Matthew Scerri is a Lead Developer with KPMG Software. He explains the difference between public and private blockchains in the article below.
Blockchain is an emerging technology that has been around for less than 10 years, yet its surge in popularity over the past couple of years has been rather remarkable. Being initially launched as the technology powering Bitcoin, it has since been through several evolutions by different projects.
It was not long after Bitcoin was released that Blockchain started being experimented with to solve more than just transfer of value, something the Ethereum platform arguably achieved with considerable success. But with that also came discussions about private blockchain networks, particularly from businesses and enterprises that were keen to leverage Smart Contracts, albeit not at the expense of having all information made public.
The public blockchain sometimes referred to as trustless or permissionless blockchain, is undoubtedly the one most are familiar with. More than just being transparent by being public it is distributed so that anyone can effectively set up their own node on the network by downloading and maintaining a copy of the ledger, not much different from any other peer-to-peer network. Not only can anyone read all the data contained within the ledger, but they are also free to send transactions over it, as well as contribute towards authorizing transactions and achieving consensus.
While the nature of it being public might make it seem susceptible to attacks, it is the idea of strength in numbers that has made blockchain-powered technologies like Bitcoin so resilient to attacks and it is a fundamental part of the reason as to why no one has yet managed to hack the Bitcoin protocol. The hacks reported in the news are related to third-party services that use the technology, not with the technology itself.
The Public blockchain, therefore, eliminates those intermediaries who in traditional systems are trusted and relied upon to authorize transactions and determine who or which data can be read or written. The downside to all of this is that public blockchains have been proven to be notoriously slow, use up far too many resources, and are difficult to scale. This is often seen as the next big challenge that the new wave of Distributed Ledger Technologies must address to succeed.
A private blockchain, on the other hand, is one where only a select and known number of people can write to the ledger. These can take various forms depending on business requirements, such as allowing anyone to read data, or one where even read permissions are restricted. Many argue that private blockchains are rather limited in what they can do.
Indeed, unless the problem that the blockchain is trying to solve does not require decentralization and involves multiple parties that do not fully trust one another, then it is easy to see that the use-cases are limited, as their only value would be cryptographic authentication which ultimately can also be built on top of traditional database systems. It is also worth mentioning that traditional database systems are not only tried and tested, but most enterprises already use them so it is easier and far cheaper for them to apply them for their needs.
But this is not to say that private blockchains should be dismissed outright; the key factor to consider is trust. A private blockchain can still solve problems that enterprises face on a day-to-day basis and they can revolutionise quite a few industries. These types of blockchains are sometimes referred to as consortium blockchains, mostly because the consortium scenario is one in which they are extremely effective.
Consider a number of separate businesses and enterprises in both similar and totally different industries, working completely independently of one another yet collaborating closely together, and one can immediately start to see the potential benefits of these blockchains. The ledger here would be decentralized much like in a public blockchain, yet the data contained within could be kept entirely private and only authorized parties would have access to write to it. In addition, the process of achieving consensus can be pre-determined based on the use-case, such as by requiring that 75% of the total nodes must validate each block, or each entity electing its own trusted node.
One example where this works well is supply-chain management. In a supply-chain there are several different parties involved: Operators extracting the raw materials, manufacturers of parts, assemblers, shippers, customs, and other government authorities, banks and financial institutions, as well as retailers. In a traditional system, each of these players maintain their own database and tracking something through the supply chain is a lengthy process of manually going through each supplier and tracing the way through – all while trusting that the information being given to is correct and up to date.
With blockchain this becomes a breeze as the data one has access to can be retrieved almost immediately, not to mention that the blockchain ensures the information is correct as it could only make its way onto the ledger after being verified by the trusted parties and pre-determined validation mechanism. This type of blockchain can also ensure that sensitive information, such as negotiated pricing agreements, can also only be accessible to a subset of stakeholders and, to give an example, only exposing the fact that a transaction has been fulfilled with the other members.
There are various projects aimed specifically towards this growing market: IBM’s Hyperledger, R3, and the Ethereum Enterprise Alliance amongst many others. In some cases, these private blockchains can also interact with public blockchains giving rise to hybrid blockchains.
While the underlying technology is fundamentally the same between both public and private blockchains, the way in which they are set up solve very distinct problems: public blockchains are all about decentralizing and democratizing processes by eliminating middlemen whose main function is that of providing trust between multiple parties, while private blockchains can revolutionise applications where multiple independent parties must indirectly come together to meet one goal, irrespective of them having different interests.