The term consortium blockchain refers to a subtype of blockchain. It can be defined as an intermediary between private and public networks. However, these types of blockchains are more decentralized than private networks. Why? Because they are managed by corporations.
That said, if you want to learn more, take a look at our guide, in which we’ll talk about consortium blockchain technology and its features and use cases. You’ll also find out how this technology works and its main pros and cons.
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What Is Consortium Blockchain?
There are different types of blockchain — public, private, hybrid, and consortium. But what differentiates them? Public blockchains have an open code, which makes them accessible to everyone. On the other hand, private blockchains are limited to one entity. Hybrid blockchains are a combination of private and public networks.
Lastly, consortium blockchain meaning can be described as a blend of public and private blockchains. Why? Because, like the hybrid model, it combines the features of public and private networks.
This technology was designed by a collective of corporations to make blockchain available to a larger number of entities. Yet, due to its decentralized nature, no entity will have a single control. Moreover, new users can join the network only if approved by its existing community.
Features of Consortium Blockchain
The main features of this type of blockchain include:
- Quick transactions
- Data privacy
- Regulations and rules
Quick Transactions
Consortium blockchain offers fast transactions for two reasons. First of all, it has a smaller number of users. This means that the competition among users for the validation of transactions will be much lower.
Secondly, this network uses fewer nodes. A smaller number of nodes contributes to reducing the load on the network, thereby increasing its scalability.
Data Privacy
This type of blockchain can only be accessed by pre-selected entities approved by its community. This makes it more secure than public networks. Moreover, a smaller number of nodes means that fewer users will be able to access the data stored on the blockchain.
Likewise, users will be able to change data on the blockchain only if all network nodes agree. And finally, this blockchain uses a shared control model. This enables greater transparency between users.
Regulations and Rules
Consortium blockchains must use sets of rules and regulations, as they were created for enterprise companies. This means that nodes will have to follow the blockchain rules. These rules refer to funding, revenue sharing, and legal structures. They can also include the identification of intellectual property and voting mechanisms.
All users will make decisions together, which contributes to the creation of a team environment.
How Does a Consortium Blockchain Work?
Consortium blockchains use a collaborative approach — all pre-selected entities will share control. Before forming a blockchain, users will have to agree on its purpose, rules, and governance.
The next step involves creating a blockchain structure. This structure includes nodes and a consensus mechanism. The type of consensus mechanism will depend on the needs of the participating entities. That said, the most common types of consensus mechanisms used in consortium blockchains are:
- Proof of Stake: Nodes will confirm transactions based on the number of coins they hold and stake.
- Proof of Authority: Only preapproved validators can verify transactions
- Practical Byzantine Fault Tolerance: This model allows consensus to be reached even in the case of faulty nodes
- Proof of Vote: Groups of nodes will confirm transactions through a voting process
Pros and Cons of Consortium Blockchain
Consortium blockchains come with the following advantages and disadvantages:
Pros
- Flexibility: These types of blockchains are more flexible than private networks. Why? Because they use a shared control model
- Security: Since these blockchains have a small number of nodes and users, the network will be much safer
- Transparency: Its shared model enables greater transparency among network users
- Cost-Effectiveness: They are less expensive to build since all members will share the costs
- Control: All users will be able to make decisions about changes within the network
- Scalability: Consortium blockchains are more scalable. Why? Because they have a limited number of participants
- Interoperability: These blockchains are interoperable with other blockchains
- Validation: A smaller number of nodes will speed up transaction validations as it will reduce the load on the network.
Cons
- Framework limitations: Consortium blockchains don’t have unified frameworks
- Delicate launching process: Creating these blockchains is a difficult job. Why? Because all network participants will have to approve its protocol
- Lack of cooperation: The success of the blockchain will depend on the collaboration of its users. If a large number of participants refuse to cooperate, the network will be less successful
- Conflict of interest: Since these networks are managed by groups of entities, there could be a conflict of interest
- Network fragmentation: This can happen if participants leave the network or refuse to follow its rules
- Slow upgrade: The upgrade process can be very long
- Limited adoption: Due to their restricted access, consortium blockchains will have narrower adoption
Use Cases of Consortium Blockchain
The most common use cases of consortium blockchains include:
Finance and Banking
Financial institutions, such as banks, often use consortium blockchains. Why? Because they offer faster and safer transactions. Moreover, this model enables them to create a private blockchain to collaborate on.
All banks will be able to store their data on one blockchain. This blockchain will be accessible only to their pre-approved users. For example, users will be able to access the blockchain to check their credit scores and insurance. On the other hand, banks can use this blockchain to collect information about their creditors.
More than 40 banks use consortium blockchains. The most notable include JP Morgan, Goldman Sachs, Credit Suisse, and Barclays.
Healthcare and Insurance
Healthcare is another industry that uses consortium blockchains. Many hospitals and health insurance companies use these blockchains to share patient data. Since hospitals manage large databases, consortium blockchains help them reduce administrative errors.
Furthermore, hospitals that use this blockchain can upgrade their patient records. How so? Because they’ll collaborate with other healthcare institutions. This will also enable them to speed up the paperwork.
Consortium blockchains will also improve security by using more healthcare institutions as validators. Finally, if the network of one hospital goes down, it will not affect its data because that data will be accessible through the network of another participating hospital.
Logistics
Logistics involves the movement of packages from one place to another. Many logistics companies use consortium blockchains to facilitate the tracking of their packages. This means that all supply chain participants will use a single network to streamline their supply chain process.
In addition to that, these networks will enable logistics centers to update information about their packages automatically via smart contracts. This data will also be available to every logistics center within the network.
Besides facilitating inventory tracking, consortium blockchains can also be used to:
- Resolve disputes
- Keep track of invoices
- Keep track of payments
Logistic companies that use this type of blockchain include CargoSmart and COSCO SHIPPING Lines.
Conclusion
Consortium blockchains are a blend of private and public blockchains. This allows them to use different consensus mechanisms, from PoS and PoA, to PBFT and PoV. Moreover, these networks have multiple use cases. On that note, they are most often used in the healthcare industry, finance and banking, and logistics.
Consortium blockchains are more secure than public networks since they have a smaller number of nodes and users. However, they also come with certain downfalls, such as framework limitations.