Private vs. Public Blockchain or Permissioned vs Permissionless

The 2017 bitcoin moonshot was temporary, but when you look at the bigger picture, you realize that it brought to the limelight a highly disruptive technology, the blockchain, which not only stayed but also gained wider adoption across numerous industries.

It all started with the vision to provide a digital currency to people that was controlled by none. But today, blockchain is seen as a technology that can decentralize major centralized systems and can also automate various transactions and the execution of various processes.

Decentralization, which is the core concept of a blockchain, means that power is in the hands of the participating parties. Everyone in the network can exercise equal authority and can read and write transactions on it.

However, this property in its purest form doesn’t strike chords with some institutions and organizations that handle sensitive data. This has prevented them from using blockchain for a long time. But considering the huge benefits that blockchain may offer to the enterprises, industry stakeholders developed a blockchain that functiones with controlled decentralization, and they named it as private/permissioned blockchain.

While private blockchains slightly deviate from the true concept of blockchain, they have led to many huge institutions joining the blockchain bandwagon, thus sparking a wider adoption of the technology.

To better understand how private blockchains differ from the classical public blockchains, let’s dive into more details.

Understanding the Difference

Accessibility

Public blockchains, as the name suggests, are simply that. Public. All individuals on a public blockchain network have access to the data stored on the blockchain. They also have an equal opportunity to become a node or a miner on the network in order to validate transactions.

On the contrary, a private blockchain is a so-called “distributed ledger” with a central entity exercising the power to control as to who can view or validate transactions on them. There are strict criteria which an individual or an entity needs to follow in order to become a node on a private blockchain network. The process often comes with a KYC process that seeks complete validation of a node’s identity.

Transaction Speed

Another major difference between a private and a public blockchain is their scalability, often referred to as the transaction speed. Public blockchains usually have a relatively slow transaction speed in comparison to the private blockchains.

A blockchain has three major building blocks: security, decentralization, and scalability. No blockchain so far bears equal strength in all three of these. Because security is an integral part of a blockchain due to its cryptographic nature, it’s either of the two remaining features that are partially compromised to leverage the other one.

To put this in perspective, consider the Bitcoin and Ethereum blockchain. These two are the most known public blockchains with utmost decentralization. But this decentralization results in transaction speed between seven to 14 transactions each second, which is extremely slow.

Now consider the Hyperledger Fabric, which is a private blockchain. It is said to deliver a transaction speed of over 3,500 per second.

What About Public Blockchains with a High Scalability?

It can be argued that there are also those public blockchains with a transaction speed of over 2,000 to 3,000 transactions per second. But those are only public in the sense that anyone can view the transactions recorded on the blocks while the power to validate those transactions are still concentrated in a smaller, selective group of nodes.

As is in the case of the EOS blockchain, it uses a delegated proof of stake consensus mechanism, where only 21 block producers/nodes represent a greater number of stakeholders and are responsible for validating transactions on the network.

Advantages of a Public Blockchain

In one sentence, they’re the true blockchains. Anyway, to sum it up specifically, here are the advantages that public blockchains have:

  • Open to everyone: As already mentioned, anyone can participate in a public blockchain network to view and validate transactions
  • Decentralized and Distributed: No central entity controls the proceedings of a public blockchain, which makes it perfectly aligned with the ethos of a blockchain.
  • Immutable and Secure: To validate a transaction on a blockchain, more than 51% of the nodes must agree and validate the transaction. These nodes are random individuals and entities spread across the globe. So, once a transaction is recorded, it becomes impossible for another 51% or more nodes to agree to alter the data of a particular block at the same time.

Advantages of a Private Blockchain

As already mentioned, private blockchains have become the go-to blockchains for enterprises, especially those in the finance industry. Let’s see why:

  • Not Public (of course): Enterprises would never want to publicly display their sensitive data. This makes private cum permissioned blockchains a great fit for them.
  • High Scalability: Private blockchain owing to the use of only a few nodes can process a high number of transactions each second.
  • Economic: Unlike public blockchains, private blockchains mostly control their own nodes and they do not have to pay out incentives to miners validating the transactions.

Parting Words

Both private and public blockchains can be considered as somewhat different systems and yet their potential to disrupt various industries across the world is almost the same. Despite having their own strengths and weaknesses over each other, private and public blockchains are being smartly chosen and used by industry leaders in order to put them to the right use.