Public vs Private Blockchain
June 18, 2021
Jonas Lundqvist, CEO of Haidrun, puts the case for private blockchains
Blockchains are not new – they have been around since 2008. A blockchain is simply a distributed database or ledger technology, which stores and manages files of information into groups of data – so-called blocks – which are cryptographically signed and linked together to form a chain. Hence blockchain. Each block also contains a record of exactly when it was created to produce a complete timeline history, which cannot be corrupted, lost or changed.
The blockchain is duplicated across all computers running a blockchain node that make up a Peer-to-Peer (P2P) network and any one of them can view the entire blockchain. Transactions or records are processed by the nodes, which verify the data and agree a consensus on their validity. It is at this point when different types of blockchain start to diverge.
In a private blockchain, a single authority or organisation retains control so no one can enter this type of network without proper authentication. Private blockchains are, by definition, ‘permissioned’ and are more suited to enterprises for reasons of performance, accountability and cost. The private blockchain platform can be run and operated by the enterprise itself or as a service called Blockchain as a Service (BaaS). They are usually set up for reasons of privacy, where an enterprise does not want to allow every participant full access to the entire contents of the database. In short, private blockchain platforms empower and support the business rather than the individual users.
In contrast to private blockchains, public blockchains can be described as fully decentralised where there is also no single entity in overall control. They typically involve their own cryptocurrency and anyone can download the software, view the ledger and interact with the blockchain. Public blockchains also try to treat all users equally and preserve an individual user’s anonymity.
Hybrid blockchains, as the name suggests, are a mixture of public and private. They can be very effective for consortiums where the members or designated authority can determine which transactions and data remain public and which are confined to a closed group. A hybrid or consortium network can be configured from a private or a public blockchain platform, depending on the type of inclusivity and privacy required.
Private blockchains – staying true?
Fundamentally, all blockchain technology delivers a distributed database that provides a single time-stamped version of the truth. It then uses mathematics and cryptography to provide trust and security – rather than through third parties – and relies on an accessible and open user structure to confirm all is well.
So, private blockchains adhere to the original principles but some use cases can look more like centralised, controlled networks. The reality is that they offer all the distributed benefits, whilst retaining some overall control to improve privacy and eliminate many of the illicit activities often associated with public blockchains and cryptocurrencies. For many enterprises, using private blockchains is the preferred option to safeguard a company’s sensitive information, while also providing full accountability, often via external audits, on the running and operation of their systems. Private blockchains can also provide a much higher degree of regulation, determined and set by the administrators in line with regulatory codes.
Cost and performance
The latest generation of blockchains use more efficient consensus algorithms and protocols; but public blockchain platforms still need many participants to provide the computing power and resources for transactions to be validated. This massive number of nodes imposes performance limitations and comes at a variable cost, while network latency and scalability are far from ideal when you need stable and predictable business parameters. Private blockchains solve this issue by specifying pre-determined resource criteria defining the number of nodes to participate and making overall performance faster. Private platforms are also more scalable, where nodes and services can be added on demand.
Importantly, private blockchains do not need to use cryptocurrencies or native tokens for the network and any association with cryptocurrencies, good or bad, is not part of the private solution. So, less energy, fewer resources and less participants are required to run the private blockchain, which equals less cost on a far more predictable scale.
The question of security
A private blockchain with a centralised authority could be perceived as more prone to data breaches, while operating at a smaller scale could make it easier for any bad actors to manipulate the network. However, identity management and access control to the data and transactions, enable private blockchain administrators to manage who sees what type of information and under what circumstances.
Escaping the silo
The software industry and its customers, hate siloed systems and interoperability has always been the missing link in distributed ledger technology – in both private and public platforms. The ability to seamlessly interact and exchange information and join different blockchains is one of the keys to mass adoption for blockchains. This will soon enable cross-chain exchange for coins and a greater compatibility between all capable chains and other enterprise systems.
The future for permissioned blockchains
For now, public platforms drive most of the news headlines but private blockchains look set to become the main contributor to blockchain market growth. Private blockchains provide more opportunities to utilise the technology for B2B use cases and they deliver higher efficiency, privacy, reliability, and transparency. Security is enhanced through Public Key Infrastructure (PKI) encryption and Key Management solutions. Large enterprise blockchain solutions will be custom developed, while SMEs will take advantage of cost-effective pre-packaged solutions.
Blockchain is rapidly moving mainstream across sectors from financial services, supply chain and telecoms to health and insurance. Gartner forecasts that the business value generated by blockchain will grow to $176 billion by 2025 and $3.1 trillion by 2030. The question is whether enterprises will be happy to adopt the traditional public model or choose to embrace the private or hybrid approach.
Interested in Private Blockchain technology for your organisation?