INTRODUCTION
Blockchain is a transformative technology, revolutionizing industries by streamlining processes, boosting efficiency, and redefining data management. However, since the adoption of blockchain technology is still in its infancy, most fans are familiar with the public and private blockchain protocols but know nothing about the third type—hybrid blockchain protocols.
In this blog, we’ll delve into hybrid blockchains, exploring their benefits, comparing them to private blockchains, clarifying their distinctions from public and private variants, discussing interoperability, addressing challenges, and showcasing real-world applications.
TABLE OF CONTENTS
WHAT IS A HYBRID BLOCKCHAIN?
As the name suggests, a hybrid blockchain blends public and private blockchains. It aims to harness the advantages of both models while mitigating their respective limitations.
Public blockchains, like Bitcoin and Ethereum, provide transparency and decentralization but can also suffer from scalability issues and a lack of privacy.
On the other hand, private blockchains offer better control, scalability, and data privacy but sacrifice the decentralized nature of public chains.
Hybrid blockchains bridge this gap by creating a system where certain components are public and accessible to all participants while others remain private and permissioned.
This allows for greater flexibility and efficiency in various scenarios, such as enterprise solutions, supply chain management, and regulatory compliance.
Participants have full network access, with identities revealed only during transactions. Hybrid blockchain structures are customizable, resembling traditional blockchains, and enable them effectively.
HOW DOES HYBRID BLOCKCHAIN WORK?
Utilizing a fusion of two distinct interfaces, a hybrid blockchain presents a public-accessible alternative. This hybrid approach merges public blockchain transactions with privately managed ledger files.
Enhanced Data Security
The hybrid blockchain employs private blockchain functionality to ensure data remains secure in its original form by addressing the limitations of public blockchain data security. Information is securely stored in nodes, and transactions remain unaltered.
Decentralized Accessibility
Participants in the hybrid blockchain experience decentralized access, offering more flexibility in utilizing decentralization than public and private blockchains.
Transparent Transaction Handling
The transparency inherent to hybrid blockchains surpasses that of many top-tier private blockchains. Unlike private blockchains with restricted user access, the hybrid model excels in maintaining transparency.
It is important to grasp how users engage with hybrid blockchains to fully comprehend the synergy between IoT and blockchain in hybrid system integration.
Users can actively participate in all platform operations after being granted access to the hybrid blockchain platform.
They possess equivalent privileges to execute, scrutinize, and modify transactions. However, users can be confident that their identity remains confidential and undisclosed, preserving their privacy.
Only the interacting parties become privy to each other’s identities during a transaction. Businesses and organizations enhance this identification process by conducting KYC (Know Your Customer) procedures, ensuring effective user identification.
FEATURES OF HYBRID BLOCKCHAIN
A special feature of a hybrid blockchain is Public Anonymity. The hybrid blockchain approach upholds user anonymity, even among internal network participants.
Only those within the network know the anonymous user’s identity, leading to intriguing intersections between public and private systems.
Dubbed a bridged network, the hybrid blockchain retains fundamental traits akin to a public blockchain, including security and transparency. However, it imposes controls on transaction visibility and editing rights.
Furthermore, the hybrid network averts the emergence of black markets by restricting access to authorized users. As a result, the hybrid blockchain leverages both attributes to foster heightened security.
Other features include:
Enhanced Data Security
Hybrid blockchains offer a slightly broader scope than private blockchains, incorporating robust data security measures. This heightened data security is significant, assuring transaction confidentiality without concerns of unauthorized access.
Cost-Efficient Transactions
A notable advantage of hybrid blockchains is their cost-effective transaction mechanism. As only a few nodes are needed for transaction validation, costs remain low and predictable.
Enclosed Ecosystem
In a hybrid blockchain, interaction with external parties is feasible while upholding anonymity. The closed ecosystem nature prevents susceptibility to 51 percent of attacks from external sources.
Adaptation to Regulations
The strength of the hybrid blockchain lies in its adaptability to new regulations. The nature of the modifications required depends on the intended purpose of the hybrid blockchain.
