What is a Consortium Blockchain?

The meaning of consortium blockchain refers to a type of distributed ledger technology that is designed for use by multiple organizations. Unlike public blockchains, which are open to anyone, and private blockchains, which are owned and operated by a single organization, a consortium blockchain is controlled by a group of organizations that work together to maintain and govern the network.

In a consortium blockchain, the participating organizations come together to form a network of nodes that are responsible for validating and verifying transactions on the blockchain. These organizations typically have a common interest in the blockchain, such as a shared supply chain or a common set of financial transactions, and work together to develop the rules and governance structure of the network.

One of the key advantages of a consortium blockchain is that it allows for the creation of secure and transparent networks that can be used to track and verify transactions between multiple parties. This can help to reduce fraud and increase transparency, as all parties on the network can see and verify each other's transactions.

Another advantage of consortium blockchains is that they can be more efficient than public blockchains, as they do not require as much computational power to validate transactions. This makes them a good option for organizations that need to process a large number of transactions but do not want to use a public blockchain.

Examples of consortium blockchains include the R3 Corda blockchain, which is used by financial institutions to manage financial transactions, and the Hyperledger Fabric blockchain, which is used by a consortium of organizations to develop supply chain applications.

Simplified Example

Consortium blockchain can be thought of as an analogy to a club. In order to join the club, you have to be invited by a few members who are the validators. In the same way, in a consortium blockchain, the validators are predetermined and they validate the transactions on the network, without the need of a central authority.

The members of the club can decide what the rules are for membership and how activities should be carried out. Similarly, the validators can decide who can join the network and what rules should be followed for transactions.

The club has a single membership list and all the members know who is part of the club. This is also the case in a consortium blockchain. The validators are known to each other and all transactions are visible to them. There is no anonymity in a consortium blockchain.

In a consortium blockchain, the validators validate the transactions and get the rewards for doing so. In the same way, the members of the club are rewarded for their contribution to the club.

Finally, just like in a club where the members have to agree on the rules, the validators have to agree on the rules of the blockchain network before they can start validating the transactions.

The History of Consortium Blockchain

The term "consortium blockchain" surfaced within the blockchain industry to characterize a specific network structure, blending elements of public and private blockchains. Its historical narrative aligns with the evolution of blockchain architecture and the need to explore governance models accommodating a group of known participants. While there isn't a singular inventor credited with coining the term, its emergence stemmed from collaborative discussions and conceptualizations within the blockchain community, particularly when examining diverse blockchain structures.

Consortium blockchains represent a semi-decentralized approach, where a predefined group of entities, typically organizations or companies, collaboratively participate in the consensus process. This model ensures a level of control and trust among the participants while facilitating permissioned access to the network. The concept gradually gained traction in the early 2010s as blockchain technology matured, prompting discussions on governance, consensus mechanisms, and network permissioning.

Examples

R3 Corda: R3 Corda is a blockchain platform developed by R3, a consortium of over 300 financial institutions. Corda is designed to facilitate secure and efficient data sharing between financial institutions, with a focus on privacy, security, and regulatory compliance.

Hyperledger Fabric: Hyperledger Fabric is a blockchain platform developed by the Linux Foundation's Hyperledger project, which is a consortium of over 250 organizations working on blockchain technology. Hyperledger Fabric is designed for use in enterprise settings and supports modular architecture, allowing for customizable smart contracts and privacy features.

Digital Trade Chain (DTC): Developed by a consortium of major European banks including Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale, and UniCredit. DTC is built on top of the IBM Blockchain Platform and is designed to streamline and simplify trade finance processes for small and medium-sized enterprises (SMEs) by providing secure and efficient data sharing between participating banks.

Related terms

• Private Blockchain: A private blockchain is a decentralized digital ledger that is maintained by a closed group of participants who are trusted and authorized to access the network.

• Public Blockchain: A public blockchain is a decentralized and distributed ledger that is open to anyone who wants to participate as a node in the network.