Looking at Public Blockchains vs. Private Blockchains

Beginner’s Guide / 16.08.2020

Blockchain – The End of Centralization?

Blockchain is a distributed, decentralized public ledger, which is a continuously growing list of records stored in the form of blocks. These blocks in a blockchain are connected to each other through cryptography, which keeps the confidentiality of the transactions intact. A blockchain is a time-stamped series of immutable (tamper-proof) record of data, which is not managed by a central authority, but managed by a cluster of computers.

On a blockchain, each and every data shared on this network is visible to all participants and each and every one of them are accountable for their actions. A blockchain perfectly defines a democratized system.

For all of its capabilities of automation, security and binding trust in a decentralized manner, some people predict this is the end of Centralized platforms as we known it. Although that might not necessarily be true, centralized platform do face a competition, something they haven’t faced for millennia.

The Debate of Our Times

A Public Blockchain (also called Permissionless blockchains) does not require anyone’s permission to participate in the network. Anyone can join the network and read, write, or participate within the blockchain. A public blockchain is decentralized and does not have a single entity which controls the network.

On the other side of the spectrum are Private Blockchains. A private blockchain is a permissioned blockchain. Private blockchains work based on access controls which restrict the people who can participate in the network. There are one or more entities which control the network and this leads to reliance on third-parties to transact. A Private Blockchain might sound like an Oxymoron, but it means more than that.

It is difficult to argue which one is better, as both have their niche use cases and preferred market. Thus, let us deeply analyze each area and let you make that decision for yourself.

Public Blockchains Vs. Private Blockchains

A public blockchain is permissionless. Data on a public blockchain is secure, as it is not possible to modify or alter data once they have been validated on the blockchain. Bitcoin and Ethereum are well-known examples of a public blockchain.

In a private blockchain, only the entities participating in a transaction will have knowledge about it, whereas the others will not be able to access it. Hyperledger Fabric of Linux Foundation is a perfect example of a private blockchain.

Sl. No. Public BlockchainsPrivate Blockchains
1OwnershipThere is no ownership structure in a public blockchain. It is open to all and ownership is distributed among all its members.A Private Blockchains’ ownership status depends on the stake divided by the team that initiated the network.
2Network InfluenceNo single person or group can have any significant influence over the network.The Network is influenced by the major stake holders who take care of the day-to-day activities.
3Decision MakingA democratic decision-making process is followed. Inputs from all members are considered while making any changes.The stake holders of the network are involved in the decision-making process. No inputs are taken from the users of the network
4EfficiencyA Public blockchain losses in efficiency what it gains in decentralization. Since the network is distributed among nodes globally, the efficiency of the project is drastically reduced.Due to its relatively centralized nature, the efficiency of a Private network is incredibly high. Applications that need fast transactions speed and bandwidth can depend on a Private blockchain network.
5SecurityA public network is more secure owing to its decentralization and active participation. Due to the higher number of nodes in the network, it is nearly impossible for ‘bad actors’ to attack the system and gain control over the consensus network. A private blockchain is more prone to hacks, risks, and data breaches/ manipulation. It is easy for bad actors to endanger the entire network.A Private blockchain is susceptible to all attacks that a Centralized entity might be exposed to. Hostile take overs, third party manipulation, undue influence, hacks, majority attacks are just some os the possible security flaws.
6ScalabilityA public blockchain cannot compete with a private blockchain in terms of scalability issues as it is slow and hence can process transactions only at a slow pace. In a private blockchain, as only a few nodes need to manage data, transactions can be supported and processed at a much higher pace.A Private blockchain on the other hand is highly scalable. As it only requires a few nodes to function, it can be easily scaled to include as many participants are needed.
7Perceived Use CasesAny person/group who identifies with the decentralization of a public network, its security and openness, would be a prospective user of a Public blockchain.

One can find a use case for a public blockchain in any place where there is a need for openness and transparency, and no a need for third party or intermediary. For eg: money transfer, governance, third-party reliant businesses etc.

Private Blockchains has a relatively niche market. Private blockchains are a lucrative option for parties that need to reply on other parties while not allowing outside influence.

 

Any area where secrecy is of utmost importance can do well with a private blockchain infrastructure.

8Major PlayersBitcoin, Ethereum, Litecoin, MoneroHyperledger Fabric, Corda R3, Ethereum Enterprise Alliance

Conclusion

As you may now know, blockchain technology is a highly complex and profound field, which consists of numerous concepts and different types of blockchains. It is important to understand these concepts, as being aware of the features which differentiate public blockchains from private blockchains is necessary and advantageous to help elevate your understanding to the next level. Understanding the types of blockchain networks is as important and essential as knowing what a blockchain is and how it applies to cryptocurrency.

And so, usage of Public and Private blockchains depends on the subject of implementation. If you want to use blockchain in a system that needs more decentralization and transparency, then the Permissionless blockchain is the best. On the other side, if you want only a handful of people to have full access to the data, then the Permissioned blockchain is the best.

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Sudarshan M is a long time crypto-enthusiast. Pulled in by bitcoin early on, it did not take long for Sudarshan to divert all of his academic attention from business studies to blockchain by doing his Masters and eventually pursuing his PhD in the subject.