- Automated Market Maker
- Blockchain Explained
- Blockchain: Private vs Public
- Blockchain Oracle
- Cryptocurrency Trading
- Digital Assets
- Digital Banking
- Digital Currency
- Digital Securities
- Digital Wallet
- Directed Acyclic Graph
- Equity Crowdfunding
- Equity Tokens
- Hard Fork
- NFTs (Non Fungible Tokens)
- Proof of Work vs Proof of Stake
- Security Tokens
- Stablecoins Explained
- Stablecoins – How They Work
- Smart Contracts
- Token Burning
- Tokenized Securities
- Utility Tokens
- Web 3.0
Table Of Contents
Around 13 years ago now, a mysterious individual or group known as Satoshi Nakamoto launched Bitcoin, starting the era of digital currencies that is now well on its way to changing the world. Of course, digital currencies could never be able to do it on their own.
However, their underlying technology — the blockchain — ended up having a lot more potential than cryptos themselves, and certainly more than even Nakamoto ever expected.
What is a Blockchain?
In its very essence, blockchain technology is just a shared digital ledger that contains records of transactions. What this means is that it is a ledger of transactions stored in a digital format, and distributed across a vast network of computer systems.
When people make transactions, those transactions get processed and verified and stored in groups which are known as blocks. By putting these blocks one after the other chronologically, we get the blockchain — a historical record of all transactions that took place within a single network.
As such, blockchain acts as a decentralized database that is managed by multiple participants. Because of this, it is also known as Distributed Ledger Technology or DLT.
Blockchain is a new and improved way of tracking transactions in a decentralized, transparent, and immutable way. As soon as the data is recorded to the chain, it becomes nearly impossible to remove it, unless the majority of the community that runs that specific blockchain comes to an agreement that removing said data is in the project’s best interest. This is what makes it resilient to fraud, hacking, double-spending, and many other similar issues that were previously unsolvable unless if a centralized institution had full control of the ongoing processes.
Now, over the years, blockchain technology has been developing in all directions, seeking potential applications, exploring its limits and possibilities, and more, which led to the creation of two types of blockchains — public blockchains and private blockchains. Today, we wanted to explore both of these versions of Distributed Ledger Technology and see what similarities they share, as well as what differences are keeping them apart, and which one may have more potential.
Private vs Public Blockchain
Let’s start by establishing the difference between the two types of blockchains — private and public.
A private blockchain is a blockchain where users require permission to even access it. These blockchains operate based on permissions and control, which results in restricted participation in the network. In other words, this is not a chain that anyone can join, but rather, it is an invite-only blockchain that only allows entrusted entities that participate in transactions to have knowledge of transactions. Even other third parties or stakeholders will not be allowed to access this kind of blockchain and the information stored on it.
On the other hand, a public blockchain is the exact opposite. It is completely permissionless, which means that anyone can participate within the chain and join its network at will. Its system is fully decentralized, and there is no entity that supervises the network or has more control over it than other members.
All data on this blockchain is still fully secure and impossible to modify after being validated, thanks to its vast network of users from all around the world who are contributing their computational power necessary for maintaining the ledger.
Of course, this kind of arrangement does have its downsides, such as the lack of privacy for transactions. Both types of blockchain are still keeping the immutability, meaning that the records cannot be altered or deleted without the agreement of those who run the chain. In addition to that, both types are distributed and decentralized. However, they do have their differences.
Differences Between Private and Public Blockchains
There are several important differences between private and public chains worth noting, such as:
As mentioned before, private blockchains are not permissionless like the public ones. As such, they only allow a particular organization to have authority over the network, meaning that public participation is not allowed. They often rely on an authorization scheme to identify who is trying to join the network, and whether or not they should be allowed to do so.
Obviously, public chains do not have such restrictions, and any individual can join, see the ledger, read, write, and even take part in the consensus process.
Another thing that makes these two types of blockchain quite different is consensus. When it comes to public chains, participants are free to join the consensus process if and when they wish to do so, with no restrictions. Meanwhile, in private chains, a decision was made beforehand as to who gets to join the consensus process and who does not.
As mentioned earlier, both blockchains are decentralized, with the public chains allowing anyone to join the group that runs the chain, while private blockchains have a specific group that is allowed to do this. That also means that both are immutable. However, the difference is that private chains are only partially immutable, as there are still certain circumstances under which transactions and even entire blocks can be removed from the ledger. Meanwhile, once a block gets recorded on the public chain, there is no chance that it will be amended or deleted, which makes public chains truly immutable.
4. Handling the data
When it comes to private chains, only a single organization can access, read, and write a particular ledger. That also means that only a handful of users can actually do it. This also allows them to, essentially, be in charge of adding or deleting blocks. As for the public chains, anyone can access them, read, and write on the ledger, but once the data get stored, it is stored for good without the ability to change it or delete it.
5. The cost and speed of transactions
Private chains only allow authorized participants to take part in making transactions, and so speed always remains the same. As for the cost, it is typically always minimal, and it never changes in any drastic way. It is low, constant, and fairly precise.
This is a clear advantage that private chains have over public ones. Public chains allow any individual to access and request transactions and records, and since there are more and more users who are joining the blockchain, this can be rather overwhelming, and it usually results in slow speeds on most blockchains, which simply can’t handle the growing demand.
A similar issue can be seen when it comes to the cost of public chains, which often have quite high transaction fees, especially when compared to private ones.
Due to limited permissioned nodes and limited access to the ledger, private blockchains are almost always highly efficient, while public ones struggle with scalability, speed, cost, and similar issues, making them less efficient.
Pros & Cons Compared
Finally, in order to summarize these two types of chains, let’s see which pros and cons they have to offer.
When it comes to private blockchains, they have small networks with not that many participants. They are known for their limited access, which makes it that much easier to reach consensus. This also makes them cheaper, faster, and simply more efficient. Decision-making is faster, and so are the speeds of processing transactions and requests, which also results in a lower cost of processing. There are no issues when it comes to scalability, and participants are known and trusted by all other parties that have access to the network.
However, there is a matter of integrity that private chains could struggle with, as integrity depends on the standing of the participants authorized to make the changes on the chain. As mentioned, participants often have the ability to modify or even delete blocks and data, which means that they must be extremely trustworthy to be granted this kind of power without the fear of them abusing it. Another disadvantage is that a lower participant count also leaves the chain more exposed to outside threats, such as hackers. All in all, private blockchain may be more efficient, but it loses its point, as it doesn’t differ that much from centralized systems.
On the other hand, we have public blockchains. They are transparent, available for public access, and that means that anyone can make transactions, anyone can join the processing party, and anyone can see what is going on, what transactions were made, who made them, and other details. They are fully decentralized and extremely safe and hacking-resistant. Data cannot be stolen, modified, or deleted from them, which makes them extremely secure, and in order for anything to happen, the community must reach a consensus.
On the other hand, they do struggle with a number of problems. Public chains are slow, they take a lot of time to process transactions, and the cost of processing can be quite high due to scalability issues. This makes them less efficient and more expensive. However, they are decentralized, truly immutable, and safe, which might be worth the disadvantages that come with them.
Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.