When Bitcoin launched as the first implementation of the blockchain in 2009, distributed ledger technology (DLT) disrupted multiple industries.
From finance and banking to supply chain management and healthcare, organizations have been leveraging blockchain technology’s benefits to innovate, create more efficient services, as well as provide viable solutions to long-known issues.
That said, if you hear the phrase “blockchain,” probably the first thing that comes to your mind is a highly decentralized, open, community-governed DLT network like Ethereum or Bitcoin.
However, in addition to public blockchains, there is another form of the technology called private blockchains tailored for enterprise usage.
But what is the difference between public and private blockchains, how do they work, and what are their core features?
Let’s find out in this article!
What Blockchain Types Are Out There?
The blockchain refers to a digital ledger that is duplicated and distributed across the devices of all participants in the network in a way that everyone stores the same records and sees related changes in real-time.
But, did you know that there are four types of blockchain networks currently available?
Below, you can find all DLT variations with a small description for each:
- Public blockchains: Appeared with the launch of Bitcoin, public blockchains are open for anyone to join and use solutions within the network. Since DLT networks are transparent in nature, everyone can audit and monitor records on public blockchains. For this blockchain type, the read access is open.
- Private blockchains: Unlike their public counterparts, private blockchains restrict access for users, only allowing those within a specific organization or who have passed Know Your Customer (KYC) checks and have been approved by the system administrator into the network. For this blockchain type, the read access is closed.
- Permissionless blockchains: In a permissionless blockchain, anyone can participate in the consensus mechanism to validate blocks and transactions. Since there are no access controls in place for validators, the write access is open for this blockchain type.
- Permissioned blockchains: To achieve higher throughput and tailor DLT networks for enterprise usage, permissioned blockchains limit the number of validators while having access controls in place to select who can participate in the consensus mechanism. For that reason, the write access is closed for this blockchain type.
Since they are similar concepts, the terms private and permissioned, as well as public and permissionless, are often used interchangeably in the cryptocurrency industry.
However, they don’t exactly refer to the same thing.
While the public and private terms focus on whether a DLT network restricts read access for standard users, permissioned and permissionless refer to the presence of access controls for validators (write access).
Generally, all permissionless blockchains are public (open read and write access), and all private blockchains are permissioned (closed read and write access).
On the other hand, not all public blockchains are permissionless, as there are permissioned public DLT networks out there that allow anyone to join and audit the data on the chain but that restrict who can validate blocks.
In the next sections, we will focus on the differences between public and private blockchain networks.
Public vs. Private Blockchains: What Is the Difference Between the Two?
Both public and private blockchains leverage the benefits of DLT technology.
However, the core difference between the two is how they manage user access and whether they control who can validate blocks within the network.
What Is a Public Blockchain?
Examples: Bitcoin, Ethereum, Litecoin,
Most of the blockchain networks on the market are public, meaning that anyone with a working internet connection and a compatible device can access them along with the products, services, and apps in the ecosystem.
At the same time – since everyone keeps the same records on their devices and all modifications are transparently recorded on the digital ledger, users can inspect the data recorded on the public blockchain, trace transactions, and view other information.
Also, as there are no controls in place to restrict access for standard users (thus, no need for KYC), a higher degree of privacy can be achieved in the network.
When a public blockchain is also permissionless, it means that the network is not only free to access for standard users, but it lacks restrictions for validators as well.
As a result, everyone can participate in the consensus mechanism by operating a full node or mining or staking the platform’s native cryptocurrency.
Since the number of validators is high and there’s no central authority that selects them in public DLT networks, it allows for a great level of decentralization.
At the same time, this architecture provides enhanced security against attackers as they would need to take over the majority of the network to succeed.
What Are the Most Important Features of Public Blockchains?
Now that you know what public blockchains are, let’s see their most important features.
- Decentralization: In public blockchains, every user is equal without anyone having more authority than others. For that reason, and since nodes and validators are scattered all over the world, this DLT type is highly decentralized. Also, instead of a centralized company, most public blockchains are governed by the community who uses the chains’ native tokens to vote on upgrades and other important matters related to the network’s future.
- Privacy: In public blockchains, no KYC or any other forms of identity checks are needed to enter the network and use solutions within the ecosystem. As a result, users can achieve a higher level of privacy.
- Transparency: Since anyone can view and audit data on the blockchain, public DLT networks operate transparently. For that reason, it’s much easier to spot malicious, dishonest, and illicit activities in the ecosystem.
- Immutability: Due to the nature of the blockchain, once a transaction is recorded on the ledger, it can’t be altered in any way unless the majority of the validators agree to do so. Since public blockchains feature a massive number of validators, it’s almost impossible to tamper with data recorded on the ledger, making public DLT networks immutable.
- Censorship-resistance: DLT networks operated by centralized companies are often subject to regulations in some jurisdictions that could lead to some forms of censorship within the ecosystem. On the other hand, public blockchains leverage the power of decentralization to become entirely resistant to censorship.
