A Beginner’s Guide to Understanding the Blockchain (Part 4: Public VS Private Blockchains)
For the sake of brevity, I had construed blockchains as a formless, monolithic entity in my previous articles.
The reality is far from this though — there is actually a whole spectrum of archetypes and typologies that blockchains reside on.
This article will focus on two main types of blockchains that you will most commonly encounter: public and private blockchains.
Public blockchains are the most common types of blockchain that you are likely to encounter because, as the name suggests, it is public and therefore — likely to be more accessible to the general public.
Defined simply, a public blockchain is a permissionless blockchain network that anyone and everyone can join, whenever they want to.
They usually have 4 key characteristics:
- Public blockchains are fully decentralized, with no central power in charge of any of the activities that go on within the network. Because of this, there are no restrictions when it comes to access to said activities too.
- Anyone and everyone can see all the transactions that have taken place in this network via the blockchain ledger. This ensures full transparency of all transactions that take place in the network.
- Anyone and everyone can transact with their peers and/or other users in the network as they please, without restrictions.
- Anyone and everyone can take part in the consensus process too, if they are willing and able to (refer to Part 2 of my Understanding Blockchain Series if you are unsure what a consensus process is).
- You will be able to transact on the network in full privacy, without fear of any third party laying their hands on your personal details and particulars. This is due to the fact that public blockchain networks are permissionless, so your identity will never be needed for any verification processes, allowing you to remain anonymous.
Benefits of Public Blockchains
The benefits of public blockchains are pretty self-explanatory, so I won’t delve too deep into each of them:
- Every participant in a public blockchain network will have equal rights and access to the network
- Since everyone can see the ledger, it is a fully transparent network too
- This transparency also leads to transaction records on the network being immutable
Downsides of Public Blockchains
However, public blockchains have their drawbacks too:
Inefficiency (slower transaction rates and less scalable)
Because of how anyone and everyone (trustless participants) can join a public blockchain network, this network becomes one where trust has to be artificially enforced.
There is a need for collective consensus, where everyone within the network is properly incentivized to work toward a common good, instead of selfishly and for their own benefits. This means that a consensus mechanism (if you don’t know what this is, refer to Understanding the Blockchain Part 2) has to be put in place to drive the network forward.
This will slow down the rate of transactions on the network and lead to overall inefficiency because of the increased redundancies that come with blockchain consensus mechanisms, where every block of transactions will have to be processed and validated simultaneously by every single node on the network before being appended onto the ledger, instead of each node processing and validating one block each (which is way more efficient).
Here, a lot of extra work is being done per new block, all to keep the trustless network secure.
This will negatively affect the scalability of public blockchains too, since so much power and effort is used up per transaction.
Prevalence of Malicious Actors
The aforementioned anonymity and privacy that you can get from using a public blockchain network is in actuality, a double-edged sword.
This privacy and anonymity will inevitably attract users of a malicious nature, and whose end-goals will never be aligned with the collective’s. The anonymity allows them to perform their malicious acts in private, and renders it much more difficult, or even impossible, to track them down.
Of course, most popular public blockchains will have heavy fortifications in-built into their consensus mechanisms to protect against such actors. This doesn’t mean that they are impregnable though!
One of the more popular public blockchains, Ethereum, was exploited for a whopping USD$55, 000, 000 in 2017. The fact that such an intricately protected public blockchain could be hacked really tells us one thing: that as long as there are those who are willing to try, fortifications can be torn down.
Since we know that there will never be a lack of malicious actors looking to exploit others for their own gains, public blockchains will always be the proverbial light-source that attracts them in droves.
These drawbacks of public blockchains necessitated an alternative form of blockchains for companies and institutions to utilise, one that gave users more protection and security from bad actors.
Enter Private Blockchains.
In direct contrast to public blockchains, private blockchains are fully permissioned.
Only a select few users who have been verified and cleared by the entity running the network can participate in it. As can be seen, there is an overt focus on perimeter-security for such blockchain networks, something that does not exist in public ones.
Take note that private blockchains may be referred to as enterprise blockchains too. This is because enterprises need to ensure a high level of security, privacy, compliance, performance, and many of the properties that only a private blockchain can provide.
In such a blockchain, there is a centralized authority or organization to look after the network. This central entity will dictate all activity within the blockchain network.
These activities include, but are not limited to, matters like: who gets to transact with who, who gets to view records on the ledger, who gets to append transaction blocks onto the ledger, who gets to verify transactions, who gets to even be on the network etc.
Private Blockchains can thus be characterized by 3 key principles:
- Fully permissioned
- Has a centralized authority
- Very controlled in terms of access and activity to and on the network, respectively
These characteristics render private blockchains a perfect fit for businesses and/or enterprises. Said businesses/enterprises will be able to enjoy the benefits that blockchain technology brings (transparency, immutability and privacy/anonymity), whilst still having control over the extent to which these benefits are experienced.
For example, if a company running a supply-chain business wants to see the transaction records of every stakeholder involved in the chain (transparency), but doesn’t want this information to be accessible to these stakeholders (doesn’t want transparency to be a feature that is enjoyed by all), they will be able to curate it as such in a private blockchain.
Benefits of Private Blockchains
On top of serving businesses and enterprises well, the particular architecture of private blockchains also brings about other, more generic, benefits:
Efficiency (faster transaction rates and more scalable)
Since private blockchains are permissioned, whoever is let into the network can be trusted. As the network is no longer operating on the premise that all users cannot be trusted (trustless), there is no need for any consensus mechanisms to undergird the network.
Instead of having many redundancies, where every node on the network will work on the verification of each new transaction block, private blockchain networks can allocate one node, or a specific group of nodes, to one block each.
This represents a more efficient division of labor, where work is not repeated, but rather — spread out more methodologically and evenly. Transaction speed will therefore be much faster than in public blockchains.
Such a blockchain network will also be more scalable. Resources won’t be as tied up as is the case for public blockchains (there will be more free nodes), and they will be available for allocation to scale the overall network.
Lower Probability of Malicious Actors
Unlike in public blockchain networks where literally anyone can be a participant, all participants of a private network would have been carefully vetted and verified before entry.
This means that the users’ identities (or at least some form of it) will be known to the central authority that controls the network, reducing the chance that there will be malicious actors trying to exploit the network from within, since this will severely ruin their reputation.
Downsides of Private Blockchains
Of course, and as with all things, private blockchains have their downsides too.
I would think that these downsides are pretty self-explanatory though, so I won’t go into too much detail for each of them.
- They go against the very principles on which blockchain technology was founded upon — decentralization, and the diffusion of power from a central authority.
- They are not accessible to most people, and tend to be very exclusive
- Because of the centralized point of control, most private blockchains will have a single point of failure, as compared to the many points of failure that public blockchains will have. This constitutes a reduction in the overall fault tolerance of the network.