What is Public & Private Blockchain? and Why Companies are using private blockchains today?

Priyanka Patil
7 min readNov 4, 2020

Blockchain technology of bitcoin and Ethereum — is widely associated with decentralization. Most people look for ways to eliminate banks (and other intermediaries) from transactions. And one day, we hope to completely redesign the way our economy works.

Read more :8 Steps to Build A Sensational Blockchain Application

However, there is a lot more to blockchain than one might think. This technology, which is known for providing anonymity and protection to the general public, is also valuable to companies. In a slightly different way, though.

What kind of blockchains are there?

Currently, all existing blockchains can be divided into three categories:

  1. Public Blockchain
  2. Private Blockchain
  3. Federated Blockchain

The important difference between these networks is the way they are governed. Or rather, they are ruled by whom.

Public blockchain is available to the public as it appears from its name. You can consider it ‘for the people, for the people, and for the people’.

And with that being said, the people here have power, and no one is responsible.

Anyone can join and read / write/audit the public blockchain because it is publicly available for free. It brings transparency to the data or transactions that take place in the blockchain because anyone can audit the blockchain.

To write in the blockchain, one has to do some work, but if you adhere to the rules of protocol there is nothing to stop you from joining and participating in the public network.

So here, the code or protocol is in-charge and not specifically an individual, and it naturally invites a question, then how does the public blockchain work?

Well, public blockchains are built on incentive systems that reward fair behavior and punish unjust behavior.

Example of public blockchain: Bitcoin or Ethereum
Bitcoin is a public blockchain where miners engage in mining and write blocks on a transaction or chain. 12.5 BTC will be rewarded for any successful block dug by any Fair Miner who follows the rules and runs the entire node.

Any fraudulent minor will incur a loss with the calculated cost incurred by him/her to defraud the system.

Similarly, consumers are using Bitcoin because it is a boundless and decentralized way to transfer value (money) cheaply and developers build it for freedom.

Moreover, the work built on these mining or public blockchains is unreliable, due to the evidence of consensus. So you do not have to trust the other party to pay you, instead, you have to verify it on the blockchain.

Hence:

  • Anyone who participates in the consensus can run the BTC / ETH complete node and start mining.
  • Anyone can make transactions in the BTC / ETH chain
  • Anyone on the blockchain can review/audit the transaction.

Private blockchains are as private as their name implies.

An individual or organization uses a private blockchain and, unlike a public blockchain, is responsible here.

You think you are the DBA-database administrator who gives other people access and rights for what they can and cannot do in the database.

Similarly, you have an administrator for private blockchains, who decides who gets access.

Unlike the public blockchain, not all parties can write on the blockchain because not everyone can participate in the consensus here.

Forget about writing, even access to view or reading is limited and not given to everyone.

Now, some of you may be wondering, what could this blockchain be good for?

Well, these types of blockchains are good for enterprise-grade, where privacy and contractual obligations need to be respected.

But this type of blockchain brings internal transparency and quick audit capabilities to companies.

Not only that, most parts of the business/activity can be automated through it and the law of the land, i.e., business logic, as well as business terms, can be encoded on such types of blockchains.

Of course, this type of blockchain also has a consensus mechanism, although it is generally centralized and the in-charge simply monitors and is called proof of authority rather than proof of deeds that give signals.

Therefore, there is no such thing as transaction mining and Blockchain Explorer is not for everyone’s use.

Example of private blockchain: multichain, hyperlider applications

  • No one can run a complete node and start mining.
  • No one in the chain can make transactions.
  • No one can review/audit the blockchain in Blockchain Explorer.

Federated Blockchain [Licensed Blockchain]
Is it scary to take responsibility for an individual or organization? Because a lot of power can be put in the hands of just one company.

So as a solution to that, federated blockchains emerged. They are also known as consortium blockchains, run by a group of people or organizations.

In short, instead of having one person or entity now, you have a group of people who are running the network and have similar powers to make decisions with the best advantage of the network.

The best way to understand this is to say that we have a consortium of 10 banks that run the blockchain. These banks settle their transactions on the blockchain and add new transactions to the blockchain/ledger if more than five people vote/sign on that block/transaction.

This way they can make a cost-effective historical ledger controlled by only these ten parties and you must have the consensus of at least 5 participants to implement any change, protecting the network from single-point failures.

Example of a federated blockchain:

In such a type of blockchain:

  • Consortium members can run a complete node and start mining.
  • Consortium members can make transactions/decisions on the chain.
  • Consortium members can review/audit the blockchain in Blockchain Explorer.

Why Companies are using private blockchains today?

Here are some of the benefits that corporations can gain by using private blockchains

  • They are resilient. Blockchains distribute record-keeping systems that fail miserably. The nodes of the private chain do not depend on the central computer running it. Therefore, the chances of the system shutting down abruptly due to a system error are very low.
  • They are controlled. Those who claim to be anonymous on public networks tolerate the confusion caused by a lack of control, rather than risking their privacy. Banks, on the other hand, do not accept the shadow. They need a clear governance model (not the rule of some unknown minors) and the ability to change the protocol and revert transactions whenever needed.
  • They are “members only” and effective. As we have said before, there is no way to enforce who can trade on public blockchains; They are clearly designed to allow everyone inside. However, a large number of nodes are too far apart, which significantly impedes the network’s dynamics. Private chains have a limited number of participants. Therefore their capacity (i.e. transaction output) is much higher than that of public networks.
  • They have no local cryptocurrencies. Although all fans have paid for cryptocurrencies over the past few years, they are still an unassailable asset. Their value is volatile, and banks and other institutions subject to strict regulations want nothing to do with them. Corporations are also not allowed to list digital currencies on their balance sheets. And, fortunately, there is no need to deal with them; Not when a company uses a private chain. Instead, closed ledgers can be designed around the issuance and movement of traditional assets. They can become a sophisticated tool — a way to modernize an organization’s current business processes.
  • They are safe. Minors (or validators) are not anonymous on private blockchains. They are pre-selected by an organization (s) and are therefore highly trusted. With no chance of anyone behaving maliciously in a company-owned network and 51% attacked, public blockchains are increasingly feared, which is not entirely questionable.
  • They are cheap. The transaction fee on Bitcoin is now at all times (close to $ 20). As more transactions are actually submitted to the network than can be processed, there will always be long queues and consequently a total slowdown. Private blockchains have some nodes that verify blocks. The flow of their transactions is controlled and constant. Therefore such networks are used faster and cheaper than their public counterparts.
  • They abide by the rules. You may have heard from some well-known sources like the Daily Mail that Bitcoin is repeatedly used for criminal purposes. Crooks laundered money through it or bought guns and all this was made possible because the network was not streamlined. Well, not so with private blockchains. These can be built in full compliance with AML (Anti Money Laundering), KYC (Know Your Customer) and HIPAA (Health Insurance Portability and Accountability Act) laws.

The end
Not to disappoint blockchain enthusiasts, technology, at least from a major banking perspective, is not all that revolutionary. They see this in addition to their toolsets; As new and improved, more versatile databases.

Some would argue that private chains defeat the advantage of decentralized ledger technology because they all have a centralized entity that controls them. We believe that private and public blockchains can be a force for good. Previous individuals can protect them by granting anonymity and save money for later companies.

Thinking of starting your own private blockchain?Smart Contract, Cryptocurrency Wallet Development and Multichain Development

Fugenx: Top Blockchain Development company In India, USA, UAE & Europe Let’s see how we can help. Contact our block chain expert for a free consultation.

--

--

Priyanka Patil

Determined Topic Researcher, little Curious to know better in what am doing, in the part, shared the ideas, and context by saving as writing