What is a Consortium Blockchain & How Does it Work?

November 1, 2022

Blockchain Basics Public Blockchain vs Private Blockchain

What is a Consortium Blockchain & How Does it Work?

A consortium blockchain is a group of multiple financial institutions where each financial institution has its private blockchain. Read more about what is a consortium...

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Introduction

Blockchain technology has been expanding rapidly over the last few years. You might have seen some experts talk about various applications of blockchain other than just cryptocurrency. Blockchain is not just related to crypto; it is a technology that helps store and securely share data sets. Each block contains a data set that is added to the block using complex algorithms. These algorithms are called hash and provide cryptographic security to the block. Each blockchain allows participants, called nodes, to access and edit the data. Public blockchains allow anyone to become a node, while private ones define specific criteria.

Now, constituting some parts of both, there is a consortium blockchain that only some people understand so far. In this post, let’s see an answer to the question ‘What is a consortium blockchain?’

What is a Consortium Blockchain?

As mentioned just now, there are three kinds of blockchains. One is where every action is public, and anyone can join as a node. The other one is owned by a private entity and accepts nodes only after certain criteria are met. Both these types of blockchains are more popular in the cryptocurrency sector. However, there is also a consortium blockchain between these two, broadening blockchain technology’s scope.

When asked ‘what is a consortium blockchain?’, Consortium blockchains blend elements of both public and private blockchains, achieving a semi-decentralized structure. This setup involves a select group of nodes with the authority to verify and validate transactions or blocks. Transactions or blocks become valid only after receiving approval and signatures from these designated controlling nodes. This structure allows for a more controlled environment while still leveraging some decentralization benefits, ensuring both security and efficiency in transaction processing. Instead, a group of individuals from different sectors or a group of companies owns such a chain. It also differs in functions since a consortium blockchain is used to collaborate data from multiple sources. It helps keep the flow of data secured and efficient between entities.

How Does a Consortium Blockchain Work?

Now that we know the answer to ‘what is a consortium blockchain?’, let’s move on to its working mechanism. A collection of companies or individuals runs a consortium blockchain network. More people might join a consortium and help manage an established structure and shared data rather than beginning from scratch.

By collaborating to find solutions to shared issues, businesses may cut expenses and promote development. A consortium blockchain enables different organizations to share duties, resulting in the coordination of operations, information sharing, and prevention of job duplication.

A consortium blockchain features a multi-party consensus. All activities are confirmed by unique pre-approved nodes rather than by an entire global community, like in the case of a public blockchain like Bitcoin.

A consortium blockchain often employs a voting-based method, which results in minimal latency and efficient performance due to the small number of known members. While only a supermajority of nodes may contribute to a block, all nodes can write and see transactions. This regulation must be followed in order to insert a block into the chain.

How is a Consortium Blockchain Formed?

Many private blockchains from various companies are combined to form a consortium blockchain. Each of these private blockchains acts as a node on the consortium chain and a stakeholder in the alliance, and it is only possible for them to quit or join the network with the consent of the other stakeholders. The data contained inside may be viewed, exchanged, and distributed by organizations within the consortium, even if each entity runs its own node or blockchain.

By doing this, solutions that cut across organizations and technologies may be created to enhance their current processes, accountability, and transparency, solving the problems and difficulties that individual blockchains face.

As compared to totally private blockchains, consortium blockchains require a comparatively larger number of members for successful governance; otherwise, they won’t be able to help different firms in a given industry share crucial information.

Typically, only businesses with complementary blockchain technology and shared goals may successfully unite to establish a consortium blockchain.

Advantages and Disadvantages of Consortium Blockchain

Even though a consortium blockchain has widened the usage of blockchain technology, there are still perks and cons attached to it. Many critics tend to analyze a consortium blockchain and provide better user insight. Some of the advantages and disadvantages associated with a consortium blockchain are:

Advantages of Consortium Blockchain	Disadvantages of Consortium Blockchain
Since there are multiple owners from different organizations, there is no centralization or monopoly.	A consortium blockchain can get corrupted if one or more owners acts maliciously.
Rule breakers are detected easily. Validation is carried out by trusted nodes only, removing the threat of a 51% assault.	Launching such a blockchain is difficult since you must get more than one enterprise to agree to a communication protocol.
There is a sharing of data amongst the consortium only, which helps build companies’ trust in one another.	Upgrading the blockchain is a long and tedious task requiring every member’s permission.
There is no transaction fee involved between the consortia companies.	There are high chances of conflict of interest issues arising leading to potential favoritism and underperformance

What are the Characteristics of Consortium Blockchain?

