Private vs. Public Blockchain: What are the Major Differences?
One of the main goals of a blockchain is to create an immutable public ledger to ensure integrity of transactions. Over the last few years, many different types of blockchains have evolved, and the concept of public and private blockchains has come into being. The two are often confused together as they both have very similar characteristics. However, they differ in their application and the type of participation they allow.
Public vs. Private blockchain
Public and private blockchains are both decentralized, peer-to-peer networks where each participant maintains a replica of a shared ledger that stores digitally signed transactions. This ledger can only be appended to, but not edited. Participants in a blockchain keep this ledger in sync through a consensus protocol. This creates a guarantee on the immutability of the ledger which cannot be corrupted even if there are some malicious participants on the blockchain.
The difference between public and private blockchain is related to the type of participants allowed within the network that maintain the ledger and execute the consensus protocol.
Public blockchains are open networks that allow anyone to participate in the network, hence the name ‘public’. Such a network depends upon the number of participants for its success, and hence encourages more and more public participation through an incentivization mechanism. The best example of a public blockchain is Bitcoin where participants in the network (miners) are rewarded with BTC tokens.
Public blockchains, however, have their drawbacks. In a blockchain, each block contains a record of many transactions on the network. Creating new blocks gives out a reward, also known as the “miner’s fee”. In a public blockchain, where there can be a lot of participants on the network, it becomes necessary to maintain scarcity of the reward tokens, and regulate who gets the right to create the next block. To achieve this, each participant in the network must solve a complex cryptographic problem (also known as “proof of work”). Whoever solves the problem earn the right to create the next block (and gets the reward). The disadvantage to this is, these problems are very resource intensive and take a substantial amount of computational power to solve.
Another disadvantage is the public nature of the blockchain itself. There is little to no privacy for transactions, nor any regulation or criteria for participants to join. Public blockchains might be suitable for projects in the public domain (such as Blockchain), but not ideal for enterprise-level use cases.
Enterprises can set up private blockchains to protect the privacy and security of their data. Participation in a private blockchain requires an invitation, which itself is also validated by the network starter or a set of rules that can put into place. Such a network is known as a permissioned network, and puts a restriction on who is allowed to join. Private blockchains can also restrict participant activity such that certain transactions can only be carried out by certain participants and not others, despite the fact that they’re on the network. This creates an added layer of privacy.
Participation rules can either be set up by existing participants, a regulatory authority or a consortium. All participants in a network play a role in maintaining the blockchain in a decentralized manner.
An example of a private blockchain is Linux Foundation’s Hyperledger Fabric, designed to cater to enterprise requirements. Only entities participating in a particular transaction have knowledge about it — other entities will have no access to it. Because such a blockchain is lighter, it provides transactional throughput that is orders of magnitude higher than in public blockchains.
The rapid development of permissioned blockchains, coupled with interest from large enterprises, is paving the way for the development of more private blockchains, which will serve to diversify the use of the blockchain technology into enterprise use-cases not yet explored. While public blockchains have limited operability, private blockchains — driven by enterprises — have the power to revolutionize many aspects of daily life.