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, digital IDs 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 makes sense for sensitive industries like healthcare, national security, banks etc. However once you get an idea about both public (permissionless) and private (permissioned) blockchains, you would be able to relate better when different types of blockchains are discussed.
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. Not only does that make sense from a business perspective, but it also means that 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 identities, 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 national security agencies like defense, law enforcements and healthcare
- Less transaction costs and energy consumption
Disadvantages of Private Blockchain
- Since it has restricted users, private blockchains are not decentralized as much as a typical open source blockchain
- Not censorship resistant
- They can be a target for hackers since they only have to collude with fewer nodes
- It is a trust based system since nodes will have to trust each other to share sensitive information with each other
- Innovation and creativity are limited due to its closed structure with limited number of people collaborating on ideas
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 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.
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 will be crucial for 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
- Cryptocurrency is necessary for almost all public blockchains to incentivize sincere work by independent validators; Hence there is a need to make a network’s coin/token publicly tradable
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 privacy for users while also remaining transparent to law enforcement for instance to identify and punish criminals
- Public blockchains are censorship resistant
- More recent public blockchain networks are both cost and energy efficient
Disadvantages of Private Blockchain
- Public blockchains are not entirely anonymous although cryptography and hashing used in the technology makes it difficult to abuse privacy of individuals
- Being accessible by anyone means it is also vulnerable to hacking and other online scams when someone gets control of 51% of the network
- 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/split creating 2 separate communities and separate protocols to function which can be detrimental to its ecosystem including investors
- Public blockchains have been navigating through uncertainty around regulations and legality 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, developers and investors of the technology, it is a publicly traded product which is subject to excessive marketing
Difference Between Public and Private Blockchain
What are the differences between private and public blockchains? Let’s find out!
|Subject||Private Blockchain||Public Blockchain|
|Scalability||Benefits of private blockchains, such as Ripple and Hyperledger, include that they are faster because they have fewer users. What it means is that it takes less time to reach a consensus to validate a transaction on a private blockchain. Private blockchains are thus more scalable and can process thousands of transactions per second.||In a public blockchain, however, anyone can access and request a transaction/record. Because there are too many users requesting multiple transactions, the platform takes time to process each request, resulting in slow network speed.|
|Accessibility||Only one organization has control over the network in a private blockchain. This means that the public is not welcome to participate. To identify which participant/user is entering the platform, private blockchains employ an authorisation scheme. As a result, only a few people have access to the network.||Advantages of public blockchains are many. It is accessible to anyone with an Internet connection. All transactions are documented and cannot be changed. Furthermore, the network is extremely secure — there are simply too many nodes for a cyberattacker to take control of the decentralized network.|
|Security||Private blockchains, while purposefully designed for enterprise applications, lack many of the valuable attributes of permissionless systems simply because they are built to accomplish specific tasks and functions. As a result, private blockchains are vulnerable to data breaches and other security risks. This is because, if there is a consensus mechanism, a limited number of validators are used to reach a consensus about transactions and data.||Because of decentralization and active participation, a public blockchain network is more secure. The higher the number of nodes in the network, the more difficult it is for ‘bad actors’ to attack the system and gain control of the consensus network.|
|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.||Through disintermediation, public blockchain has the potential to disrupt existing business models. There are lower infrastructure costs. There’s no need to overhaul servers or system administrators. As a result, the cost of developing and operating decentralized applications is reduced (DApps).|
|Consensus||Private blockchains typically require fewer steps to achieve consensus. Most do not provide incentives such as cryptocurrency to encourage participation in private blockchains. As a result, private blockchains operate more efficiently, using less energy and moving more quickly.||Proof-of-Work algorithms are used in public blockchains such as Bitcoin. Miners are special nodes that compete for a reward by completing a transaction on the network. These transactions, however, consume a lot of energy and take a long time to complete. For example, Bitcoin can complete seven transactions per second, whereas Visa can complete 24,000 transactions per second. Block sizes on public blockchains are also limited due to resource constraints.|
Advanced Technology & Freedom of Choice For Choosing a Blockchain
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 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 with the help of breakthrough technology. Encryption protocols were well established in our culture long before the whitepaper of Bitcoin was published. The stock market was well-established and made finance a little more democratic long before the cryptocurrency market took off. Paypal and Western Union have been helping with foreign remittances quite efficiently. So existing architectures are not terrible after all? Yes, I would respond in the affirmative.
High Decentralization, Security & Privacy
But what are we doing about serving unserved and underserved people who represent close to 50% of the human population? They have been excluded from our societies arbitrarily by human intermediaries who are not perfect themselves. Greed, manipulations, favoritism and innocent mistakes are human nature and part of all industries. Granted. But we can do better and we must do better.
The first blockchain, Bitcoin, introduced decentralization in cryptography. So it is no longer sufficient to just check your accounts and balances and process the transactions. You now get to add another layer of security and decentralization by having multiple unrelated nodes across the world to validate transactions and record them on distributed ledgers. Add some logical thinking like smart contracts to blockchain architecture and you now have a system that by way of automation, renders most of the human interventions unnecessary. And yes… you also have a peer to peer network of doing business without abusing your privacy!
When you consider public vs. private blockchains, there are numerous differences between public and private blockchain networks. However, one can use both of these networks concurrently at their leisure. Permissioned blockchains are a type of the third type. Declaring which blockchain is the best is incorrect because each blockchain has its own set of features, benefits, applications, and requirements. If you are a part of a public blockchain, you should be well-versed in it. Meanwhile, a private blockchain is a one-stop solution if you want to design and implement your own enterprise blockchain. Blockchain technology is referred to as being on the cusp of digital disruption due to its tremendous opportunities.
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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