Public Vs Private Blockchain – Key Difference

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Blockchain technology has seen enormous growth in popularity on account of its superior security achieved with a great degree of decentralization. Its application is used in finance, technology, cross border payments, supply chain management, identity verification among others. There are two major types of blockchain network: public blockchain and private blockchain. There is also a ‘hybrid’ of the two that are used by institutions known as ‘consortium’ or ‘federated’ blockchain.

This is considering a hybrid can take advantage of all the 3 properties of a blockchain at the same time – scalability, decentralization and security. So taking a middle ground is not unreasonable for industries significantly contributing towards the likes of national security, and private enterprises. However once you get an idea about both public (permissionless) and private (permissioned) blockchains, you would be able to relate and peruse better when different types of blockchains are discussed in a discourse.

What is Private Blockchain?

A private blockchain ledger can be distributed, albeit, to authorized individuals. Here, validators or operators are handpicked based on past experience and expertise to perform daily tasks. It is up to the private institutions to set standards for ensuring security on a private ledger.

Features of Private Blockchain

• A private blockchain network allows for an organization to be selective about who it partners with. Private stakeholders can be comfortable in their roles as their information is not made public. It is common for businesses to apply stringent requirements before granting access or allowing someone to become a part of their network
• Corporations configuring their private networks will have more control over their own data. A company can add or remove users as needed. They can use digital verification or certificates to verify and ensure that each person has proper access
• A key goal here is to create and maintain business networks that can integrate well within existing systems without interruptions to business continuity 
• Cryptocurrency is optional for private blockchains

Advantages of Private Blockchain

• Private blockchain networks have complete authority in terms of their node operators identity, permissions, rights, access privileges etc. This also makes it possible to govern network participants according to their roles and importance
• Private blockchains can be easily customized with various configurations when needed by the organization that controls it, making it more scalable than public blockchains 
• There is certainty as far as regulations are concerned
• Private blockchain is ideal for sectors like defense, law enforcements and scientific research agencies
• Less transaction costs

Disadvantages of Private Blockchain

• Since it has restricted users, private blockchains are not decentralized like public blockchains
• Not censorship resistant
• They can be a target for hackers since they only have to collude with fewer nodes/individuals
• It is a trust based system since individuals will have to trust each other and share sensitive information
• Innovation and creativity are limited due to its closed structure with limited number of people collaborating on ideas

Blog Highlights

1. Public blockchains offer transparency and openness, while private blockchains prioritize control and restricted access.

2. Private blockchains allow for selective partnership and stringent access requirements, while public blockchains are accessible to anyone with an internet connection.

3. Public blockchains are more democratic and decentralized, while private blockchains provide more control over data and users.

4. Understanding the differences between public and private blockchains helps in choosing the right blockchain network for specific needs.

What is Public Blockchain?

The two largest blockchain networks such as Bitcoin and Ethereum are public and open source in nature. In this model, any user from anywhere in the world can contribute with their computer resources and an internet connection to operate and run a node on a network. Activities and transactions on a public blockchain, as the name suggests, are transparent to the public.

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Features of Public Blockchain

• Anyone can easily access the repository of a public blockchain including the source code and propose any changes if needed
• The pseudonymity aspect of public blockchain greatly benefits the applications in banking, insurance, health care, real estate and other fields that involve sensitive information of individuals
• As public blockchain is highly decentralized, it can solve problems that centralize institutions face such as lower levels of motivation, limited creativity and productivity
• Cryptocurrency is necessary for almost all public blockchains to incentivize honest nodes to maintain and secure its operations. Also cryptocurrencies are the lifeblood of dapps and smart contracts operating on decentralized public blockchains by enabling programmable, self-executing contracts to facilitate macro and micro-transactions within dapps, empowering new business models and decentralized ecosystems

Advantages of Public Blockchain

• The network is more democratic and decentralized than private blockchains
• Public blockchains allow for direct interaction between two parties to a contract without a need for an intermediary
• Public blockchains are built for high security with a rigorous consensus mechanism to successfully process a transaction and prevent takeover by bad actors
• There is no centralized authority as far as open source blockchains are concerned similar to internet where the network is owned by community of users, developers and investors
• Public blockchain offers a reasonable level of privacy for users while also remaining transparent to law enforcement to minimize crimes
• Public blockchains are censorship resistant
• More recent public blockchain networks like Shardeum are both cost efficient and scalable

