The term “consortium blockchain” also known as Hybrid blockchain refers to a collection of private blockchains owned by individual institutions that have joined forces to share information in order to improve existing workflows, transparency, and accountability.
What Is Consortium Blockchain?
A consortium blockchain is a subcategory of blockchain technology. These are networks that are made up of existing nodes and have access controls. This network has fewer nodes than the public blockchain, but it is more secure and scalable. It also reduces network load and allows for greater security. Although it is less transparent than a public chain, it still has some risks.
It is a network with fewer known participants. It employs a voting system to ensure low latency and high speed. Each node is allowed to write the transaction but cannot add a block on its own. On the other hand, each block added by another node must be verified before being added. This allows greater exposure and innovation.
Understanding Consortium Blockchain
Blockchain technology is the storage of data and information in a chain of digital blocks linked together by hash algorithms, thereby increasing the security of the data in each block. The most well-known application of blockchain technology is a cryptocurrency, which is a distributed digital ledger of transactions. There are three types of blockchain technology available: public, private, and consortium blockchains.
Public blockchains are open to anyone with internet access, whereas private blockchains are used by individual enterprises to support business use by developing corporate software solutions.
A consortium blockchain is a collection of multiple private blockchains belonging to different organizations, each of which forms a node on the chain as a stakeholder in the alliance — and can only leave or join the network with the stakeholders’ permission.
While each organization manages its own node or blockchain, the data contained within can be accessed, shared, and distributed by the consortium. As a result, cross-organizational and cross-technology solutions for improving existing workflows, accountability, and transparency can be developed, addressing the issues and challenges encountered by individual blockchains.
In general, only organizations with common goals and complementary blockchain technologies are successful in forming a consortium blockchain.
Advantages of Consortium Blockchain
Exercising consortium blockchain technology serves the following benefits to the organizations:
Control: Instead of a single entity, the blockchain is controlled by a select group of genuine participants. This control assists in the establishment of rules, the amendment of balances, the editing or cancellation of an incorrect transaction, and the encouragement of full cooperation for companies with common goals upon confirmation from each participant.
Agreement: A contract is often made by a relatively small number of nodes, according to the governance scheme. Because it is less demanding, this type of agreement is easier to reach. These factors have a direct impact on transactional outputs, resulting in faster operations and greater scalability.
Flexibility: In other blockchains, the involvement of multiple validators causes mutual consensus and synchronization issues. Due to the limited number of participants, such issues are avoidable in consortium blockchain.
Validation: The number of consortium blockchain participants is known and verified. They reduce the risk of data threats by performing authentication. Nodes that violate the established protocols are immediately identified and punished. Other threats, such as SQL injection, DDoS, and “man in the middle,” are minor in consortium blockchain.
Security: The information on the authentic blocks is not accessible to the general public. However, the consortium participants can quickly access the information, ensuring high-level security. It instills high levels of confidence and trust in platform users.
Economic: In comparison to other blockchains, the consortium blockchain has no service or transaction fees.
Energy requirement: Nonessential data mining directs the use of energy solely for routine operations. Furthermore, the Proof-of-vote agreement consumes little energy.
Disadvantages of Consortium Blockchain:
Consortium blockchain has several advantages over other blockchains, but certain aspects make consortium blockchain disadvantageous.
Network structure: Consortium blockchains are vulnerable to malicious players due to their centralized network structure. Because of the small number of participants, it is reasonable to suspect that one or more of them is corrupt. The creation of a shared infrastructure ensures greater security than a single enterprise.
Delicate launching process: Setting up a standard network between multiple businesses is difficult due to limited flexibility. Because all participants must accept the protocols, introducing a new blockchain is a difficult process.
Lack of cooperation: Sometimes the participants are unable to cooperate and reach an agreement, slowing down the development process.
Framework: A unified framework is not a feature of consortium blockchain. Private blockchains require industry standards, which are provided by solutions such as R3’s Corda, JP Morgan’s Quorum, and Hyperledger.
Effectiveness: The effectiveness of consortium blockchain technology has yet to be demonstrated.
Upgradation: Upgrading protocols can be difficult in situations where the number of participants is increasing from the start.
Applications of Consortium Blockchain
It should be clear by now what we mean by consortium blockchain. The following industries are perfect for the consortium blockchain approach:
Banking and Finance
Banking and finance are about insurance and asset trading, and it is also about KYC. Banks band together to form a group that collects and stores necessary information about all creditors in a database.
These distributed ledgers are referred to when such information is required by banks in order to identify and access them.
The consortium is the best solution for connecting all supply chain participants. It is useful for tracking products, determining their provenance, and supplying these products.
Healthcare and Insurance
You claim an insurance payment every time you visit a hospital. Because hospitals and insurance companies must store massive amounts of data and files. To expedite paperwork and transactions, hospitals and insurance companies may form consortiums.
A consortium blockchain is appropriate for organizations that require both public and private blockchains. This blockchain optimizes and improves operational and communicational flow among members while also being cost-effective for your organization.