Consortium Blockchain Explained
Last Updated: 1st November 2018
Blockchain is a piece of technology that was invented by a pseudonymous group or individual under the name Satoshi Nakamoto. Satoshi deployed blockchain in a manner that was intended to facilitate a decentralized and trustless online payments ecosystem in the form of the digital currency Bitcoin. This has spawned the creation of other digital currencies and assets which all utilize blockchain technology as a base upon which to build their various platforms. The most common type of blockchains are public, with the most popular being Bitcoin and Ethereum. However, blockchain types such as a consortium blockchain are another interesting application of Satoshi’s initial blockchain implementation.
Mechanisms of Blockchain
Blockchain is a technology that can best be thought of as a ledger that maintains a record of economic transactions or anything of value. The ‘block’ element of blockchain refers to the fact that groups of transactions are first batched to form a block, and are then combined to form a chain, hence the term blockchain. One characteristic about blockchain that makes it valuable as a piece of technology is that it is tamper-resistant against bad actors. Thus, once data is batched into blocks and then added to the chain, it becomes extremely difficult to change the data included within those blocks. This tamper-resistance derives from the fact that, included in every block is a cryptographic hash of the previous block. As more blocks are added to the chain, going back to alter data within a previous block would require a bad actor to recompute the hash of that block and all blocks after it, a task that would come at a considerably high financial cost.
A blockchain is usually managed or over-seen by a second-layer network of peer-to-peer computing nodes. These nodes can be thought of as computers that run a specific client that allows them to connect to the blockchain. Nodes are effectively computers that represent an individual or entity on a blockchain based network. Each node is permitted a full copy of the blockchain, upon joining the network. These peer-to-peer computing nodes are vital because they validate and verify all transactions that are made on the network. Nodes that validate transactions are referred to as ‘mining nodes’ and they secure the network by ensuring that only correctly formed transactions and blocks are included on the blockchain. This process is known as reaching consensus, and consensus algorithms such as: proof-of-work, proof-of-stake, delegated proof-of-stake, proof-of-importance and more are utilized to help facilitate this process.
Consortium blockchains can best be understood when compared to their more popular counterpart, public blockchains. This type of blockchain is one that possesses no access restriction, meaning that absolutely anyone with an internet connection can become a participant of a public blockchain. More specifically, anyone in the world is able to read data that is included on the blockchain, and anyone in the world is allowed to execute transactions on a public blockchain. Importantly, there is also no restriction as to who can participate in the consensus process for blockchains, which is the process that determines the individual or entity that can add a block to the blockchain. Public blockchains are considered to be fully decentralized, with control over the blockchain not being in the hands of any single individual or entity.
Consortium blockchains differ to their public counterpart in that they are permissioned, thus, not just anyone with an internet connection could gain access to a consortium blockchain. These types of blockchains could also be described as being semi-decentralized. Control over a consortium blockchain is not granted to a single entity, but rather a group of approved individuals. With a consortium blockchain, the consensus process is likely to differ to that of a public blockchain. Instead of anyone being able to partake in the procedure, consensus participants of a consortium blockchain are likely to be a group of pre-approved nodes on the network. Thus, consortium blockchains possess the security features that are inherent in public blockchains, whilst also allowing for a greater degree of control over the network.
Examples of Consortium Blockchains
Consortium blockchains are often associated with enterprise use, with a group of companies collaborating together to leverage blockchain technology for improved business processes. Examples of consortium blockchains would be: Quorum, Hyperledger and Corda.
Quorum is an Ethereum-based enterprise distributed ledger platform that has been developed to provide financial industry participants with a permissioned implementation of Ethereum that supports transaction and smart contract privacy.
Hyperledger is an open source collaborative effort that has been created to advance cross-industry blockchain technologies. Created by the Linux Foundation, the technical goals of Hyperledger are the following:
- Create enterprise grade, open source, distributed ledger frameworks and code bases to support business transactions.
- Provide neutral, open and community-driven infrastructure supported by technical and business governance.
- Build technical communities to develop blockchain and shared ledger use cases, field trails and deployments.
Corda is an open source blockchain project that has been specifically designed for enterprise use. Corda allows companies to build blockchain networks that can facilitate for direct business-to-business transactional and smart contract privacy.