Disadvantages of Public Blockchain

• Public blockchains prioritize transparency with every transaction (at every level) publicly logged, which can compromise privacy, potentially exposing users to surveillance and repercussions
• Being accessible to anyone and a young technology means decentralized applications built on base layer blockchains or L1 blockchains, are vulnerable to hacking and other security attacks leading to loss of funds
• Since a public blockchain is largely managed by its community, it is not easy to bring transformative changes without a consensus; at times it results in forks creating 2 separate protocols and community moving in their own preferred direction. This can, at times, be detrimental to its ecosystem including those vested in the original network
• Public blockchains have been navigating through uncertainty around regulations till today
• Cryptocurrency is a necessity for most public blockchains similar to how crowdfunding is essential for several open source causes like clean water projects. While cryptos incentivize early adopters, users, public participants, developers and investors of the technology, it is often a publicly traded asset that behaves like a commodity leaving it vulnerable to market forces and increased volatility

Difference Between Public and Private Blockchain

What are the differences between private and public blockchains? Let’s find out!

Features	Private Blockchain	Public Blockchain
Scalability	Benefits of private blockchains, such as Ripple and Hyperledger, include speed and scalability. It takes less time to reach a consensus to validate a transaction on a private blockchain. Private blockchains can thus process thousands of transactions per second.	Since transactions are validated by independent nodes, they must reach consensus with other validators on transactions for confirmation and finality. Inherent protocols like consensus mechanism, self imposed scaling limits to maintain high levels of security and decentralization often makes them less scalable
Accessibility	A centralized entity has some level of unilateral control over the network operations in a private blockchain. This means only certain authenticated personnel are allowed to access the ledger and maintain it.	It is accessible to anyone with an Internet connection. Transactions and historical activities are maintained by independent nodes with redundancy to ensure anyone can access any transaction record at any time.
Security	Private blockchains are secure due to the technology’s intrinsic features however they are not immune to some of the same issues faced by traditional entities like ransomware, malware, phishing attacks. They are also not immune to data and privacy abuses by personnel themselves that have previously led to multitude of tangible and intangible losses for average users	Very high security as a result of its requirement to implement consensus algorithms on the network promoting the nodes to validate and reach consensus honestly. Further, public blockchains are distributed in nature operating across a wide network of nodes. They also use latest cryptographic techniques including hashing algorithms to ensure data integrity. Public and highly decentralized blockchains have seldom faced security breaches
Cost Efficiency	Private blockchain reduces transaction costs and data redundancy, as well as replacing legacy systems, simplifying document handling, and eliminating semi-manual compliance mechanisms.	More recent blockchain networks have been working on cutting edge technologies like sharding and rollups to maintain low transaction costs and high scalability. Building dapps over public blockchains are also cost-efficient. However scalability issues still persist on most public blockchains leading to fee spikes and network congestion often.
Throughput	Due to the aforesaid mentioned points, private blockchains are not only scalable but also can process an average of thousands of transactions per second (TPS) similar to traditional systems.	Due to the aforesaid mentioned points, public blockchains are limited in scalability and can process an average of max. 400 TPS although recent innovations are helping public networks to occasionally throttle speed levels of 10k TPS which will only get better.

Room for Improvement

Based on the needs of individuals and enterprises, an organization could go for either of the two blockchains or something like a hybrid as mentioned at the beginning of this blog to suit their needs. As an example, a payment platform may utilize a permissionless/public blockchain (like Bitcoin) in order to enable peer-to-peer transactions between users. Or if someone is in charge of securing sensitive data like private investigations or sensitive medical records, they have the option to go with either a private blockchain or a hybrid permissioned network.

Even if you see the disadvantages of say, a public blockchain, they must be seen as challenges we face to advance human evolution. Encryption protocols were well established in our societies long before the whitepaper of Bitcoin was published. The stock market was well-established and made finance a little more democratic long before the P2P and cryptocurrency market took off. Paypal and Western Union have been helping with foreign remittances fairly efficiently. But as we all know there’s plenty of room for improvement unless someone is deeply vested in traditional setups.

Conclusion

In the dynamic realm of blockchains, both private and public variants offer distinct benefits. While private chains cater to organizations seeking control and privacy, public blockchains shine in transparency, decentralization, and security. The resilience of public blockchains, marked by their rare security breaches and wide-reaching potential, positions them as transformative forces in many industries. As we navigate this blockchain era, the open, inclusive nature of public chains may well shape the future of decentralized technology especially considering the breakthrough innovations in the space have been gradually overcoming its limitations.

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Opinions expressed in this publication are those of the author(s). They do not necessarily purport to reflect the opinions or views of Shardeum foundation.

About the Author : Uday Prajapati graduated from high school in 2021 and will begin his college education in medicine soon. He actively creates content, organizes virtual events, and collaborates with other like minded people on cryptocurrency and blockchain technology. You can follow him on Instagram.

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