- High Security: In addition to eliminating all risks of a single point of failure, the large-scale participation in the consensus mechanism makes it hard for attackers to take over the network. For example, they have to acquire 51% of the hash rate (the total computing power of devices connected to the network) to gain control of chains using the Proof-of-Work (PoW) consensus algorithm. However, if many miners are maintaining the network, it could effectively prevent such scenarios due to the potential costs of the attack. To achieve such against Bitcoin, an attacker would need to purchase 1.75 million of a popular mining rig that is priced at $10,000 each and feature a hash power of 100 TH/s (the current BTC hash rate is around 175 million TH/s). As a result, malicious parties would have to spend a whopping $17.5 billion to buy the hardware capable of taking over 51% of the network (and we didn’t even take electricity fees into account).
What Is a Private Blockchain?
Examples: Hyperledger Fabric, ConsenSys Quorum
While public DLT networks are meant to be used by the general public for all kinds of purposes, private blockchains are instead tailored for enterprise usage.
For that reason, private DLT solutions have access controls in place both for writing and reading.
This means only users authorized by the system admin can enter the network while the enterprise managing the ecosystem selects the validators that can participate in the consensus mechanism.
As a result, the organization can leverage the benefits of DLT technology while effectively safeguarding sensitive data recorded on the ledger.
To achieve that, everyone seeking to join the network must confirm their identities by submitting to KYC checks.
Upon the approval of the documents, the system administrator will assign different roles with various levels of access to participants in the ecosystem.
For example, while the enterprise may allow all its employees to view standard records, it may give only executives and top managers authorization to access sensitive data.
As a result, the enterprise could keep everything under control by setting its own rules in the network.
Furthermore, enterprises not only choose who can validate blocks but also limit the number of validators that can generate blocks and verify transactions.
This gives private blockchains a significant advantage over their public counterparts in terms of scalability and throughput.
While it comes with increased centralization, the fewer the participants are present in the consensus process, the more efficient the network becomes, and the quicker transactions can be processed.
What Are the Most Important Features of Private Blockchains?
- Enhanced Scalability: By centralizing the consensus process, private blockchains limit the number of validators, making the network more efficient. As a result, high scalability and transaction throughput can be achieved at much better speeds than with public DLT solutions.
- The Ability to Prevent Unauthorized Access: Since only authorized users can use the network with different roles assigned to every participant, sensitive data recorded on private blockchains can be effectively safeguarded by restricting access for the general public, competitors, and malicious parties. Also, with an effective KYC process, enterprises can significantly minimize (or completely eliminate) the presence of illicit activities within the ecosystem.
- Cost-Efficiency: As the number of nodes is significantly limited (e.g., 20-30 vs. 10,000+ for public chains), it substantially reduces the costs of maintaining the network.
- Regulatory Compliance: Since most private blockchains are operated by businesses, they have to comply with regulations in multiple jurisdictions. While it may be hard to achieve that in a public DLT network, a private blockchain allows the enterprise to set and enforce rules according to regulators’ laws, frameworks, and policies.
- Enterprise Customizability: Since they have increased control over the network, enterprises can easily customize private blockchains to fit their needs.
Public vs. Private Blockchains: The Verdict
Both public and private blockchains have an important role in the industry.
While public DLT networks are more suited to fulfill the needs of the general public, private chains are tailored for enterprise usage.
Via an open, decentralized, transparent, and community-governed network, participants of public blockchains can benefit from increased privacy, censorship resistance, and enhanced security.
On the other hand, this DLT type lacks the level of customization for enterprises while suffering limited scalability and network efficiency.
Private blockchains seek to solve these issues by sacrificing decentralization and privacy to achieve better throughput at lower fees by limiting the number of validators.
At the same time, by performing KYC checks and setting their own rules and policies, enterprises can easily customize private chains to fit their preferences, comply with regulations, and prevent unauthorized access.
Frequently Asked Questions (FAQ)
1. Is Bitcoin a public or private blockchain network?
Bitcoin is a public blockchain that allows anyone to access the network as well as solutions within the ecosystem without any restrictions. Furthermore, you can also audit transactions, addresses, and other data recorded on the distributed ledger.
All you need is a compatible device and a working internet connection to do so.
In addition to being public, Bitcoin’s blockchain is also permissionless, which means that everyone is free to participate in the consensus process by running a full node or mining BTC.
2. Is a private blockchain centralized?
Since private blockchains have access controls in place for both validators and standard users – who have to be approved by the system administrator (a centralized authority) based on KYC documents –, private blockchains are increasingly centralized.
3. What is the use-case of private blockchains?
Private blockchains are tailored to fit the needs and preferences of enterprises, governments, non-profits, and other organizations.
Some example use-cases of private blockchains for businesses include supply chain management, digital identity, finance, B2B, healthcare, and food tracking solutions.