Common Misconception: Private Blockchains equals privacy.
For all their hype, private Blockchains are still a mystery for the most part. Various teams (including the R3 consortium and Hyperledger) have been researching the implementation of private Blockchains or permissioned distributed ledgers. Unlike with an open Blockchain, private Blockchains grant certain rights to participants where participation are concerned. Effectively, tight controls are in place for membership to a ‘consortium’ in order to access the private Blockchain.
One can understand the value of such a network within an enterprise setting — take banks, that interact with one another on a daily basis: instead of having to make sense of different layouts and formats of the documents from various institutions, financial institutions could simply access a shared ledger for convenience and efficiency.
But this begs the question — why even use Blockchain technology at all?
On the surface, most of the supposed applications for private Blockchains are issues that can be solved with a simple shared database (or a Google Sheets document). The biggest public Blockchains operate on Proof-of-Work (we’ll soon see Proof-of-Stake adoption), which ensures security due to significant expenditure on the users’ part. Miners that act dishonestly, under a PoW scheme, operate at their own financial loss.
With a private Blockchain, there is no such incentive. The integrity of the database is the only as strong as the honesty of each participant. The security framework is not so much trustless as it is a social contract: nodes are expected to behave, but can act maliciously until they are removed, usually by the consortium through an off-chain decisioning process.
It is also unfortunate that many assume that a private Blockchain is secure solely due its inconvenient naming of being ‘private’. Yes, transactions are private to the nodes within the membership of the consortium. However, once membership is granted, a node will gain access to the confidential information, not just between two users, but between everyone in the consortium.
We don’t see the need to rely on private Blockchains for pseudo-privacy. Which is why, at Lightstreams, we’re scaling out a solution for individuals and enterprises to share confidential information on an Ethereum-based blockchain.
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