March 22, 2024
By Anjali Kochhar
Blockchains can be divided into four categories namely, Public (Bitcoin, Ethereum, etc.), Private (Hyperledger, Corda), Federated or Consortium (Voltron, Batavia, Marco Polo, etc.), and Hybrid (Komodo, XinFin, etc.). Each category has its advantages and disadvantages and users can decide which blockchain technology is to be utilized based on the desired result.
Governance and compliance
A federated blockchain or a consortium blockchain, is similar to a private blockchain. However, unlike private blockchain a federated blockchain central nodes are managed by a group of people and thereby remove the authority of a single user. This ensures that the Federated blockchains are more secure as compared to the private blockchains.
CEO & Co-Founder of Mudrex, Mr. Edul Patel, stated “In federated Blockchain ecosystems, security is paramount. Cryptographic hashing, encryption, and access control ensure data integrity, confidentiality, and restricted user permissions, while consensus algorithms maintain network integrity.”
Some experts feel that a private blockchain is not immune to monopoly. Federated blockchain can be utilized by government-authorized institutes, banks, or insurance companies, supply-chain management, and record keeping. A federated blockchain is safer as compared to other blockchain technologies.
Instead of only one organization is in charge you will get multiple organization using the network for their benefit. Think of it as a hub where multiple organizations can exchange information and work simultaneously.
According to Dr. Ravi Chamria, Co-Founder & CEO, of Zeeve, a blockchain managing company, “In federated blockchain, you have all blockchain features but within a closed group. It includes cryptographic algorithms, consensus mechanisms like BFT, permission access controls, smart contracts, and ZK proofs.”
Security Measures in Federated Blockchains
As per Mr. Siddharth Ugrankar, CEO and founder, Qila.io, a Blockchain-As-A-Service (BAAS) platform says, “Blockchain is an end-2-end encrypted technology where data resides in a decentralised and distributed format. The more “delinked” a network is, the harder it is to hack this network. Data within the blockchain, the chain links and the cryptography itself make the blockchain a formidable network against existential threats.”
The Federated Blockchain has reduced the risks associated with public or private blockchain technology which is exciting news for the blockchain-based business community.
Federal blockchain offers benefits like faster transaction speed, scalable yet secured, low transaction costs without speed reduction, low energy consumption as it uses only selected nodes to validate a transaction which reduces complexity, 51% attack risk eliminated, risk of criminal activities reduced as it is anonymous blockchain applications and requirement of authentication process to access the system and above all federated blockchain is governed by stringent regulations.
Patel of Mudrex added, “Regulatory considerations for federated Blockchain networks differ from public or permissionless Blockchains due to governance structures and predefined participant roles. Federated networks may face compliance challenges related to legal jurisdiction, data privacy, and anti-money laundering regulations, as they involve identifiable entities managing the network. Balancing transparency and privacy while ensuring compliance becomes crucial, necessitating tailored regulatory frameworks to address these complexities effectively”.
Blockchain industry is expected to grow from USD4.93 billion in 2021 to USD227.99 billion by 2028, a compound annual growth rate of 72.9% according to The Insight Partners. These figures include public, private, and consortium blockchains.
“Consortium blockchains have clearer governance structures, specific compliance responsibilities (for example, with AML/KYC/GDPR), and targeted regulatory scrutiny due to their semi-private nature and the identifiable consortium of organizations that manage them. Still, depending on the application and the industry, there may be compliances that need to be adhered to. For example, in the case of tokenization, different asset classes need to be complied with different sets of compliances”, says Dr. Ravi Chamria.
Interoperability in Federated Blockchain Networks: Solutions
Interoperability plays a vital role in federated blockchain networks as multiple organizations are dependent on the data available on the blockchain. This enables organizations to share data seamlessly with each other.
According to Chamria, “Interoperability allows different federated blockchain networks to share data or assets with other consortiums, public chains, or maybe non-blockchain systems and work together, ultimately providing users with access to a wider range of services. If you want to stay within the Enterprise blockchain choices, mostly all of them give you some sort of configuration to set up interoperability. Some level of standardization we have achieved. Outside we have various Layer2 as well that gives a lot of Enterprise flexibility with privacy, security, and customization”.
A few of the use cases can be, financial services like banks can share their data to ensure no double-spending and achieve zero forgeries. Streamlining insurance claims by uniting hospitals and insurance companies on a single network where information about a patient is kept confidential and is available to both institutes easily. Management of the supply chain network between the two companies etc.
“Standards like common protocols and APIs facilitate interoperability. Additionally, implementing cross-chain communication protocols like atomic swaps or sidechains enables data and asset transfers between different blockchains. Collaborative efforts among developers and standardization bodies are vital for addressing interoperability challenges effectively in federated Blockchain ecosystems,” says Mr.Patel.
Blockchains offer diverse categories including public, private, federated, and hybrid, each with distinct advantages. Federated blockchains enhance security and compliance, promising faster transactions and reduced risks for businesses. Interoperability further expands possibilities, fostering seamless data sharing and collaboration.
About the author
Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.