Characteristics of a Consortium Blockchain — *Source* */ What is a consortium blockchain*

A consortium blockchain is often beneficial for information transfer purposes. It is not much used for cryptocurrency creation or management. Due to its several characteristics, a consortium blockchain is considered best for collaborative purposes. Some of the characteristics that make it so useful are:

1. Partially Decentralized

In decentralization, it falls in the middle as there are nodes from different organizations. These nodes have an equal say in the blockchain, and a consensus is required for every transaction to pass through. With a limited number of nodes, the transactions often take less time. Also, there is no monopoly inside the blockchain regarding any decisions.

2. More Controllable

A public blockchain lacks the flexibility to change the data entered in a block once it’s done. Such an issue does not occur with the consortium blockchain. It can be done very easily if the consensus agrees to change certain data.

3. Privacy of Data

Since a consortium blockchain allows only a few nodes on the blockchain, few people get the data shared on the blockchain. Such an arrangement helps ensure that the data stored is untampered and completely secure. Only a few users have the right to access the data, and there cannot be any modification without the whole network of nodes agreeing.

4. Faster Transactional Speed

Since there are lesser nodes on a consortium blockchain, there is not much competition to verify a transaction. This helps in keeping the transactional speed very high. It is easier and faster to reach a consensus than a public blockchain.

Applications of Consortium Blockchain

Now that you understand ‘what is a consortium blockchain?’ along with the advantages of consortium blockchain, it is easier to understand how it is applicable in multiple places. These types of blockchains are only sometimes preferred in the cryptocurrency sector. Multiple other industries actively require a blockchain, and the one that already has such a great collaboration is much more preferred. This is why these are some of the industries where a consortium blockchain is useful:

1. Finance and Banking

Since banks require credit scores, KYC, and other information from time to time, they can come together and form a consortium. This consortium can have its data stored over one blockchain that can be accessed by all the banks. It would help understand the cases of defaulters and stay up to date with the credit score and other details.

2. Logistics

In the case of logistics as well, there is a requirement for multiple partners to stay in sync to keep track of the packages. All the logistics centers can form their own consortium blockchain with a smart contract that will automatically update the data at every center when a product is shipped. This will help the logistics industry a lot.

3. Healthcare and Insurance

Both hospitals and insurance companies have a very large data set that needs to be managed. All the hospitals and insurance companies in a region can collaborate and create a consortium blockchain to update all the records of various patients from time to time. This way, there will not be a need to keep files and other records to check a patient’s history or current health conditions.

Conclusion

A detailed discussion of what is a consortium blockchain helps get a clear perspective about the same. By discussing the advantages of consortium blockchain and disadvantages of consortium blockchain, you must have understood by now how helpful it is. A consortium blockchain maximizes the economic benefits of a business by helping them partner up with other brands. Apart from cryptocurrency, many industries can benefit from blockchain technology; this is where the consortium blockchain helps.

Frequently Asked Questions (FAQs)

1. How does a Consortium Blockchain Handle Data?

The data handling process for a consortium blockchain is similar to that of a public blockchain. Each node in the network has a copy of the blockchain and can validate transactions. However, only certain nodes can create new blocks, unlike a public blockchain.

This allows for more centralized control over the network while maintaining the blockchain’s distributed nature. Consortium blockchains are often faster and more scalable than public blockchains.

2. Is Consortium and Hybrid Blockchain the Same?

A consortium blockchain functions fairly similar to a hybrid blockchain but with a few significant distinctions. Consortium blockchains are relatively more comparable to private blockchains since they do not let public node operators in, in contrast to hybrid blockchains.

Nevertheless, consortium blockchains give every participant, or node, equal power, unlike hybrid and private blockchains, which are mostly or completely centralized.

3. What is an Example of a Consortium Blockchain?

The most common use case for consortium blockchain is in the financial sector. For example, banks can use a consortium blockchain to streamline the process of clearing and settlement of interbank transactions. Other examples include trading platforms, supply chain management, and voting systems. IBM Food Trust and Energy Web Foundation are also examples of consortium blockchains.