Blockchain technology is now widely popular around the world in a variety of different industries. But not all blockchains are the same. Instead, this type of technology has many different variations, including federated blockchains. So, what is a federated blockchain and what is its purpose?
How does blockchain technology work?
It’s no secret that blockchains are not particularly easy to get hold of. So let’s quickly review the basics of blockchain technology before we get into the details of federated blockchains.
While blockchains are entirely virtual, it helps to think of them as a series of blocks, each block containing certain information. The information on a blockchain can be shared with a small or large number of different individuals known as nodes. Public blockchains often have many nodes, while private blockchains have fewer.
The data stored on a blockchain is almost impossible to change or delete as cryptography is used to keep it safe. Each block in the chain has its own hash, which is the product of a mathematical algorithm. The hash produced in this process represents all previous data stored in other blocks, and links the blocks together. It is this use of cryptography that makes blockchains so secure.
Due to their ability to store data so securely, blockchains have become very popular across a number of different industries, with different blockchain types better suited to certain functions. So let’s get into the purpose and dynamics of federated blockchains.
What is a consortium blockchain?
A consortium blockchain (also known as a federated blockchain) can sometimes be confused with a private blockchain, but the two are not identical. This is because both private and federated blockchains require pre-authorization of a user for access, unlike a public blockchain, which allows anyone to join. Each pre-authorized user in a federated network also has equal control as the next.
However, unlike private blockchains, consortium or federated blockchains are not typically owned and operated by a single group or organization. Rather, multiple organizations can exist on a single unified blockchain, allowing them to share data across the network privately and securely.
It is also unlikely that you will see a unified blockchain dealing with cryptocurrency. Although blockchains are generally known for their involvement in the crypto industry, some blockchains are more suited to this than others. For example, while public and private blockchains can and are used to record crypto transactions, federated blockchains are more geared toward data exchange and collaboration.
Like other blockchain types, a consortium blockchain still requires a consensus mechanism that all nodes can use to verify data. But federated blockchains can often provide low latency, as the number of users is lower and fewer nodes are required for the consensus process. This is one of the biggest benefits of using a unified blockchain.
While federated or consortium blockchains are not nearly as popular as public blockchains, they are still hugely useful to a number of different companies, such as Hyperledger. This is a collection of open source projects that offer users tools to build their own decentralized applications and services. With Hyperledger’s framework, you can get a head start in your project development and have a better chance of creating a well-designed network.
Hyperledger uses something called the “Fabric Network,” which Hyperledger defines as a “permissioned blockchain network” that includes its “clients, peers, channels and ordering service(s).” Although the Fabric Network has a number of different elements, the core purpose of the unified fabric is to support different individuals, maintain scalability and keep things secure.
Federated blockchains are also popular in several other industries, such as finance, banking and healthcare, although they seem to have become most popular with companies looking to share data securely.
Consortium and Federated Blockchains have a lot of potential
Although most of the known blockchains out there today are not federated, this does not mean that this type of blockchain does not have a lot of promise. On the contrary, Federated blockchains have already demonstrated their use in a number of industries, and we will likely see them being used more frequently in the coming years.