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What is consortium blockchain?

A consortium blockchain, also called a federated blockchain, operates under the control of several organizations rather than just one, which distinguishes it from private blockchains. It is permissioned, meaning that only authorized members of participating organizations can access the network. Although access is restricted, it still maintains partial decentralization since decision-making is shared among multiple organizations.

This blockchain model was developed to foster collaboration between businesses, facilitating efficient and secure data exchange between entities and supporting joint efforts in solving business challenges.

Consortium Blockchain Diagram

Source: CFTE

How does Consortium Blockchains work?

The operation of a consortium blockchain is complex, striking a balance between decentralization and centralized oversight. By restricting participation to a specific group of entities, it enhances both security and efficiency, while its governance model encourages transparency and collaborative decision-making.

Consensus Mechanisms: Consortium blockchains often utilize consensus algorithms such as Proof of Authority (PoA) or Practical Byzantine Fault Tolerance (PBFT), which require fewer resources compared to Proof of Work (PoW). These mechanisms enable fast and efficient transaction validation, which is critical for enterprise-level applications.

Permissioned Network Structure: Access to the network is limited to pre-approved members, who are the only ones allowed to perform transactions. This controlled access boosts the blockchain’s security and integrity.

Shared Governance and Responsibility: The governance structure is distributed among the consortium members, allowing them to collectively make important decisions. This shared governance fosters trust and ensures an equitable distribution of power.

Key features of Consortium Blockchains

Permissioned

The network is restricted to a specific group of organizations, with access granted only to members of these entities. Permission is required for any organization to join and participate in the network.

Partially Decentralized

Although the consortium blockchain is permissioned, it still offers a level of decentralization since multiple organizations are involved. Each entity has an equal role in the decision-making process and participates in reaching consensus.

Faster Transaction Speed

Due to the limited number of nodes involved in validating transactions, consensus is achieved more quickly, resulting in faster transaction processing.

Data Privacy

With access restricted to a select group of users, the consortium blockchain ensures that data remains private and secure. Data modifications can only be made with the approval of all participating nodes, preventing unauthorized changes.

More Controllable

A consortium blockchain offers flexibility, allowing data to be altered if all member organizations reach an agreement. This makes it a more manageable and adaptable platform.

Consortium blockchain examples

Consortium Blockchain is a new type of blockchain that is still under development. However, several consortium blockchains have already been implemented, such as:

Hyperledger

In 2016, the Linux Foundation launched Hyperledger, an open-source consortium blockchain designed to provide tools and frameworks for building blockchain applications. Initially, Hyperledger had a technical and organizational governance structure, including 30 founding corporate members. Today, it is used by companies developing blockchain applications across various industries.

In 2014, R3, a consortium blockchain, was launched by nine major banks, including banking giants like Goldman Sachs, Credit Suisse, and JP Morgan. This consortium network was used to create Corda, a platform that facilitates secure and transparent financial transactions. Today, more than 200 financial institutions are collaborating on R3.

Energy Web Foundation (EWF)

In 2019, the Energy Web Foundation (EWF) introduced the Energy Web Chain, a consortium blockchain tailored to the energy sector’s needs. It is the first open-source enterprise-grade blockchain platform designed to address the regulatory, operational, and market demands of the energy industry.

Global Shipping Business Network (GSBN)

In 2021, nine shipping lines and terminal operators launched GSBN, a consortium blockchain focusing on the supply chain sector. GSBN offers both software and hardware solutions to its members, enabling them to share information quickly and efficiently through a distributed ledger technology platform.

Source: OKX

Enterprise Ethereum Alliance (EEA)

EEA, a consortium of 30 members, was established in 2017 to collaborate on developing an enterprise-optimized version of the Ethereum blockchain. Notable members include Accenture, JP Morgan, and Microsoft.

Consortium vs private blockchain: How are they different?

Many people mistakenly equate a consortium blockchain with a private blockchain. While the confusion is understandable due to their similarities, they have distinct differences. The table below highlights these differences to provide a clearer comparison between the two types of blockchains.

Source: CFTE

Future of consortium blockchains

The consortium blockchain offers a blend of advantages from both public and private blockchains, providing enhanced privacy along with partial decentralization. It is ideal for organizations that require a balance between public and private blockchain features. This structure promotes seamless collaboration among network partners, enabling them to work towards shared objectives while cutting operational costs and saving time.

Organizations can establish such a network by leveraging open-source platforms tailored to their industry and setting clear goals. As the use of federated blockchains is expected to grow, it's essential for businesses to explore how this technology could benefit their operations.

This content is compiled from many sources and is for reference only. Please verify the information before making a decision. The examples mentioned are for illustrative purposes only and are not intended as an endorsement or promotion of any organization.

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Consortium Blockchain: Everything you need to know!

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