BENEFITS OF HYBRID BLOCKCHAIN
The following are the benefits of the hybrid blockchain:
Scalability
One of the primary challenges faced by public blockchains is scalability. Hybrid blockchains can address this concern by allowing private networks to handle sensitive or high-frequency transactions while offloading less critical data to public chains. This optimizes performance without compromising on security.
Privacy
Confidential business data often requires a certain level of privacy. Hybrid blockchains enable organizations to keep sensitive information within their private networks while benefiting from blockchain technology’s transparent and auditable nature for selected interactions.
Customizability
Hybrid blockchains provide an environment where organizations can tailor the consensus mechanisms, security protocols, and governance rules to suit their specific needs. This flexibility is crucial for industries with varying compliance requirements and operational models.
Interoperability
Hybrid blockchains foster interoperability between different networks. Public and private components can communicate seamlessly, allowing for streamlined data sharing, complex workflows, and collaboration among various stakeholders.
Lower Transaction Costs
Since verification in a private or public blockchain might be challenging to accomplish, strong nodes inside the network could be able to have some form of influence over the decision-makers in charge of this process, boosting transparency.
Transaction costs are thereby reduced; they may possibly be as low as $0.01 per transaction.
HYBRID BLOCKCHAIN USE CASES
Ramco Systems employs the XinFin hybrid blockchain, a prominent platform, for supply chain logistics. XinFin’s unique network, formed after its ICO, combines Quorum and Ethereum to create a public-private blockchain system. This hybrid approach merges fast private blockchain transactions with secure public blockchain features, with public blockchain validating private blockchain transaction hashes.
Ripple network and XRP tokens exemplify hybrid blockchain utility. While criticized for centralized nodes, Ripple’s security can be enhanced by introducing a public blockchain to verify its private blockchain operations.
To delve deeper, let’s explore several applications of hybrid blockchains in various domains, each showcasing their unique utility:
E-Commerce
Hybrid blockchains hold promise for e-commerce platforms, enabling novel revenue models and cost efficiencies through peer-to-peer networks and distributed applications (dApps).
Hybrid IoT
Hybrid blockchains can secure IoT devices within a private network, allowing restricted access only to authorized users.
Depending on data-sharing requirements, select network features could be made public, addressing security concerns through this hybrid approach.
Global Finance and Trade
The realm of finance can also benefit from hybrid blockchains. XinFin’s approach employs Quorum for the private aspect and Ethereum for the public aspect, aiming to create a hybrid international trade and finance platform. Their use of Delegated Proof-of-Stake (DPOS) contributes to this endeavor.
Various Sectors
Singapore’s XinFin FinTech Pte and software firm Ramco Systems have partnered to develop hybrid blockchain solutions for logistics, aviation, and human resources industries.
Ramco will utilize XinFin’s XDC01 protocol to benefit its global enterprise clientele, demonstrating the wide-ranging potential of hybrid blockchains across sectors.
ILLUSTRATIVE INSTANCES OF HYBRID BLOCKCHAINS
Aergo Enterprise
South Korean startup Blocko, supported by Samsung, has introduced its hybrid blockchain system. The company’s developers are extending their migration services to other Blocko clients, leveraging their private blockchain solution.
Leveraging Merkle Bridges
Aergo Enterprise’s hybrid approach streamlines the exchange of assets like data, virtual products, and supply chain records across blockchains. This boosts security, scalability, and efficiency and improves internal and external aspects.
Swisscoin Innovation
The unique cryptocurrency Swisscoin operates on a blended network, combining blockchain technology with an exclusive trading system. Since its launch in May 2017, Swisscoin has garnered remarkable success, and its popularity is expected to continue growing.
CONCLUSION
Hybrid blockchains represent an innovative approach to harnessing the benefits of both public and private blockchains. They cater to various industries seeking to leverage the advantages of distributed ledger technology while addressing their unique requirements by offering scalability, privacy, customizability, and interoperability.
As technology continues to evolve, hybrid blockchains will likely play a pivotal role in shaping the future of various sectors, ushering in a new era of efficiency, transparency, and collaboration.