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The differences between public and private blockchains

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A public blockchain is a decentralized network where anyone can contribute to the upkeep and view the ledger if they desire. A private blockchain is the opposite, as the name implies. A private blockchain is able to strictly control participants and manage what each participant is able to do, or not do. 

The differences

There are a number of differences between public and private blockchains. In public blockchains anyone can view the transaction history and add or validate blocks. Since there is no KYC or AML required, accessibility is high. 

Private blockchains are the opposite, all participants are known, which is ideal for business. Private blockchains can also grant restricted access for verification purposes, which is not possible with public blockchains. Consensus is reached in entirely different ways. In public blockchains consensus is reached using economic incentive models that encourage correct behaviour and competition. Negative behaviour is punished.

On the other hand, private blockchain networks do not require economic incentives to reach consensus because all participants are known and vetted, although they can still be used if desired. Private networks can still opt to use consensus mechanisms such as Proof of Elapsed Time (PoET). PoET generates each node a sleep time, and whichever node wakes up first wins the right to commit then next block to the blockchain. No financial incentives are required with this method, and it works as a more energy efficient PoW. 

In a public blockchain network all nodes are equal, which isn’t always the case in private blockchains, which can introduce some form of hierarchy or governance between their participants. Governance can be a great benefit that allows the rights of participants to be controlled. Due to the nature of public blockchains they can be viewed as fully decentralised. 

On the contrary, private blockchains are somewhat centralised, due to there being a limited number of participants that have to be approved to take part. The whole notion of blockchain is introducing a system with high levels of network transparency that also removes the requirement for trusted third parties, which private blockchains contradict somewhat. Public blockchains still maintain these values. 

However, private blockchains also do have differences that make them preferential choices for businesses. They are more optimized for performance and they are highly private, unlike public blockchains. This means they are much better suited for sensitive information. Unfortunately, private blockchains can be costly to run, which can be said for some public blockchains too, such as Bitcoin, but not others that use different consensus mechanisms. As a result of consensus mechanisms, the computational power and therefore energy used by public blockchains far outweighs that of private blockchains in some cases. Furthermore, private blockchains face different security concerns to public blockchains because they do not utilize the same mechanisms as public blockchains. Private blockchains are comparable to traditional databases in this regard. 

Why are they different?

Public and private blockchains have a large amount of differences because they cater to the different needs. Private or managed blockchain networks are perfect for businesses. Many businesses are interested in utilizing blockchain for it’s decentralisation, transparency, and immutability. Private blockchains can allow all of these features to exist in a managed or controlled environment, which is perfect for businesses that value privacy or deal with sensitive information. 

Private blockchains are still auditable much like a public blockchain. The auditor would just have to be granted access to the network, and then they could compare the records on the blockchain to accounting reports. Although private blockchain networks are often thought of as glorified databases, they allow for an array of features that aren’t available in traditional databases. Managed networks can implement smart contracts into businesses, introduce automation in collaboration with the internet of things, and Blockchains are also excellent for accountability because all transactions are signed, which makes it easy to ensure compliance, and if broken it is clear who is in the wrong. They are ideal for auditing due to the immutability of the network.

Public blockchains have a number of use cases that all stem from its unwavering ability to provide a means to store a database in a decentralized manner, while maintaining integrity and security. Public blockchains are perfect for any business or project that wishes to maintain immutability, while having all transaction data public. Bitcoin is perhaps the best example of a successful public blockchain. The network has been running for over 10 years now, and throughout its life Bitcoin has successfully acted as a global currency and proved that third parties and banks are not required for financial transactions, meanwhile all transactions have be stored and remained unchanged in the immutable ledger. In terms of businesses, supply chain traceability projects make great use of public blockchains to showcase the origin and journeys of their products to customers. 

Private blockchain use cases are tailored more towards businesses that desire the perks of utilizing a blockchains, while also requiring privacy. Bankchain is an example of this. It is a private blockchain network that allows banks to implement blockchain software and join the network with the aim of reducing fraud and increasing efficiency.

Alex Aves
Alex is a crypto enthusiast that has been enthralled with the crypto space for over two years now. He currently works in the marketing team for Liquid, one of the leading crpytocurrency exchanges.

What are public, private and managed blockchains?

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