Blockchain 101: what is the difference between a public and a private blockchain?

We have previously explored blockchain, cryptocurrencies, ICOs, blockchain-based smart contracts and consensus protocols which you can discover in our blog The Blockchain Consensus.  This article focusses on another piece of jargon which accompanies this field and seeks to explain the difference between a public and a private blockchain.

A blockchain is characterised as being either public (also known as permissionless) or private (also known as permissioned) depending on the read (view) and write (modify) access permissions pertaining to it.  As we discussed in our article exploring consensus protocols, there are many ‘flavours’ of blockchain, each with their own unique underlying architecture which directly impacts on their performance and functionality.

What is a public blockchain?

In its purest sense, a public blockchain is one with a completely open ledger, i.e. anybody can read and write to it.  Public blockchains typically implement some sort of incentivisation or gamification mechanism to encourage participation.  The most well-known public blockchain is Bitcoin.

Ideologically, public blockchains are favoured by those who are interested in blockchain technology owing to its distributed properties.  By implementing a public blockchain solution, public blockchain enthusiasts believe that data may be exchanged in a fairer peer-to-peer fashion.  In addition to the ideological benefits, a public blockchain ledger can be said to be extremely secure and is auditable by anybody at any time, making it theoretically easy to identify fraud.

Public blockchains do have their drawbacks.  They can require tremendous computational power for each node to process and authorise each transaction.  On a well distributed public chain, such computational power can be associated with significant time, financial and environmental expense.  Crucially, this problem is compounded as more participants join the network and higher throughput is required.

Private blockchains

Only specific entities are able to actively contribute to the state of a private blockchain.  The extent to which those constituent entities will be permitted to read and/or write to the blockchain is also customisable and can be set by the blockchain developer.  In its purest sense, a private blockchain is a closed network, offering the constituent network participants the benefits of a shared ledger without distribution on the scale typically associated with public blockchains.  Hyperledger Fabric is an example of a private blockchain.

Private blockchains are typically favoured by enterprise, as corporates and government entities typically prefer all network participants to be vetted by, or, at the very least, known to them.  Crucially, a private blockchain with a limited number of nodes will be able to handle greater throughput and will have less latency issues than a well-distributed public blockchain, owing to the reduced computational power required for each node to process and authorise each transaction.  Private blockchains also allow certain data elements in respect of each transaction, such as the transaction value or sensitive personal data, to be hidden from the wider network.

However, private blockchains are not necessarily a silver bullet to all of our blockchain-based problems.  Crucially, if public users are using a private blockchain, they are at the mercy of the network administrators.  A nefarious administrator or colluding private entities may seek to manipulate the ledger to its or their own ends.  For this reason, private blockchains are best used for non-public facing use cases, where the administrator is trusted by its public users (e.g. a government entity), or where the pool of permissioned nodes is sufficiently diverse as to provide some comfort in respect of its veracity.

Consortium blockchains

A consortium blockchain is a public/private blockchain hybrid. This can work in a number of ways and can be designed to best fit the circumstances and proposed use-case. A pre-selected group of network participants may control the consensus protocol with the process of creating transactions and the right to audit the ledger being made open to the public, for example.

The benefits and drawbacks of a consortium blockchain will hinge on which elements of a public or private blockchain it adopts.

Which should you adopt?

There is no ‘right’ blockchain architecture and different flavours are more suitable and have been optimised for different use-cases. The flavour selected will also impact on the legal and regulatory analysis of the solution.Would-be adopters of a blockchain solution should seek expert guidance to ensure that their blockchain works for them and their business and complies with the prevailing legal and regulatory frameworks.

If you have any questions regarding blockchain technology or how a blockchain solution might impact you or your business, please get in touch.