TYPES OF BLOCKCHAIN STARTUPS

Did you know that the blockchain concept appeared simultaneously with the term “cryptocurrency”? In 2008 the internet was blasted by an article about bitcoin – the concept of a peer-to-peer electronic cash system based on proof-of-work hash chains. Currently, in business the blockchain is implemented to more areas than cryptocurrencies, to supply which it was designed from the start. This technology has wider capabilities for venture investments and further development. In this article, we will discuss the types of blockchain startups. We hope that this would inspire our readers to ideas upon which they can build their future software solutions.

Basic Blockchain Principles

The Blockchain term means a distributed ledger of ordered and interrelated records that are protected against any changes with the help of the advanced cryptographic methods. Initially, it allowed users to create, distribute and share their digital money bypassing any kinds of financial institutions. But, at the present, the area of the blockchain concept application has gone far beyond the financial sphere and today there are many ways to use blockchain. Below we provide some several “universal” principles to characterize this concept more correctly:

• openness to the users: since the beginning, the blockchain was designed to provide any participant of the system with the transparent and reliable access to all the data or transaction records (we should note though that in private blockchains, such access is allowed only to the proprietor’s employees or someone else with the appropriate access rights; in fact, they are used only to securely store some important or confidential information, for example, patient medical records);
• high security: due to the decentralized scheme of data distribution, when a complete copy of the chain is stored at every participating node, it is almost impossible to hack and somehow modify the stored information (unless, of course, the computing power of the attacker exceeds the total of the attacked network);
• complete anonymity: when you send data or cryptocurrency, you do not need to leave your contacts or any other personal information (a bright implementation being the Monero cryptocurrency).

Thanks to these three characteristics, since the Bitcoin – the first practical blockchain implementation – was launched, more and more blockchain-based startups appear at the market every month. Below we will try to categorize these enterprises based on types of blockchains they develop.

How to Classify the Blockchain?

For almost ten years of the blockchain existence, developers continuously look for new ways to implement this innovative concept into business processes. In particular, in addition to transactions over the digital money, the blockchain could be applicated in such areas as logistics, intellectual property protection, medical data processing, etc. Thanks to this researches, new blockchain types began to appear, following the basic public ones.

Several years ago, one of the top blockchain theoretics, the creator of the Ethereum platform, and co-founder of the Bitcoin Magazine – Vitaliy Buterin, decided to standardize the blockchain classification and distinguished the following three kinds:

• fully private blockchains;
• federate (consortium) blockchains;
• public blockchains.

According to Buterin, the main difference between these types is in the managing entity:

1. in the first case all rights to access data are regulated by a single entity (person or company);
2. in the second case the access to the storage should be approved by all the members of some consortium;
3. in the third, any user can make a transaction or just read the data within such blockchain.

There is another classification, somewhat different from the first. The report of Sir Mark Walport, the Government Chief Scientific Adviser suggests considering the blockchain as a potentially high-effective and advanced tool for managing some government agencies of the UK. He also defined the following three blockchain types:

• permissioned ledgers;
• unpermissioned public ledgers;
• unpermissioned private ledgers.

Nevertheless, the first classification is easier to understand. Let us describe these blockchain types in more detail.

Fully Private Blockchain

As we have already noted above, in private blockchains, access rights are managed by a single entity that owns these structures. In this case, a special authority oversees the distribution of permissions for the access, data reading/writing, etc. Thus, an ordinary person can not get an opportunity to make transactions or even just view the stored information. Also, private blockchains are characterized by a limited level of admission. The transactions confirmation, auditing, and database management are available in such blockchains only to the pre-defined circle of persons. If we talk about the data reading, such a right can be both publicly available and severely restricted. We must also note that the most ardent opponents of such blockchains believe that the existence of private blockchains is contrary to the main advantages of this technology (such as openness, freedom from constraints, and decentralization).

Let us summarize the advantages of fully private blockchains:

• the high speed of transaction confirmation;
• ability to cancel any transaction;
• single point of the control.

Among the best examples of cryptocurrency startup ideas, based on the fully private blockchain concept, are Hyperledger, Bankchain, and Mijin.

Consortium Blockchain

Consortium blockchains are something between private (completely inaccessible for third-party users) and public (with the free access) blockchains because the transaction procedure is approved in this type of blockchain only if it receives a positive response from the all (in some cases – almost all) designated members of the federative entity. That is, in fact, instead of the controlling body (which is peculiar to the private type) and its complete absence (it is characteristic of the public type), in this blockchain that responsibility is assigned to several organizations or individuals. Note, that this type of blockchain excludes a single point of failure in your system (as it can happen with private blockchains).

Consortium blockchain advantages:

• elimination of a single point of failure in the system;
• increased operational reliability;
• high transaction speed.

Among the most successful blockchain examples, we should name r3 and EWB.

Public Blockchain

The last type – public blockchains – is open to all. It does not impose any restrictions on their access rights. Unlike the private blockchain, there is no single controlling body that would assign access policies to read or write the elements within this structure. As for the transaction control, here some special software mechanisms, such as POW and POS, are implemented, which independently confirm the data receipt and transmission.

Now, let us have a look at the major advantages of public blockchain:

• equal rights for all users;
• increased transparency of all transactions/data transmissions;
• invariance of the code base.

Among the top public blockchain business ideas which were successfully released are Bitcoin, Ethereum, and Ripple.

Types Of Blockchain Startups: The Conclusion

As you can see, there are two most used blockchain classifications. Which type of blockchain is the most suitable for your startup – is up to you. Therefore, if you have your own blockchain project ideas and need their software implementation, contact our company now! We will create for your new project a high-quality blockchain system of the type that you would consider most suitable. To discuss the details of our collaboration, send us a letter with a brief overview of your idea using the contacts which you can easily find on our website.