Private vs. Public Blockchain: How Do They Differ?

Blockchain is a popular topic in the technology world. It has been around for ten years but only recently gained attention due to its potential use in helping with many real-world problems. Blockchain technology is decentralized, meaning that it exists on multiple computers simultaneously, and all updates are replicated across them. The blockchain stores data that can’t be altered or hacked because of the encryption process used to store information within blocks, making it an attractive choice for storing sensitive information like medical records or financial transactions. There are two most popular types of blockchains: public blockchain and private blockchain.

The question of private vs. public blockchain is hotly debated among the cryptocurrency community. This article will help you overview these two types of blockchains to see what the differences are and help you determine which types to choose. However, before diving deep into the private vs. public blockchain differences, we will first go through some basic information about blockchain technology.

What Is Private Blockchain?

A private blockchain is a subset of public blockchain that can set up consensus algorithms and rules to meet the requirement of different industries, business cases, and scenarios.

The term “private blockchain” refers to a decentralized ledger with pre-defined conditions for transactions or data exchanges among participating parties. The only difference between private blockchains and traditional databases with controlled access is that private blockchains are distributed across a limited number of nodes.

The consensus algorithm might vary depending on the blockchain network’s purpose, with features such as security, privacy, and speed being prioritized. A company may use a public or private blockchain depending on its specific business case, desired transparency, and control level.

Why Use Private Blockchain?

Private blockchains have significant advantages over their public counterparts. They ensure security by keeping them hidden from the general public and can be managed by individuals within an organization. Also, smart contracts can be programmed with some conditions making it more secure and efficient for businesses to transact without the supervision of third parties.

Another advantage is that they are easier than public blockchain to implement. For instance, if you want to run a game on Ethereum, constructing a game world state will require some transactions, which might not be practical for a public blockchain. Using private blockchain would bring the transaction costs down and enable developers to create large-scale games on Ethereum.

Private blockchains can also enable cross-organizational and cross-border transactions where participants don’t know or trust each other. For instance, in the agriculture industry, farmers sell their produce to a buyer who exports to another country where they have a contract. Keeping each transaction step on a separate blockchain would make it easier for farmers and buyers to track their products and contracts.

A private blockchain can be used in many application areas, which public blockchain cannot. It can revolutionize businesses, especially in finance, banking, cyber security, and healthcare.

What Is Public Blockchain?

Blockchain technology has been evolving to become the foundation for a new infrastructure model called Public blockchain.

A public blockchain is known as an open, decentralized ledger that records transactions shared among many users. The data are stored in blocks that are then chained together using cryptography proofs and linked to the previous block, creating a chronological record of all transactions or interactions. Thus, the entire data history can be traced back to the chain’s origin and is easily accessible by any participant.

Furthermore, the ledger is publicly available, and records reside in shared and replicated among users where no single user or group controls the data or the system itself.

How Public Blockchains Work

Public blockchain aims to create an infrastructure that allows people who don’t know each other to trust a shared digital ledger and transactions. The ultimate goal is to provide the highest level of transparency while keeping identities private and maintaining user anonymity and privacy. Public blockchain networks are decentralized, meaning no single entity or institution controls the data stored in them. Anyone with an internet connection can upload data into the network, verify transactions and participate in the public ledger.

They are protected by design as data is stored on a decentralized system, making it harder to hack than traditional databases. The blockchain uses cryptographic hashing, which creates many unique strings of digits and letters for each block, preventing any data from being modified without changing the entire string, which is extremely difficult as hash function is one way. Public blockchain provides a new type of governance model that is democratic, transparent, and decentralized, allowing users to have more power in the decision-making process.

All transactions are immutable, which means they cannot be changed once they’re on the blockchain network. This makes it easier for enterprises to use as they no longer have to spend time and resources on auditing and validating transactions as they can trust the public ledger. Among the notable projects of public blockchain are Bitcoin, Ethereum, Ripple, and Litecoin.

Why Use Public Blockchain?

Public Blockchain also offers various advantages that convince you to utilize it. One of the core benefits of a public blockchain is the low fees. The transactions usually cost fractions of a penny. This is a reason why people are interested in cryptocurrencies because they can do business without worrying about high transaction fees.

The next benefit of a public blockchain is that people can use it anonymously. They do not have to give their personal information to use a public blockchain if they are not sure whether to reveal that information online or not. Also, public blockchains are often cheaper to maintain because they do not require central servers to host all the data. This is because the nodes in the network allow for a distributed architecture and maintain copies of all data.

Moreover, public blockchain platforms have no downtime. Users can use the system at any time of day or night, and they will be able to connect with other users. People do not have to worry about the system being down because there are no shutdowns that would affect their business operations. The public blockchain platform is completely transparent. Everyone using the system can see all transactions occurring throughout the blockchain, which helps make transactions more transparent and trustworthy.

Additionally, people can use public blockchains anonymously. This means they do not have to give their personal information to use a public blockchain platform, which provides some peace of mind for those who are unsure if they want to reveal that information online. The last but not least benefit of public blockchains is immutability. Once a transaction has been recorded, it cannot be altered, creating record permanence which gives users security when using the technology.

Private Vs. Public Blockchain: The Differences

The simplest way to understand the differences between public blockchain vs. private blockchain is by looking at Bitcoin. As you can see, anyone can participate in the transaction process on a public blockchain. This means that you don’t need permission to send or receive bitcoins from others. On the other hand, private blockchains require an invitation and must maintain authorization. They do not want to expose sensitive information such as financial records to everyone on the network.

A private blockchain can be best applied to a situation where there is a need for heightened security and control over the distributed information. To put it simply, you should use a private blockchain if you want to add extra layers of encryption. In theory, this means that only specified individuals should have access to specific transactions. This keeps things secure while also adding extra privacy for those involved.

Public blockchain networks are far more transparent, making them difficult to adopt into industries requiring a high-security level. However, this doesn’t mean that public blockchains should be avoided at all costs. On the contrary, private-public blockchain solutions have been gaining traction for many years now, with the most notable being R3. R3 is a financial technology firm that has partnered with over 40 of the world’s leading banks to develop Corda, a private blockchain platform for global banking.

In short, the main difference between public and private blockchains is that anyone can join the network in the case of public blockchains. In contrast, private blockchains usually have only a certain number of participants. In addition, anyone who has access to the ledger can read and write information on a public blockchain, while private blockchains allow anyone to read data, but only authorized parties can write new transactions or modify them. Thus, every participant can join the network, but it doesn’t mean they all have equal rights.

The Bottom Line

In conclusion, understanding the difference between a private and public blockchain will help you determine which one to use in specific scenarios. While there are many other types of blockchains available, these two offer a good overview of how they work and what you should consider when deciding on your next project.

So, the question is: Private vs. Public Blockchain, which one should you use? It depends on your business needs as well as your company’s culture of transparency vs. confidentiality.

This article has led you through some pros and cons of private blockchains and public blockchains so you can distinguish them and choose the suitable one. Private blockchains are an excellent option for companies that have more stringent privacy requirements. Public blockchain networks, on the other hand, allow anyone to join and participate in transactions.

We hope these insights help you make an informed decision about how to approach blockchain technology for your organization’s specific purposes.