Ecology of Chains: Public and Private Chains

The human race has been built on consistent invention. New technological concepts are introduced to the world daily, and they are a driving force in the world we live in today. Blockchain technology and cryptocurrencies have made waves in the technology world over the last decade, with bitcoin, a digital currency, the best performing asset class over the previous ten years.

Blockchain technology has also advanced rapidly, promoting transaction openness, transparency, and privacy. For example, the Ethereum blockchain, the foundation of decentralized finance and is currently disrupting the traditional finance sector, was one of the first public blockchains. It has been a significant game-changer for the world at large.

Blockchains are classified into two types: private and public blockchains. Although public blockchains are far more popular than private chains, they each serve their purpose, with different user access levels. In this article, we will look at both public and private chains and their differences and benefits.

What Are Public Chains?

Permissionless blockchains are another name for public blockchains. Public blockchains are open, transparent, and governed by multiple entities that take advantage of blockchains’ decentralized nature. Public chains are the most common type of blockchain, with examples such as Ethereum and Avalanche. In addition, unlike private blockchains, public blockchains are largely anonymous, with the identities of those involved in a transaction kept hidden. The most significant advantage of public blockchains is their security. A transaction added to a chain is immutable because it cannot be changed or removed.

The validity of transactions is recognised when the majority agrees, making the blockchain resistant to external tampering. The more decentralized a blockchain, the more secure it is. The more significant number of users, the more difficult it is for hackers to breach the network. Because public blockchains are built with open source computing codes, transactions are transparent and verifiable. The public blockchain is critical to advancing the futuristic system of decentralized identity (DID). While there are numerous benefits to public blockchains, there are several drawbacks to consider, including power consumption and, most importantly, scalability.

Public blockchains, such as Bitcoin use Proof-of-Work algorithms. According to a New York Times report, creating Bitcoin consumes approximately 91 terawatt-hours of electricity annually, which is more than Finland. In addition, transaction speed exacerbates the scalability issues associated with public blockchains. The more users on the blockchain, the more transactions are on the network.

What are Private Chains?

A single organisation controls private blockchains, also known as permissioned blockchains. The central authority determines who can be a node in a private blockchain. The central authority does not grant each node equal rights to perform functions. A private blockchain has a centralized network, which speeds up the transaction process. A centralized network raises trust, addressed by a public blockchain. Private networks cannot verify transactions.

Private chains are faster because they have a smaller user base, so it takes less time to reach a consensus to validate a transaction. Private blockchains are easily scalable and can process thousands of transactions per second.

The disadvantage of private blockchains is that they contradict the ethos of blockchain technology. Ripple and Hyperledger are two examples of private blockchains.

About XT Labs

XT Labs is a venture capital firm specialising in blockchain, digital assets, and cryptocurrencies. By collaborating with each management team of our portfolio companies, XT Labs aims to help our projects build exceptional value through our team of investment and operating professionals. In addition, we assist startup projects in growing in the Asian and international markets. Our mission is to invest resources and build trust to achieve long-term, sustainable growth.

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XT Labs

XT Labs

XT Labs is a venture capital firm focused on blockchain, digital assets and cryptocurrencies.