Hybrid Blockchain: How Is It Different From Federated Blockchain?

When it comes to blockchain, most people immediately think about Bitcoin, BTC/USD price, or other cryptocurrencies. But blockchain technology has long gone beyond the crypto industry and is actively used in various industries. Companies and governments use blockchain in supply chains, for storing confidential information, voting, and many other things.

It is clear that the concept used in the Bitcoin blockchain won’t be suitable for everything. Therefore, other types of blockchain have been developed. Besides public blockchains (including the Bitcoin network), there are also private, hybrid, and federated blockchains. The latter two combine the ideas of public and private blockchains. So before diving into their differences, let’s find out what they are based on.

Public and private blockchains

Public blockchains are open and everyone can join them. This makes the network decentralized, meaning there is no single point of failure. Even if the public blockchain creator no longer wants to engage in its development, the network can continue developing autonomously due to the contribution of each participant in the network.

Public blockchains have no restrictions or permissions. Anyone can see current and past transactions or access other information that is stored on the blockchain. It means the network is transparent.

However, public nature makes blockchains quite slow and forms scaling issues. Changes in the network can take a long time since they must be supported by a larger part of the network participants.

Private blockchains are much smaller in scale than public ones. Private blockchains are often under the control of a single entity and operate inside a company or organization. The network administrator determines who can access the network, view or modify data, and who cannot. It allows ensuring the confidentiality of certain information stored on the blockchain.

Since private blockchains have a restricted environment, they are much faster than public ones. The administrator can also quickly make changes to the network. In private blockchains, there is no anonymity, and the network itself is more centralized. This raises the question of trust in the administrator’s actions and makes the network less secure by having an obvious point of failure.

As you can see, public and private blockchains have their own advantages and disadvantages. And when creating federated and hybrid blockchains, developers have tried to take the best of both worlds.

What is Hybrid Blockchain?

Hybrid blockchain allows organizations to create a network where the permissioned and permissionless functions of the blockchain are combined. The hybrid blockchain architecture is fully customizable. The supervisory authority or network participants determine who can access specific data stored in the blockchain, and what data to make public. All transactions on the hybrid blockchain are verifiable, even confidential ones (if necessary).

When users join a hybrid blockchain, they can participate in all the network activities. The users’ identities are hidden from others. However, if the user engages in the transaction, their identity will be disclosed to the other party.

A closed hybrid blockchain ecosystem makes the network more secure against external attacks. The network provides partial anonymity for users and also has a higher transaction speed and better scalability than public blockchains. But still, such blockchain type is not completely transparent and there is no incentive for users to contribute to the network development.

Hybrid blockchain use cases

Hybrid blockchain is used when an organization wants to distinguish between public and private information. Let’s take real estate as an example. A company can make information about real estate objects available to everyone but store information about owners in a private part of the network.

Government services are another option. For example, the government can create a network to store information about citizens. Government institutions will be able to exchange the data in a closed part of the network. At the same time, lists of institutions can be publicly available on the blockchain, so citizens can provide and receive information using smart contracts.

If we talk about an area where hybrid blockchains are already actively used, then it’s supply chains. The supply chains need to be neither public nor private but a combination of both. That is why companies often choose the hybrid type for this purpose. The IBM Food Trust is one such use case example.

What are the differences from federated blockchain?

Federated blockchains are in many ways similar to private blockchains but with one fundamental difference — there is no single point of failure. Instead of having one organization take responsibility for the network, federated blockchain allows multiple organizations to use the network to their advantage.

Consensus in a federated blockchain provides a pre-selected set of nodes that control organizations. Nodes have the power to restrict or allow access to participants, as well as make changes to the network through voting. But nodes don’t have the sole right to add a new block. Before adding a block, most or all of the nodes must validate it. The right to read the blockchain can be either permissionless or permissioned.

Federated blockchains have already received significant support across various industries to solve a common problem or achieve a specific goal. Use cases include Hyperledger (technology), R3 (banking), and EWT (energy).

Thus, if in a hybrid blockchain there is a division into public and private information, then in a federated blockchain only selected participants have full access to the network. Federated blockchains are considered more decentralized due to numerous nodes in charge.

Both federated and hybrid blockchains are considered more adapted for business, than for the crypto industry. There is no such thing as one type of blockchain is better than another. A federated blockchain cannot do the work of a hybrid system and vice versa. Each blockchain type has brought its own way that businesses and governments can choose and adapt to suit their goals.

Heron Nelson

Heron is a business blogger with a focus on personal finance and wealth management. With over 7 years of experience writing about financial topics, Heron has established herself as a trusted voice in the personal finance space. She has a deep understanding of financial concepts and strategies, and is able to explain them in a relatable and actionable way for her readers.