What’s the difference between Public, Private and Permissioned Blockchains?

The emergence of blockchain technology is a hugely popular talking point. We talk about the opportunities it can bring and the industries that it can affect, as well as the technical side of its operations. It seems the more we hear about it, the more there is to understand. One question that still foxes many people is the difference between a public and a private blockchain.

The answer may not be immediately obvious, but the difference is important. On the face of it, both public and private blockchains record event or transaction data through consensus between distributed blockchain nodes (computers running the blockchain software). They both maintain a synchronised copy of past and present data on each node. As new events or transactions happen, both public and private blockchains check for consensus about accepting them and update their distributed ledgers, their copies of the blockchain data.

So, where do they differ? The main distinctions are in:

• Decentralization — no single entity controls the blockchain - as in the case of public blockchains, or centralisation — one entity alone controls the blockchain, as in private networks.

• Freedom or restriction in participating in the blockchain network, executing the consensus protocol and maintaining the shared ledger.

• Type of consensus mechanism used (trust-less or relying on some degree of trust between the participants).

• Transparency or opaqueness of events and transactions.

• Anonymity or identification of participants.

A public blockchain based on the commonly used PoW (Proof of Work) consensus mechanism is decentralized*. It runs as a peer-to-peer network with no single controlling entity. It is completely open. Anyone can participate in it and perform the PoW algorithms, become a miner, or check miners’ work. The PoW consensus mechanism is ‘trustless’, making no assumptions about the honesty or reliability of participants. Thanks to the built-in transparency, anyone can access the event or transaction data that is in the blockchain too.

*We are well aware of the dangers of centralisation that come with the use of PoW. Please read PoW if you’d like to learn more about this. We’ll be avoiding diving into this topic during this article for the sake of simplicity.

For these reasons, a public blockchain may also be called ‘permissionless’. You don’t need anybody’s permission to join. Users of a public blockchain typically remain anonymous — or, technically speaking, pseudonymous for systems like Bitcoin. Many people think of a public blockchain as being either Bitcoin or Ethereum. It’s true that these two systems were among the first and most significant use cases for this technology. However, there are many more.

While the transparency of a public blockchain has its advantages, it also comes with a downside for many users — a potential lack of privacy, depending on how the blockchain is programmed. Additionally, the public blockchain’s use of a consensus algorithms like PoW currently require a huge amount of computational power and therefore enormous amounts of energy.

Before diving into the realm of private blockchains, we must first make an important distinction between private and permissioned blockchains. Completely private blockchains are little more than hyped-up databases. The potential benefits from using such a system a minimal, and for this reason we’ll be focusing on permissioned systems, also referred to as consortium blockchains.

Permissioned systems come in many shapes and sizes and can be seen as a hybrid between completely public blockchains and private blockchains. With permissioned blockchain systems, the consensus process is controlled by a pre-selected list of participants. Users can’t join without permission.

Within these kinds of blockchain networks, the participants are typically known, at least to the entities issuing the invitations. On the other hand, the transactions on the blockchain are not visible to anyone outside the blockchain. In this sense, a permissioned blockchain with no internal privacy but no external transparency is the opposite of a public blockchain that uses no permission and offers participants privacy but makes transactions transparent.

These comparisons make the use cases for public and private blockchains quite different. Public blockchains tend to be used for peer-to-peer transactions in non-permissioned networks open to any person or entity that wants to join. Private blockchains may be used to keep track of records of private companies and to perform smaller amounts of transactions within individual businesses or restricted groups of such businesses, although the industry is still young and these trends are far from set in stone.

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