Consortium blockchains: What you need to know

Blockchain is a type of distributed ledger technology (DLT) that facilitates the sharing and storage of data and information in groups called blocks. The emerging technology has gained substantial popularity in recent years as it offers improved security, transparency and trust.

Cryptocurrencies utilize public blockchains, which is one of the four main types of blockchains. In this article however, we are going to discuss another type of blockchain called consortium blockchain. We are going to cover what they are, how they differ from other types of blockchains, as well as the benefits and downsides of operating one.

What is a consortium blockchain?

A Consortium blockchain, also known as a federated blockchain, is a type of semi-decentralized network jointly controlled and maintained by a group of organizations or institutions. A consortium blockchain is often considered the bridge between a private and a public blockchain.

A consortium blockchain is formed when a group of organizations with a common goal seeks to work together. Consortium blockchains allow members to share a database or information while maintaining workflow, scalability, data sharing and accountability.

Unlike public blockchains, a consortium blockchain is permissioned, allowing only pre-authorized user access to the network. It differs from private blockchains because every member of a consortium is granted equal control as the next.

Each member of a consortium blockchain runs an individual node on the chain as a stakeholder. Consortium stakeholders would need authorization before a new member can be added or removed from the blockchain. While each organization manages its own node or blockchain, other organizations within the consortium can access, share and distribute the data. 

Features of a consortium blockchain

Consortium blockchains combine features from private and public blockchain networks, but what qualities define this type of blockchain network?

1. Semi-decentralized

Private blockchains are completely centralized, whereas public blockchains are decentralized. Then you have consortiums blockchains which are somewhere in the middle. The consortium members own, access and jointly manage the network. There are fewer nodes in a consortium blockchain network, making it easier for consensus to be reached when compared to traditional blockchain networks. 

2. Data privacy

As consortium blockchains are permissioned networks, only authorized members can access the network. This means that data stored on the network is untampered and safely accessed by its network members. In the case of a breach, it is also easier to identify the source because a limited number of members have access to the data stored on the network.

3. Faster transactional speeds

Because there are so few nodes on a consortium network, transactions are performed much faster than in private and public blockchain networks. 



4. Reaching consensus on a consortium blockchain

Like all blockchain types, a consortium blockchain still requires a consensus mechanism to function. The process called “shared consensus” involves a group of trusted nodes agreeing on the validity of transactions to maintain the integrity of the network. 

The common consensus mechanisms of consortium blockchains are Proof of Authority (PoA), Proof-of-vote (PoV), Practical Byzantine Fault Tolerance (PBFT) and Raft. Like other types of blockchains, smart contracts are used in consortium blockchains to automate the process of executing transactions.

5. Offers greater data control

A key feature of public crypto blockchains is immutability, which prevents data that is stored on the blockchain from being changed. However, data can be modified in a consortium network after a shared consensus has been reached. Reaching a shared consensus allows consortiums to uphold blockchain technology's transparency tenet. 

Benefits of consortium blockchains

The combination of features from a private blockchain and a public blockchain gives consortium networks some unique benefits. The benefits of collaborating in a consortium network include the following:

1. Greater privacy: The limited number of members with access prohibits data from being disclosed to the public, enabling greater privacy and data security in a consortium. Consortium members often have a higher level of trust and confidence as a result, every member of the consortium is given a stake decision-making process of the network. 
2. Reduced transaction costs: Compared to other types of blockchain, there are also no service or transaction costs when operating within a consortium blockchain. Smaller organizations will reap the benefits of operational cost reduction by participating in a consortium blockchain.
3. Greater scalability: Consortium blockchains only have a handful of nodes compared to the thousands that make up public blockchains. The fewer nodes mean the network is less congested, improving the overall scalability of the network.
4. Flexibility: Consortium blockchains tend to be more flexible than other blockchain networks, as shared consensus can be reached to make changes to the network. In addition, fewer nodes on the network mean changes can be made much quicker than on public blockchains.
5. Lower energy requirement: The energy consumption on consortium networks is often directed toward routine operations. The consensus mechanisms utilized by consortium blockchains do not require mining, further reducing their energy requirements.

