Public vs Private Blockchains: Understanding the Divide

Introduction

Fundamentally, blockchain is a decentralized repository that records transactions across a distributed network of computers so it can achieve security and immutability without relying on a centralized authority.

Since the inception of blockchain with Bitcoin in 2009, blockchains have developed into two main types: public and private. Public blockchains are open, permissionless systems that allow anyone to participate, while private blockchains are limited, permissioned networks that are organized and managed by an entity.

Public and private blockchains each have specialized purposes and attributes of transparency, speed, and control. Indeed, every blockchain is somewhat different, some are open highways, while others are gated communities. Understanding the two types is part of getting comfortable with the future of blockchain technology used in a variety of industries.

What Are Public Blockchains?

Public blockchains are open networks in which anyone with a valid internet connection or internet-enabled device can join, take part in, and confirm transactions without having to apply for them. They are completely decentralized because no one person or entity controls them. 

Popular examples of public blockchains include Bitcoin, Ethereal, and Solana- the ones that are used to support cryptocurrencies and decentralized applications (dApps). 

Characteristics of Public Blockchains

• Transparency: All transactions are recorded on a public ledger that is open to view, creating trust through transparency and understanding.
• Decentralization: They exist on a distributed network of thousands of nodes around the world, making them resistant to censorship or being shut down. 
• Censorship Resistant: No one authority can change a transaction and will therefore not be able to censor a transaction or stop a user from utilizing the public blockchain.

Pros

• Safe and Secure: Large networks of nodes can make it very hard to tamper with a blockchain, as we see clearly and clearly from Bitcoin's proof-of-work processes.
• Open Source: Developers across the world can develop on these platforms (such as Ethereum) and develop dApps, smart contracts, and tokens, and do so without a gatekeeper. 

Cons

• Slow Transactions: Many times the consensus mechanism process (for example, proof of work, proof of stake) can slow down transaction processing. Bitcoin only processes ~7 transactions per second and Ethereum ~30 transactions per second.
• Scalability Issues: High volumes of transaction activity can congest the network, which would lead to higher fees and longer wait times (e.g., this has happened when ethereum is at peak usage periods)..
• Less Privacy: They are public ledgers by design, which means all transaction details are exposed.

Public blockchains have a focus on the ability to facilitate inclusivity and enable trustless disposal, which makes them proficient in manipulating digitally.

What Are Private Blockchains?

Private blockchains, unlike public blockchains, consist of limited networks where an individual or group can limit access. Private blockchains require participants to obtain permission before they can join, read, or write to the blockchain. Hyperledger Fabric, Corda, and Quorum are examples of private blockchains that are designed with enterprise in mind. These private blockchains create controlled environments for specific participants or stakeholders.

Private Blockchains Features

More Speedier: A blockchain with fewer nodes will be able to achieve consensus more quickly, and, consequently, can process transaction more rapidly as well, processing often thousands of transactions per second.

• More Privacy: Data or transactions on the blockchain visibility is restricted to agreed upon authorized parties, allowing hidden data to be secure.
• Customizable Rules: You can customize rules around governance, consensus, and participants in line with your organization.

Pros

• Efficiency: Efficient in speed in transaction processing and costs in computing resources for high-throughput enterprise applications.
• Complying to regulations in your jurisdiction: It's easier to comply with laws your enterprise needs to comply with, such as GDPR in Europe, with controlled access to the blockchain and transactions recorded.
• Enterprise Control: When deployed in your enterprise you determine who participates. This is important when determining if participants are aligned to your organizations objectives.

Cons

• Not as decentralized: Even though the blockchain technology is still a decentralized ledger, it relies on a central authority which will have a diminishing effect on resilience to control the transaction or blockchains project relative to a public blockchain.
• Potential for censorship: The blockchains can be manipulated by the blockchain administrator which diminishes the level of trustlessness.
• Nodes: Less nodes in the network can result less security of the decentralized ledger to targeted attacks.

Private blockchains are less decentralized than public blockchains for the sake of practicalities in running a blockchain for the purposes of being efficient with speed, control, and better compliance for your enterprise or organization.  Private blockchains are advantageous when privacy and compliance are more important than the advantages of being open to the public.

Key Differences

The key difference between public and private blockchains is notably different access models, governance, and performance. Public blockchains are accessible to all participants which represents maximum decentralization at the expense of speed and privacy. Private blockchains restrict access to a small number of approved participants. This allows private blockchains to perform transactions much faster and with privacy but sacrifices decentralization and presents an opportunity for censoring transactions.

Public blockchains provide security through a large and diverse network of participants, while private blockchains rely on a small number of trusted participants giving it limited security. In short, the decision to use a public or private blockchain depends on whether the priority is having the ability for everybody to have access or speed and efficiency truly controlled.

Use Cases and Applications

Public Blockchain Use Cases

Public blockchains are best suited for applications where everyone can participate in a trustless manner and have access to the same information globally. Some common use cases for public blockchains are:

• Decentralized Finance (DeFi): Some decentralized exchanges like Uniswap built on the Ethereum platform allow users to lend, borrow, trade and swap tokens without a centralized intermediary.
• Non-fungible Tokens (NFT's): OpenSea is a popular marketplace for non-fungible tokens that relies on a public blockchain to provide ownership of both digital arts and collectibles.
• Decentralized Autonomous Organization (DAOs): The MakerDAOs is a decentralized autonomous organization that allows every participant to participate in governance via a public ledger and is completely transparent.
• Global Payments System: Bitcoin is the first public blockchain allowing users to send value across borders and eliminating the need for an expensive intermediary like a bank.

Private Blockchain Use Cases

Private blockchains are typically designed for particular organizations. This is typically for governance and privacy, and potential use cases are: 

• Supply Chain Tracking: IBM has built a private enterprise blockchain called Hyperledger Fabric that is used to correlate goods are shipped to provide insights into where that item is located in the supply chain transparency among trusted partners.

Hybrid Models and Future Trends

As the adoption of blockchain technology continues to rise, hybrid and consortium models have appeared to help narrow the gap between public and private systems. A consortium blockchain is a blockchain in which multiple organizations share a semi-private ledger and are the primary collaborators coexist, but with restricted control.

Hybrid models, such as Ethereum's layer-2 solutions and Polkadot's interoperability solutions and services, give the benefit to the "public good", enhancing collaboration with public data but maintaining privacy for participating organizations.

Interoperability has become a prominent trend, assisting blockchains like Chainlink and Cosmos. These platforms allow for the transfer of data between public and private blockchains, as enterprises will want to access the public blockchain’s security while also not changing the nature of privacy. If regulatory environments are developing at the same time technology is advancing, hybrid systems will likely dominate use cases in the market.

Conclusion

Public blockchains and private blockchains play an important yet distinguishable role supporting a digital generation. Public blockchains are committed to openness, decentralization and innovation, such that they are providing full ecosystems of trustless global systems, such as DeFi and cryptocurrencies. Similarly, private blockchains are committed to efficiency, privacy and compliance, largely relegating them as the option for enterprise use cases. The decision to utilize either one depends on the individual use case, whether there is a trustless public global blockchain or a controlled corporate blockchain. As hybrid models and interoperability become more mainstream, both the public and private roles will converge.

This article is contributed by an external writer: Donald Benedict.
 

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