Private Vs Public Blockchain Systems

The main aim of Blockchain is to create an immutable public ledger to ensure integrity of transactions. In the past few years of its existence multiple different types of blockchain have evolved from the original blockchain. The concepts of public and private blockchains have come into being, these two are often confused together as they both have very similar features. This article ensures to bring out the difference between the two.

Public vs. Private blockchain

Public and private blockchains are equally decentralized, peer-to-peer networks where each member maintains a copy of a shared ledger that stores digitally signed transactions. This ledger can only be affixed to, but not edited. Participants in a blockchain retain this ledger in sync through a consensus protocol. This produces a assurance on the immutability of the ledger which cannot be tainted even if there are some malicious members on the blockchain.

The difference between public and private blockchain is related to the type of members allowed within the network that preserve the ledger and execute the consensus protocol.

Public blockchains

Public blockchains are open networks that allow anyone to participate in the network, hence the name ‘public’. Such a network depends upon the number of participants for its success, and hence encourages more and more public participation through an incentivization mechanism. The best example of a public blockchain is Bitcoin where participants in the network (miners) are rewarded with BTC tokens.

In a blockchain, each block contains a record of numerous transactions on the network. Creating new blocks gives out a reward, also known as the “miner’s fee”. In a public blockchain, where there can be a lot of participants on the network, it becomes necessary to maintain scarcity of the reward tokens, and regulate who gets the right to create the next block. To achieve this, each participant in the network must solve a complex cryptographic problem (also known as “proof of work”). Whoever solves the problem earn the right to create the next block (and gets the reward). The disadvantage to this is, these problems are very resource intensive and take a substantial amount of computational power to solve.

Another disadvantage is the public nature of the blockchain itself. There is little to no privacy for transactions, nor any regulation or criteria for participants to join. Public blockchains might be suitable for projects in the public domain (such as Blockchain), but not ideal for enterprise-level use cases.

Private blockchains

Enterprises can set up private blockchains to protect the privacy and security of their data. Participation in a private blockchain requires an invitation, which itself is also validated by the network starter or a set of rules that can put into place. Such a network is known as a permissioned network, and puts a restriction on who is allowed to join. Private blockchains can also restrict participant activity such that certain transactions can only be carried out by certain participants and not others, despite the fact that they’re on the network. This creates an added layer of privacy.

Participation rules can either be set up by existing participants, a regulatory authority or a consortium. All participants in a network play a role in maintaining the blockchain in a decentralized manner.

An example of a private blockchain is Linux Foundation’s Hyperledger Fabric, designed to cater to enterprise requirements. Only entities participating in a particular transaction have knowledge about it — other entities will have no access to it. Because such a blockchain is lighter, it provides transactional throughput that is orders of magnitude higher than in public blockchains.