Private vs Public Blockchain Protocol: What’s the Difference?
Blockchains enable data sharing among multiple parties without granting control to a single party. Decision-making power is shared between the network nodes and, through a consensus algorithm, these nodes will decide what is true — locking it immutably into the ledger.
To justify this decision-making process, membership must to fit the purpose of the network. For example, in Bitcoin’s case, the network’s main objective is to facilitate the secure transfer of value among users, so money cannot be ‘spent twice’ or stolen. The network therefore requires a large pool of public ‘voters’, ensuring everyone can trust the network and no single entity can manipulate transactions. These networks are designed to incentivize public members, without the need for authentication or a verification process to join.
Public, permissionless blockchain networks can be maintained by anyone with sufficient computing power, and allow for full transparency of the information they contain. The concept of public blockchain protocols was Satoshi Nakamoto’s creation, decentralising information to limit the potential for nefarious acts. However, blockchains can be built in a way in which they would require permission to read the information on the blockchain, limiting the parties who can transact on and that set who can serve the network writing new blocks into the chain. The sole distinction between public and private blockchain is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger.
The differences between the two types of blockchains are based on the level of trust among members of the network and the resulting level of security. The higher the level of trust, the lighter the consensus mechanism can be. On the one hand, in a public blockchain there is no trust between members since it’s open for anyone to join it anonymously — hence the widely used term “trustless network”. On the other hand, private blockchain pre-select their members, making the overall confidence is much stronger. The level of trust amongst members of a blockchain network will impact the structure and mechanisms deployed to build a successful network.
“The higher the level of trust, the lighter the consensus mechanism can be.”
Before digging deeper into the strengths and weaknesses of each type of blockchain, it’s worth noting the shared attributes of private and public blockchains:
- Both are decentralized peer-to-peer networks, where each participant maintains a replica of a shared append-only ledger of digitally signed transactions.
- Both maintain the replicas in sync through a protocol referred to as consensus.
- Both provide certain guarantees on the immutability of the ledger, even when some participants are faulty or malicious.
Public blockchain protocols, the original vision.
Public chains offer public transaction data that can be verified in real-time by anyone running a node. The higher the number of users or institutions taking part in the verification process, the more secure and decentralised the chain becomes. Public blockchains are mainly useful for value routing (including initial creation and distribution) and trustless timestamping of messages.
Public protocols are open source and permissionless, allowing anyone to participate or benefit from the technology. Bitcoin is the most famous example. Anyone can use Bitcoin’s cryptographic keys, be a node and join the network, or get rewarded from mining to service the network. Anyone can read the chain, make changes, and anyone write a new block into the chain — as long as they follow the rules. Bitcoin is a totally decentralized, ‘censor-proof’ blockchain. Ethereum is another great example. Their public protocol allows for users to build and run their own smart contracts without building their own ecosystem. Anyone can develop a decentralised application on Ethereum by purchasing Ether to run the ‘gas’ or transactional fees for their software programs.
However, full decentralization comes at a cost. Firstly, the number of transactions that can be added in each block is limited. This has implications on the speed to add transactions to the blockchain. Secondly, a potential drawback of a public blockchain is the amount of computational power required to maintain a distributed ledger at a large scale. More specifically, to achieve consensus, each node in a network must solve a resource-intensive cryptographic problem (proof of work) to ensure all are in sync. Finally, the openness of public blockchain, while it provides anonymity, it grants little to no privacy for transactions. Anyone can access transactions that are added to the blockchain. Even if transactions are non nominative and anonymous, is someone knows your public key they will be able to find out all the transactions that you have ever created.
Private blockchains, a walled ecosystem.
Private blockchains require permissioned access and operate under centralised governance. Participants need to obtain an invitation (or permission) to join. This invitation has to be validated by either the network starter or by a set of rules put in place by the central authority. Businesses who use a private blockchain will generally set up a permissioned network which places restrictions on who is allowed to participate in the network, or only in certain transactions. The access control mechanism could vary, from existing participants deciding future entrants to the regulatory authority issuing licenses for participation.
While private blockchains keep information from being seen by the general public, they also rely on their limited private networks to maintain the integrity of the blockchain protocol itself. Once an entity joins the network, it will play a role in maintaining the blockchain in a decentralized manner.
One of the main benefits of private blockchains is that they can are more efficient in terms of scalability and compliance with regulatory requirements but are vulnerable to network manipulation due to the centralised governance. Private blockchains are more vulnerable to being hacked or altered by those within the network.
Ripple is a good example of a company successfully running a permissioned blockchain. The startup determines who may act as transaction validator on their network, and it has included CGI, MIT and Microsoft as transaction validators, while also building its own nodes in different locations around the world.
A blockchain developer may choose to make the system of record available for everyone to read, but they may not wish to allow anyone to be a node, serving the network’s security, transaction verification or mining. It’s a mix-and-match situation that is reflected in the various ways entrepreneurs are experimenting with the technology.
With permissioned blockchains, this may or may not involve ‘proof of work’ or some other system requirement from the nodes. There is some politics around this, as there are those who consider private blockchains that do not use any proof of work (that is, blockchains with no mining) to not be blockchains at all, but simply shared ledgers.
Consortium Blockchain Networks, a partially decentralized alternative.
A subset of the private protocol are federated or consortium blockchains. A consensus mechanism would be predefined by the leaders within the network. For example a group of financial institutions might want to transact with each other. The consensus mechanism may state that 8 out of 12 banks must approve the transaction for it to be valid. Similar to private blockchain, consortiums are often faster, more scalable and offer greater transaction privacy then public blockchains.
A blockchain developer may choose to make the system of record available for everyone to read, but they may not wish to allow anyone to be a node, serving the network’s security, transaction verification or mining. It’s a mix-and-match situation that is reflected in the various ways companies are experimenting with this new technology. With permissioned or consortium blockchains, this may or may not involve ‘proof of work’ or some other system requirement from the nodes. Some people consider private blockchains that do not use any proof of work (blockchains with no mining) to not be blockchains at all, but simply shared ledgers.
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Sources:
https://www.ibm.com/blogs/blockchain/2017/05/the-difference-between-public-and-private-blockchain/
https://bravenewcoin.com/news/public-vs-private-blockchain-protocols-whats-the-difference/
https://medium.com/iryo-network/public-vs-permissioned-private-blockchains-99c04eb722e5
https://www.blockchains-expert.com/en/private-blockchain-vs-public-blockchain/
