Since its first real introduction to the mainstream with Bitcoin, it’s no secret that blockchain technology has grown and evolved quite extensively. This has resulted in numerous organizations around the world investing both time and money to investigate the benefits of the technology and ultimately weighing the advantages of public versus private blockchain.
If you’re creating a revolutionary application that is blockchain-based, you’ll be faced with the question of whether to deploy on a public or private blockchain. If you’re part of a large corporate enterprise, you’ll reach a point where you have to decide on creating your own private network using an option like Ethereum or Hyperledge Fabric, or perhaps joining an industry consortium, along with the public blockchain option.
Because you keep hearing about various companies, groups, and startups utilizing private blockchain, we know that many of you may be curious as to exactly what the difference is between the two, and whether the extensive venture is actually worth it for those organizations and their stakeholders.
So let’s take a look at the ins-and-outs of private blockchain.
Quick View: Private Vs. Public Blockchain
When it comes to public blockchains, anyone can send transactions and participate in the consensus process that determines which blocks get added to the chain and what the current state is. Secured by “cryptoeconomics,” public blockchains are a combination of cryptographic verification and economic incentives that utilize mechanisms such as proof of work or proof of stake. They follow an underlying principal that stipulates that the degree of influence that someone has in the consensus process is directly proportionate to the quantity of the economic resources that they can provide. In general, this results in public blockchains being considered to be fully decentralized.
As for private blockchains, write permissions are kept centralized to a single organization while the read permissions may be completely restricted, restricted to somewhat of an arbitrary extent, or be completely public. Private blockchains require an invitation and validation by the network starter or validation via a set of rules defined by the network starter. Generally, private blockchains are set up as permission networks which restricts who’s allowed to participate in the network, as well as which transactions they’re allowed in, and once they’ve joined the network they’ll have a role in maintaining the blockchain in a decentralized manner.
One side of the coin here argues that private blockchains, which are run by private firms, are basically useless because they essentially make users dependent on a 3rd party ‒ the firm that manages the blockchain. Some even argue that the private blockchains that are currently being considered are not blockchains at all, but simply distributed ledger technology.
However, there are those that believe that private blockchains may be able to provide solutions to some enterprise financial problems that Bitcoin and other public blockchains simply cannot. This includes anti-money laundering (AML) and know-your-customer (KYC) laws, as well as abiding by federal regulations such as the Health Insurance Portability and Accountability Act (HIPAA).
Comparatively, private blockchains do have a number of advantages over the public options:
- Maintenance — The entity running the private blockchain can easily revert transactions, modify balances, amend the rules of the blockchain etc if and when desired, as well as quickly intervene manually to fix any faults that arise.
- Peace of mind — Since all of the validators are known, there is no risk of a 51% attack.
- Cheaper transactions — As public blockchains now tend to have transaction fees exceeding $0.01 per tx, the savings could be huge for many organizations.
- Privacy — With restricted read permissions, the governing entities have full control over privacy levels.
- Speed of service — With the use of consensus algorithms, private blockchains can offer much shorter block times.
Bitcoin (BTC) developer Jimmy Song was on a podcast last year and stated that it “makes zero sense” for those in enterprise to use private blockchain technology and that it’s “pointless.” Others have stated that the act of creating a private blockchain essentially negates the entire goal of becoming decentralized.
However, there are indeed benefits that could make this venture well worthwhile. It basically boils down to the essential goals of your organization and whether the advantages outweigh the associated drawbacks.
