What are the types of blockchains? What are the disadvantages of blockchain?

Dec 15,2022
What are the types of blockchains? What are the disadvantages of blockchain?

What are the types of blockchains? What are the disadvantages of blockchain? Blockchain is not only a database, but also a new technology stack with "digital trust". It completely changes the way we exchange value and information on the Internet by removing the "gatekeeper" from the process.

What are the types of blockchains?

1. Public blockchain

The public blockchain is an open and decentralized computer network, which can be accessed by anyone who wants to request or verify transactions (check accuracy). The person (miner) who verifies the transaction will be rewarded.

The public blockchain uses the workload proof or equity proof consensus mechanism (to be discussed later). Two common examples of public blockchains include Bitcoin and ETH blockchains.

2. Private blockchain

Private blockchains are not open. They have access restrictions. Those who want to join need permission from the system administrator. They are usually managed by one entity, which means they are centralized. For example, Hyperledger is a private, licensed blockchain.

3. Hybrid blockchain or alliance

The alliance is a combination of public and private blockchains, with the characteristics of centralization and decentralization. For example, Energy Web Foundation, Dragonchain, and R3.

Please note that there is no 100% consensus on whether these terms are different. Some people distinguish the two, while others think they are the same thing.

4. Side chain

The side chain is a blockchain running in parallel with the main chain. It allows users to move digital assets between two different blockchains, and improves scalability and efficiency. An example of side chain is Liquid Network.

What are the disadvantages of blockchain?

The public open source blockchain is not without risks and challenges. The following is a list of the most concerned issues:

1. Environmental impact

Blockchain networks such as Bitcoin use a lot of power to verify transactions, causing environmental problems. For example, Bitcoin consumes more electricity than a small and medium-sized country in Europe, and its mining is threatening China's climate change goals.

However, many people will argue that Bitcoin complies with higher environmental standards than anyone and anything else. This may be true, especially when you think blockchain and Bitcoin are alternatives to traditional financial systems, which will consume more power and have a greater impact on the environment.

A study by Galaxy Digital shows that Bitcoin consumes less than half of the energy of traditional banking systems. If so, you may argue that Bitcoin is a step in the right direction to protect the environment.

No one said that progress in reducing the carbon footprint should not be put on the agenda (this has occurred in the shift of some mines to renewable energy, such as solar panels and the appeal of the President of El Salvador to develop plans (volcanoes) to use geothermal energy to mine Bitcoin).

However, it is important to keep a balanced view when looking at costs, environmental impact and blockchain benefits.

2. Personal responsibility

One of the most significant advantages of blockchain and cryptocurrency is also their biggest weakness. When you invest in the public open source blockchain by mining or purchasing cryptocurrency and store it in your cryptocurrency wallet (your wallet is like your bank account, except that only you can access it and have a password), only you can control your funds.

You are your own bank - that's great! However, if you lose a mnemonic -- a word list that allows you to recover your wallet -- you have no recourse (compared to a bank that can reset your password). Your money is lost forever.

Not surprisingly, a large part of Bitcoin is still permanently lost. According to some estimates, 20% or 3.7 million of the Bitcoins currently minted may be lost forever.

3. Growing pains

Although the public blockchain is still more efficient than the traditional banking system, decentralization comes at the cost of scalability. Conversely, trying to develop the blockchain network to global capacity is the root cause of low speed and efficiency. This is why, as we can see, compared with 24000 transactions of Visa, Bitcoin and Ethereum can only handle 7 and 30 transactions respectively.

Fortunately, solutions are being built to improve scalability and transaction speed. For example, Lightning Network allows transactions to occur outside the Bitcoin blockchain to speed up transactions. On Ethereum, many innovative Layer 2 (L2) solutions are being developed to improve scalability and speed, including aggregation, zero knowledge proof and side chain.

4. False statement

Some cryptocurrencies are undoubtedly used for illegal activities. The most famous example is the Silk Road: people use Bitcoin to launder money and buy drugs on the platform. However, this is no different from the illegal activities that often occur when people use other currencies such as the United States dollar.

This misconception that cryptocurrencies are used only or mainly for illegal activities will only delay their inevitable adoption, which can greatly benefit everyone, including the financial system.

In general, the above content introduces in detail the types of blockchains and the disadvantages of blockchains. I believe you will understand after reading it. In short, blockchains are an immutable, time stamped series of data records distributed and managed by computer clusters.