Blockchain technology forms the backbone of the cryptocurrency industry and is quickly being adopted by other, more traditional industries as its usefulness becomes evident. But not all blockchains operate in the same way. Blockchains have different features, with some being public and others being private.
So, what’s the difference between public and private blockchains, and what are some real-world examples of each?
What Is a Blockchain?
Blockchains are, by nature, a little tricky to understand, especially if you’re not hugely into tech. But we’ll break blockchains down as simply as possible before getting into public and private blockchains.
In short, a blockchain is an immutable ledger of blocks of data that is distributed among multiple nodes, or devices, within a network. This allows data to be decentralized, with no one authority holding all the information in or power over a network. Blockchain enthusiasts commend this technology for its increased levels of privacy and transparency.
Blockchain technology is most well known for its use in the cryptocurrency world. And while it is certainly commonplace in this industry, blockchains are also used by companies like Microsoft and Amazon.
Now, let’s discuss the differences and uses of public and private blockchains.
What Is a Public Blockchain?
As the name suggests, public blockchains can be used by anyone. The two most valuable cryptocurrencies in existence, Bitcoin and Ethereum, both use public blockchains, as well as the vast majority of other cryptocurrencies, like Algorand, Monero, and Tezos.
Public blockchains are permissionless, meaning anyone can join and become part of the consensus mechanism (used to keep the network secure). This also means that anyone can view the data stored on the blockchain, which speaks to the element of transparency offered by this kind of technology.
But note that no one within the network can ever change this data. Public blockchains are immutable, meaning that once the data is there, it cannot be removed.
Public blockchains are entirely decentralized, so no one group or individual has authorized total control of the network. This is why so many people like public blockchains, as big tech companies using centralized systems mishandle user data.
So, are public and private blockchains quite similar or drastically different?
What Is a Private Blockchain?
Private blockchains are used by organizations that want to more securely store their data while also ensuring that not just anyone can access said data. Data breaches are commonplace in our modern world, so companies are constantly seeking out new ways to keep their data safe. This is where private blockchains can be of use.
A private blockchain is only accessible to authorized parties. Permission must be granted to the potential user before accessing any data or taking part in the consensus process. Permission is granted by the blockchain’s authoritative body or network administrator, which isn’t the case with public blockchains.
You generally won’t see private blockchains used in the crypto industry. Rather, this blockchain type is more angled towards internal business networks. IBM is an example of a large company that creates private blockchains for clients. The company also develops permissioned blockchains, which are kind of a mix between public and private. Permissioned blockchains involve limited user capabilities and access to anyone who verifies their identity first.
Private blockchains are not entirely centralized, as there is a party that has control over the ledger and who accesses the blockchain. The ledger itself also isn’t entirely immutable, as it would be on a public blockchain. While public blockchains have a native coin or token, private blockchains do not need one.
Because private blockchains have a lower number of nodes than public blockchains, they tend to work more efficiently, as the data load that requires verification is lower. This also means that a private blockchain does not require as much computational power to function as a public blockchain, so they’re generally more eco-friendly.
But, unlike public blockchains, the true identity of nodes on a private blockchain are always known by the authoritative party. The identity of an individual is required to gain access to the network. So, by the time they begin verifying transactions or viewing the ledger, the user identity is already known to the network.
Because private blockchains are not fully decentralized, they lose points when it comes to security. This is because an individual with the ability to change block data could skew the system to work in their favor, which isn’t a concern with public blockchains.
But, because public blockchains are accessible to anyone, any cybercriminal can join the network with harmful intent without needing permission. A 51% attack is a possibility on a public blockchain, wherein over half of the computing or hashing power on a network is taken over and controlled by a malicious entity. However, this is much less likely on a private blockchain due to the blockchain construction and overview of the network by a single authority.
Both types of blockchains have their ups and downs regarding security, but there are also ways that public and private blockchains are quite similar.
The Similarities Between Public and Private Blockchains
Because public and private blockchains are both just that, blockchains, it’s no surprise that they share some commonalities. Firstly, both kinds of blockchain require individual nodes to reach a consensus to verify blocks. However, while private blockchains have a lower number of nodes, multiple nodes are still required to keep data secure.
Additionally, every blockchain node on public and private blockchains has access to the entire network ledger. These elements form the backbone of blockchain technology, so it’s no surprise that they’re present in both blockchain types.
Public and Private Blockchains Both Play Key Roles in Various Industries
Though the majority of well-known blockchains out there are public, this doesn’t mean that private blockchains aren’t hugely important. Both of these blockchains can be hugely beneficial in different scenarios, with their features offering users different perks (and drawbacks).
In any case, it seems like the use of blockchain technology is on the rise, and we may see it replace more traditional technology in the near future.
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