It’s not enough to decide that blockchain technology is beneficial for your business. To take advantage of it you must choose the right type of network.
One Thousand and One Blockchain
Blockchain, trust, decentralization, Bitcoin, transparency, anonymity, blockchain, blockchain, blockchain. These words seem to appear randomly on the Web regardless the theme of an article you read. Don’t you know how to implement blockchain in art? There’s definitely someone who can tell you. Do you wonder how banking can benefit from blockchain? No worries, some projects already do it – just search for the use cases.
Since 2008 when Satoshi Nakamoto published a white paper considering Bitcoin and blockchain technology, the latter gained fame as a tool for combating trust issues and bringing transparency to transactions between independent participants. Even though a decade passed, for a lay public, blockchain is still not the easiest concept to deal with. As a rule, people generalize things they don’t understand deeply in detail. Thus, when they hear “blockchain,” they tend to think there’s just one transcendental blockchain that hosts thousands of projects. But it’s a wrong perception as there are numerous blockchains and they differ.
First of all, one should not confuse private and public blockchains. They have one obvious similarity – they are blockchains, decentralized networks. Every participant of the network keeps a copy of this shared ledger, and all these copies are kept sync with the help of a certain consensus protocol. It means that all the participants of the network have access to identical information. Also, all the networks are immutable, and the information they contain can’t be altered.
At this point, the common traits end, and it makes sense to talk about the difference between private Vs. public blockchain. Let’s consider them separately and make platforms comparison.
The first question to answer is “What is public blockchain?” The very name of this type of networks implies that they are open and permissionless. It means that anyone in the world can join the network, add blocks and view the information stored there. Indeed, public blockchains are totally transparent as any of their members can audit them. For this reason, independent participants can easily agree on transactions without middlemen and the fear of deception.
Anyway, new blocks do not appear on the blockchain all of a sudden – the network must achieve consensus. In other words, each transaction must be validated by the rest of the network members, so-called “nodes.” Their contribution to the final decision on consensus is equal. Each node solves a complex cryptographic problem, and when a solution is found a new block appears on the blockchain. Such algorithm is called “proof-of-work consensus protocol.”
Overall computational power of the nodes is crucial for any open ledger. Thus, such networks encourage new participants to join with the help of various incentives. For instance, the participants of Bitcoin blockchain get a reward in Bitcoins for every block generated.
Usually, it’s easy to spot public networks as they are well-known for the cryptocurrencies generated within them. Thus, the list of public blockchains can’t be imagined without the following networks:
This list is not exhaustive. There are plenty of public blockchains, and they are actively adopted by such industries as FinTech, gaming, logistics, and beyond. However, it not always makes sense to move certain processes and businesses to the public network as the latter are characterized by comparatively low speed of transactions execution and high costs. Indeed, every transaction requires a consensus of the entire network. Unfortunately, it takes time and resources.
EYprepared a helpful checklist that gives dealmakers a hint whether they really need to apply public blockchain to their businesses. Thus, it makes sense to use it when:
- There is a large number of transaction participants
- Participants are independent and lack trust
- Participants are ready to pay for each transaction (e.g., Gas Price on Ethereum blockchain)
- Participants are fine with the transparency of all the transactions
- Centralized authority isn’t secure and reliable enough, or charges high fees
If these conditions are not met, then it’s better to consider using a private blockchain. So, let’s pay attention to the second type of network.
“What is private blockchain?” is a logical question to ask after you found out that there is no such thing as one transcendental blockchain. What makes private networks different from the public is that only a selected group of people can access them. Hence, a random person has no chance to join a private ledger all of a sudden. To do so, a new participant needs an invitation or permission that can be issued by:
- An owner of the blockchain
- Existing participants
- A certain regulatory authority
- A consortium
So, there is a kind of centralized authority that decides who has a right to contribute to and to audit the network. What is more – it’s possible to restrict viewing information stored on private blockchains. It might seem that in such conditions, a blockchain is no longer the blockchain as it lacks transparency and decentralization. Well, these remarks are fair, but only when the network is estimated from the outside. Within it, the rules remain the same as for public networks: it is still transparent for all the members.
In general, private blockchains are smaller, faster, and more efficient than public networks. It makes sense to use them when:
- The high speed of transactions is crucial
- Participants worry about “the right to be forgotten”
- Transactions must be anonymous or at least confidential
To have a look at a private blockchain example, you may check out such providers as:
So, as we defined the main peculiarities of both types of networks, let’s unify them and decide who wins the private Vs. public blockchain battle.
Public Vs. Private Blockchain Comparison
In fact, public Vs. private blockchain fight is pointless. Two types of networks are applicable under different conditions depending on the goals that are to be achieved. The key difference between them is in who is allowed to participate in the network, add and confirm transactions. The table below depicts the key aspects of the networks:
This comparison might make you think that private blockchains are more reasonable to use as they are faster, cheaper, and protect the privacy of their members. However, in certain cases, transparency is more crucial than the speed of transaction approval. So, every company interested in moving their processes to a blockchain evaluates the needs and goals and only then selects a particular type of distributed ledger.
It might seem that this technology is beneficial for any business, but it is not. Quite often projects fail to justify their will of public or private blockchain implementation. The key reason to use blockchain is the inefficiency of existing centralized solution that is slow, expensive, and lacks transparency and reliability. In other cases, blockchain isn’t required.