment measures prompted by the outbreak of Covid-19, the market is expected to grow rapidly in the coming years.
Blockchain technology has been the foundation of cryptocurrencies and has been of great use in financial services. As a decentralized database, Blockchain technology has made digital transactions secure, safe, and transparent. Some companies, like BitPesa, conduct their overseas payment using Blockchain technology. Currently, Blockchain has found its use in healthcare, supply chain, government, and other sectors.
In this article, you will better understand the fundamentals of Federated and Hybrid Blockchain networks and how they function. Before we delve further into this topic, read more about Blockchain technology here.
What is Federated Blockchain?
A Federated or Consortium Blockchain is quite similar to a private Blockchain. However, there is a line of demarcation between both. In a Federated Blockchain network, there is no sole organization influence. This is unlike the private Blockchain that operates on a permissioned distributed ledger system. Some private Blockchain systems make use of public readability features, whereas others do not.
In a Federated Blockchain network, multiple entities make use of the network, and they will create a decentralized system. Therefore, instead of having one organization take charge of the network, Federated Blockchain allows multiple organizations to use the network for their benefit. A good example of Federated/Consortium Blockchain is Enterprise Ethereum Alliance (EEA). Some of the leading organizations that are members of EEA include Microsoft, Accenture, J. P. Morgan Chase Bank, Vitro Technology Corporation, etc.
These organizations come together to ensure the network works efficiently. That is why it is called Federated Blockchain or Blockchain Consortium. There are three basic types of Federated/Consortium Blockchain and they include:
- Technology-focused Consortium Blockchain
These Blockchain consortia provide reusable Blockchain platforms with solutions that are based on technical standards. Examples include Hyperledger, Enterprise Ethereum Alliance, etc. Their main purpose is to help Blockchain technology attain global recognition.
- Business-focused Consortium Blockchain
These Blockchain consortia develop solutions for a particular business issue and examples include Bankchain, TradeLens, and so on. In reality, they focus on a specific use case like banking, supply chain, energy, etc.
- Dual-focused Consortium Blockchain
They offer both technology and business solutions. Therefore, they provide an open-source platform suitable for any kind of business or technological solution. A very good example is R3.
How does it work?
Imagine twenty different organizations are working together in the same Blockchain network. From these twenty organizations, a node will be pre-selected to enable changes on the network. These nodes can do several things. The nodes have the authority to either read or write transactions. They have the power to restrict or allow participants on the network. However, these nodes don’t have the sole power to add a “block” in the database. Before a “block” can be added on the network, each of the nodes has to sign off the “block.” Even if one of the nodes disagrees, the “new block” will not be added.
You cannot see such a feature in private Blockchain networks. This feature helps to ensure that no one can exploit their superior access to the network. Federated Blockchain uses the Proof of Vote mechanism to reach a decision.
Benefits Of Federated Blockchain
Here are some benefits that you can expect from Federated Blockchain platforms.
- It saves cost
The basic idea of being part of a Federated Blockchain is to cut costs. Therefore, you should go for the one that offers the most cost-saving feature for your business.
- The participants share the risk involved
This is another great benefit of Federated Blockchain. You should seek a platform where all participating companies will share the risk in case of a new Blockchain solution. The relatively “new” nature of Blockchain means there are lots of risks associated with it in the market.
- Gradual mass adoption
As more companies are coming together under a Federated Blockchain platform, it helps to drive mass adoption. Mass adoption helps your company to reach new heights easily.
Learn more about Federated Blockchain and its use cases here.
What is a Hybrid Blockchain network?
Now, let’s talk about the Hybrid Blockchain network. It is a combination of the strength in both private and public Blockchain solutions. Ideally speaking, Hybrid Blockchain means having controlled access and freedom at the same time. Hybrid Blockchain solutions are completely customizable. The participants determine which transactions they will make public and who becomes a member.
Before you can have a clear understanding of Hybrid Blockchain, you need to first understand private and public Blockchain. Like its name, public Blockchain is accessible and managed by the public. However, private Blockchain only grants access to a few entities involved in the development of private Blockchain. Private Blockchain networks have administrators who control the permission or addition of data.
All transactions that take place in a Hybrid Blockchain system can be kept private. Although these transactions are private, they are still verified when needed. Once you can access the Hybrid Blockchain, you can fully take part in all activities of the network. However, the identity of each participant is hidden from others on the network.
Hybrid Blockchain combines the speed of private Blockchain and the security of the public Blockchain. It uses the private Blockchain to generate a hash of transactions while employing the public Blockchain feature for verification. Some real-life applications of Hybrid Blockchain include the Ripple network and the XRP token and XinFin.
Use Cases of Hybrid Blockchain
- Supply Chain
Hybrid Blockchain can be a great help to supply chain networks because of the large nature of the supply chain. The supply chain needs to be neither private nor public Blockchain but a combination of both. The IBM Food Trust is one big example of the use case of Hybrid Blockchain in the supply chain.
- The Banking Industry
Hybrid Blockchain is an ideal solution to most of the challenges we experience in the banking sector. As the banking industry needs to solve internal problems and also secure user information, the need for Hybrid Blockchain becomes more imperative.
- Government processes
Hybrid Blockchain can help make government processes more efficient. The government can leverage Hybrid Blockchain to create a public identification database, conduct elections, provide both social and humanitarian assistance, etc.
Both Federated and Hybrid Blockchain are disruptive. Therefore, to answer the question that which one of the Hybrid and Federated Blockchain is the best, we can say that it depends on the use case. However, each of these two networks has its peculiarities in the industry. Blockchain Consortium cannot do the work of a Hybrid Blockchain system, and vice versa.
Xord provides Blockchain services and solutions to your business. Connect with us for your Blockchain projects and free Blockchain consultation at https://xord.com/contact/