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Understanding the Difference Between Public and Private Blockchains

Blockchain technology has revolutionised various industries, from finance to supply chain management. It has gained immense popularity due to its decentralized and transparent nature. 

When delving into the blockchain world, you’ll come across the terms “public blockchain” and “private blockchain.” These two types of blockchains differ significantly in their structure, access, and functionality. 

In this article, we’ll explore the concepts of public and private blockchains and examine the main differences between the two.

Public versus private

Before jumping into the differences between the two, let’s begin by understanding what public and private blockchains are. 

A public blockchain is a decentralized digital ledger that allows anyone to participate, view, and verify transactions. It operates on a peer-to-peer network, where multiple nodes maintain the blockchain’s integrity by reaching a consensus. Bitcoin, the first and most well-known cryptocurrency, is built on a public blockchain. In a public blockchain, every participant can create transactions, validate them, and contribute to the overall security and decentralization of the network themselves.

Public Blockchain vs Private Blockchain. Source: IFour Technolabs

On the other hand, a private blockchain is a blockchain that restricts access and participation to a specific group of individuals or organisations. Unlike public blockchains, where anyone with an internet connection can join the network, private blockchains are more centralized and controlled. On a private blockchain, participants are typically known and trusted entities, such as banks or big institutions. This type of blockchain is often used in an enterprise setting and, thus, not something the general crypto user will be a part of. A private blockchain is where privacy and data confidentiality are of utmost importance and prioritised.

Now that we have a basic understanding of public and private blockchains, let’s dive into their main differences and ways to separate the two from each other.

Access and participation separate public and private blockchains

The first big difference that comes to mind for most is how access and participation work on these blockchains. For public blockchains, they are open to everyone. Anyone can join the network, create transactions, and become a validator by running a node. This inclusivity promotes decentralization and ensures that no single entity controls the network – which is what most people know blockchain technology for.

Private blockchains, on the other hand, are exclusive and require permission to access and participate. Only authorised entities can join the network, create transactions, and validate blocks. This controlled access enables private blockchains to maintain higher levels of privacy and confidentiality. These are the reasons why private blockchains are mostly seen used by enterprises and not something regular people usually hear much about.

The differences in transparency

Transparency is a fundamental characteristic of public blockchains and also something that differs between public and private blockchains from each other. Every transaction and block is visible to all participants, ensuring trust and accountability. This transparency makes public blockchains suitable for applications where a high degree of transparency is desired, such as cryptocurrencies and public governance.

Source: Foley & Lardner LLP

Private blockchains, although employing distributed ledger technology, offer a varying degree of transparency. They often provide selective transparency, allowing authorised participants to view and verify transactions while keeping sensitive information hidden from the public eye. This feature makes private blockchains suitable for industries that require privacy, such as healthcare or finance.

There’s a clear difference in transparency based on the type of blockchain, and you can’t say that one model is better than the other. It simply comes down to the use and needs of the respective blockchain. 

Private blockchains lead in scalability, but public blockchains could catch up

Another difference to look at is the scalability. Public blockchains face scalability challenges due to their open and decentralized nature, a challenge that has been known for years. As the number of participants and transactions increases, the network may experience slower transaction processing times and higher fees. However, ongoing research and development aim to address these scalability concerns with solutions like sharding and layer-two protocols which we are slowly seeing more and more.

Private blockchains generally have better scalability compared to public blockchains. With a limited number of authorised participants, private blockchains can process transactions more efficiently and faster. Naturally, this lead to better scalability opportunities and more efficiency in that regard. This scalability advantage makes private blockchains attractive for enterprise use cases that require high transaction throughput.

As you can tell, there are significant differences between public and private blockchains, but also differences in when they are helpful. For the general crypto user, it’s always the public blockchains that are relevant. This is why private blockchains might be an unexplored topic for many, but it’s nonetheless an important and efficient part of crypto technology as we know it.

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