Going Public or Keeping it Private: Which Blockchain Availability is Best?
The mainstream acceptance of cryptocurrencies has seen more developments in precisely how these currencies should be traded.
Originally, trades were managed by public blockchains, but as digital assets break into the mainstream, private blockchains are overseeing transactions.
Put simply; public blockchains are available to anyone that is part of it. Anyone can set up a node (a computer that connects to the rest of the blockchain network) and so access and synchronise blockchains. Rather than a currency being held by one institute as a middleman and traded in and out, trades occur directly between individuals, and all are responsible for the consensus process, which ratifies the blocks’ information and addition to the chain. Relying only on its user themselves and without an institution to encompass the trade, it is fully decentralised.
Since blockchains are secure by design, it’s much safer to allow participants to access them than traditional banking ledgers. Users can’t enter the blockchain and begin changing blocks as they like: editing can only be done with private keys to the part of the block the user “owns”. When creating a new record of a trade from a node, the block is confirmed by the other nodes associated with it, and the nodes associated with them, to create verified blocks that do not need a centralised influence.
The drawback to this is the breadth of the network needed to sustain this information exchange. Let’s take Bitcoin as an example.
With almost 17,000,000 Bitcoins currently in circulation, and a predicted 21,000,000 total, it’s a lot of currency to keep track of. To keep everything working smoothly, a network of nodes is necessary for the system’s maintenance. A node requires to be run for at least six hours a day (preferably continuously), requires an internet connection of at least 50 kb/second, 2 gigabytes of RAM, and an eye-watering 145 gigabytes of storage space. Plus, since each block needs to be verified by its appropriate peers, the blockchain stagnates until the block has been created and the currency can’t be passed on.
This isn’t a three-second PayPal confirmation: Bitcoin works on six confirmations before a transaction can be considered complete, and each of those can vary wildly depending on network congestion and transaction payment (paying a higher fee will get you bumped up the queue). Confirming a transaction can range from twenty minutes to, in extreme cases, almost eight days.
Some blockchains, however, are restricted to who can access them or perform certain tasks. This may include an administrator that oversees transactions or limiting miners, or even restricting the people that can use it (such as creating a currency and blockchain that is meant only for employees of a business). For example, Nasdaq Inc. have partnered with Chain Inc. to trade private company shares across a private blockchain. A private blockchain may restrict certain users from reading blocks and their transaction history for ultimate privacy.
Private blockchains may be considered as more conventional financial overseers. The company writes and verifies the blocks, which is more efficient than the block bouncing around the network for individual verification.
It is also more cost-effective to manage one node instead of the myriad needed for individual users. Also, instead of relying on the inherent cryptography, companies may prefer to manage their security themselves: if only the company can access the blocks, outside influences cannot affect the chain.
Private blockchains are more closely related to how companies have traditionally traded, and so may be appealing for businesses looking to retain control and dip their toes into cryptocurrency. They also offer much more control to the company in comparison to the users’, as they retain the power to revert transactions, modify balances, and other actions that would be impossible in a public blockchain.
It sounds woefully totalitarian, but has its uses in cases of defaulting, mistakes, fraud and theft, whereby currency needs to be returned. Conversely, it may also leave private blockchains more vulnerable to crime: if one user has the power to move currency at whim, they are at risk of blackmail and other felonies that multi-user verification is less susceptible to.
The third option
Hybrids of public and private blockchains, known as consortium blockchains, are also being implemented. Private blockchains have been considered counterintuitive to initial blockchain ideals of decentralised finance and cryptographical security, but there are benefits to having designated users overseeing transactions. Rather than complete control in the hands of one company, a small number of dedicated nodes are responsible for the writing and verification of blocks. This can be an attractive compromise. Companies could work in tandem to maintain privacy and maximise output, as with private blockchains, while being accountable to other nodes and relinquishing complete control and accountability.
Which Works For You
There is no fundamentally flawed blockchain, whether public, private, or consortium, and neither are any of the systems perfect in their current states. When deciding on the availability of a blockchain, it is worth considering costs, speed, and user accountability.