Blockchain Networks

A ‘blockchain network’ is a collection of hardware and software containing a database of records, run and maintained by participants in the blockchain network. These records are usually in the form of transactions that detail which account is the owner of which digital assets.

To add or change records in this database, the participants in the network must agree that the change is valid. This is called the ‘consensus method’ of a blockchain. The consensus method and the participants are what determine the security of a blockchain network.

A flawed consensus method enables malicious entities to add or change records, such as transferring all the cryptocurrency from your wallet to theirs. Likewise, if there are participants that hold too much power in the network they can influence the database.

In addition to functioning as a transaction database, many blockchain networks function as ‘virtual machines.’ This essentially means that the networks themselves function as computer systems that can run programs - called smart contracts.

When approaching a new blockchain network, never make the assumption that it follows the same rules as other networks. Play it safe - use a fresh wallet and a separate device from where you normally access your digital assets. This prevents malicious network operators from gathering data about you and your assets.

Categorizing Blockchain Networks

Blockchains are generally categorized based on several factors:

• Smart Contract Capability

  • What the network can do beyond process transactions and keep record history

• Consensus Method

  • How the network agrees which records/transactions are valid

• Accessibility

  • Who can access and deploy on the network

Beyond these, two other factors that are getting more relevant by the day are the ‘layer’ of the blockchain in relation to other networks and the degree to which it is decentralized.

By default, most blockchain networks cannot interact with each other. One exception to this is in 'Layer-2' (L2) networks, which are built to connect to at least one other underlying network.

‘Layer-1’ (L1) blockchain networks form the bottom-most level, with higher layers built to connect with lower ones. What this means is that a ‘Layer-2’ (L2) network will bundle transactions together then transmit them in bulk to the underlying L1 blockchain. Some L2 networks are built to connect with a single L1 network, while others are built to connect with multiple L1 networks.

Decentralization in this context refers to how much of the network infrastructure is influenced by major entities or organizations. A network that is under such control would require users to trust that the major entity or organization won't arbitrarily introduce changes in the infrastructure. The more centralized a blockchain network is, the easier it is for the network to be influenced by those entities in control of the infrastructure.

Fictitious Example:

A new blockchain network is released by a company named 'Blocky', with all nodes hosted in the cloud under their control. They gain an active following, but are unable to capitalize to the degree they wanted.

'Blocky' then announces they are shutting down the network. Value flees the network before they shut down their nodes. Everyone who didn't get out immediately is now trapped, unable to sell the now worthless assets.

Lawsuits may reclaim some of that value - but it probably won't be much and probably won't be for several years.

The next several sections will be used to provide basic breakdowns of the major blockchain networks. These breakdowns are not endorsements of the networks themselves, nor the cryptocurrencies that exist upon them.