Downsides of consortium blockchains

As with the other types of blockchains, there are disadvantages to collaborating on a consortium. The significant downsides of consortium blockchains are:

1. Centralization: The small number of members means consortium blockchain networks are more prone to centralization issues. The centralized structure also means consortium blockchains are less transparent.

In addition, because there are few members, the network becomes more susceptible to 51% of attacks, where more than half of the network collaborates to make changes to the network.

2. Building a consortium blockchain requires a lot of work: Although there are benefits to sharing a network, the process of building a consortium blockchain between organizations is usually a stressful process. The process of getting multiple organizations to brainstorm and work together on the project is generally littered with bottlenecks. 
3. Lack of cooperation: The success of a consortium blockchain depends on the willingness of the members to collaborate and work together. If a few of the members decide not to cooperate with the consortium, the blockchain network may not be successful.

Examples of consortium blockchains

A consortium is the newest type of blockchain and is currently in development. However, there are already several use cases. The most popular examples of consortium blockchains are:

1. Hyperledger

In 2016, the Linux Foundation launched Hyperledger, an open-source consortium blockchain built to provide a set of tools and frameworks for building blockchain applications. Hyperledger initially had a technical and organizational governance structure, which consisted of 30 founding corporate members. Today, the consortium is used by companies building blockchain applications across several industries.

2. R3

In 2014, the R3 blockchain consortium was launched by nine banks including industry titans Goldman Sachs, Credit Suisse and JP Morgan. The consortium network has been used to develop a network called Corda to facilitate secure and transparent financial transactions. Today, over 200 financial institutions are collaborating on R3.

3. Energy Web Foundation (EWF)

In 2019, the Energy Web Foundation (EWF) launched the Energy Web Chain, a blockchain consortium designed to cater to the needs of the energy sector. The Energy Web Chain is the world’s first enterprise-grade, open-source blockchain platform designed to meet the regulatory, operational, and market needs of the energy sector.

4. Enterprise Ethereum Alliance (EEA)

The EEA is a consortium of 30 members launched in 2017 to collaborate on developing a version of the Ethereum blockchain that is optimized for use in enterprise environments. Notable members of this consortium include Accenture, J.P. Morgan and Microsoft.

5. Global Shipping Business Network (GSBN)

In 2021, nine ocean carriers and terminal operators launched GSBN, a supply chain-based blockchain consortium. GSBN provides both software and hardware solutions for its members in the supply chain industry. GSBN members operate on a single network to exchange information efficiently and quickly using distributed ledger technology.

Consortiums, the blockchain that appeals to organizations

Consortium blockchains are considered the bridge between private and public blockchain networks, making them the best option for collaboration between organizations. The cooperation among private organizations in a consortium blockchain has numerous benefits, including sharing data, resolving common challenges, and saving time and operational costs.

Despite being one of the newest types of blockchains, it has already been deployed in various industries. However, the effectiveness of this type of blockchain for mainstream adoption is still being tested. As it’s still a relatively new concept, there is likely to be more development in consortium blockchains in the future. 

FAQs

What is an example of consortium blockchains?

Hyperledger, the open-source blockchain framework hosted by The Linux Foundation, is an example of a consortium blockchain where only pre-selected participants are accepted into the network.

Are consortium and hybrid blockchains the same?

No, a consortium blockchain is different from a hybrid blockchain. Although they are composed of both private and public blockchain features, they have other authority structures. A single entity controls a private blockchain, while a consortium blockchain is governed by a group. Hybrid blockchains also have some permissionless processes lacking in consortium blockchains.

What Is Consortium vs. Private blockchain?

A consortium and private blockchain share similar frameworks as they are often used by enterprise companies. However, Consortium blockchains have several permissioned participants, while the latter has a single participant. 

What type of blockchain Is consortium blockchain?

Consortium or federated blockchains is a subtype of blockchain technology that combines the features of private and public blockchains. It is mainly used within an enterprise or a group of organizations sharing a common database.