A blockchain is a distributed digital ledger which documents transactions carried out among several parties in a network. All participants using the shared database are referred to as “nodes” connected to the blockchain, each keeping an identical copy of the ledger. Blockchains and blockchain based applications have grown increasingly popular both for individuals and public establishments. Privately, people can use blockchain to store wealth away from the prying eyes of government officials and fraudsters. For public establishments and the government, blockchain is being used to devise improved systems for logistics, healthcare, and governance.
A major reason why blockchain remains so powerful is the fact that it is (and has always been) difficult to manipulate and is visibly available for all of the users. Nonetheless, there are some applications that are not fully covered by either public or private blockchains alone, hence the need for hybrid blockchains.
Depending on their structural design, hybrid Blockchains can be placed between private and public blockchains. Hence, to properly understand hybrid blockchains, it is important to recognize the differences between private and public blockchains.
What are public blockchains?
Public blockchains can be accessed by, and run by the public. Typically, anyone can take part in the maintenance and governance of a public blockchain. To bring this into context, it is important to note that Bitcoin (The most popular blockchain) is a public blockchain. Users are usually rewarded for completing simple tasks in the form of block rewards, these rewards are also used to encourage good behavior on the part of network peers. Public blockchains have lots of users all around the globe, therefore reaching a consensus for a public blockchain is laborious and costly. For example, Bitcoin uses a consensus mechanism known as Proof of Work which relies heavily on uneconomical computations for millions of devices to ensure security. As a drawback, public blockchains are not always suitable for organizations in the finance, banking, government and health care sectors that must cautiously control access to their data and must comply with complex regulatory requirements.
What are private blockchains?
Like the name implies, a private blockchain only gives access to the trusted few who were involved in its creation. Generally, private blockchains have executives who can regulate permissions of adding or altering data. Private Blockchains are considerably faster than public blockchains because the network is run by a handful for trusted nodes whose motives are solely for the benefit of the network. Such trustworthy nodes typically belong to financial institutions or universities to sustain fairness and remain impartial. Drawbacks for the private blockchains include restrictions on who is allowed to contribute in the network, making the ecosystem growth more difficult. Also, use cases are restricted because of narrowed, regularly closed group of participants.
The best of both worlds
From the above, it can be deduced that both public and private blockchains have their individual strengths and weaknesses. Public blockchains, although transparent and difficult to manipulate are slow and costly while, private blockchains are centralized to some extent, but can provide much higher output and speed.
This is where hybrid blockchains come in as they merge the advantages of both of the public and private blockchains while trying to limit their disadvantages. Therefore, with hybrid blockchains, a public blockchain can be employed to make the records accessible to all users, with a private blockchain functioning in the background that can control access to the modifications in the ledger.
There are several benefits to using a hybrid blockchain; the speed of private blockchains joined with the security of public blockchains. The private blockchain is used to generate a hash of transactions which is later verified using the public blockchain.
Algorand as a hybrid blockchain
Although the idea of hybrid blockchains are exciting, there is often the need for hybrid applications to interoperate, exchange data, cross-communicate, to entice and encourage involvement of new users. Algorand is both public blockchain platform and private blockchain provider, allowing these two worlds to freely interoperate.
The newest protocol version of Algorand (version 2.0) provides various functionalities for business integrations. Most remarkably is the layer-1 fundamental which enables asset tokenization, atomic transfers, and smart contract creation. The layer-1 fundamental was developed with the goal of improving scalability. Notable decentralized exchanges-IDEX and stablecoin now use Algorand’s blockchain arrangement to their advantage. Also, a number of organizations in financial services, real estate, and enterprise technology have already been leveraging Algorand’s public blockchain to solve real-world challenges.
Algorand employs a co-chain architecture to make sure that users can enjoy the advantages of private chains and public chains at the same time. By making public and private blockchains interoperable, establishments can separate and regulate sensitive data on a private blockchain, while still securely interacting with the world at larger scale, via an interoperable public blockchain. Co-chain is entirely independent from the public chain, protects transactions from those without administrative access, elects its own validators, and runs its own consensus algorithm. Algorand pushes that both permissionless and permissioned blockchains are equally important and delivers implementations for both, ensuring their synergy.
Irrespective of how scalable, distributed, and safe a permissioned chain might be, its users may not want to network only with each other, but also with other chains and with the rest of the world, so hybrid approach seems to be a good way to tackle this. It has been observed that businesses want the benefits that the blockchain can deliver without associating with the risk of the public blockchain even as blockchain is still being accepted globally. Algorand as a hybrid blokchain provides a solution for highly structured enterprises and government agencies which will help them retain have control over data and also enjoy the flexibility of data being kept private.
According to the CEO of Algorand, the team is committed to nonstop innovation and the improvement of technology that solves real-world challenges. Algorand is developing a permissionless, pure proof-of-stake blockchain protocol that will herald the “next generation of financial products”. A welcome development in the blockchain ecosystem.
Website: https://www.algorand.com
Development Platform: https://algorand.org
Twitter: https://twitter.com/Algorand/