The Difference Between Public and Private Blockchain

There are a number of explanations on what blockchain is and what exactly is the difference between Bitcoin and blockchain, but another area where I get many questions, is the difference between public and private blockchain.

The similarities of public and private blockchain

Many flavors of blockchain have evolved over the years and the terminology is often misconstrued. This is easy to do because public and private blockchain have many similarities: Both are decentralized peer-to-peer networks, where each participant maintains a replica of a shared append-only ledger of digitally signed transactions. Both maintain the replicas in sync through a protocol referred to as consensus. Both provide certain guarantees on the immutability of the ledger, even when some participants are faulty or malicious. So, how are they different?

Public blockchain and known participants

The sole distinction between public and private blockchain is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger. A public blockchain network is completely open and anyone can join and participate in the network. The network typically has an incentivizing mechanism to encourage more participants to join the network.

One of the drawbacks of a public blockchain is the substantial amount of computational power that is necessary to maintain a distributed ledger at a large scale. More specifically, to achieve consensus, each node in a network must solve a complex, resource-intensive cryptographic problem called a proof of work to ensure all are in sync.

Another disadvantage is the openness of public blockchain, which implies little to no privacy for transactions and only supports a weak notion of security. Both of these are important considerations for enterprise use cases of blockchain.

Private blockchain and enterprise

A private blockchain network requires an invitation and must be validated by either the network starter or by a set of rules put in place by the network starter. Businesses who set up a private blockchain, will generally set up a permissioned network. This places restrictions on who is allowed to participate in the network, and only in certain transactions. Participants need to obtain an invitation or permission to join.

The access control mechanism could vary: existing participants could decide future entrants; a regulatory authority could issue licenses for participation; or a consortium could make the decisions instead. Once an entity has joined the network, it will play a role in maintaining the blockchain in a decentralized manner.

The Linux Foundation’s Hyperledger Fabricis an example of a permissioned blockchain framework implementation and one of the Hyperledger projects hosted by The Linux Foundation. It has been designed ground up to cater to these enterprise requirements.

This type of permissioned blockchain model offers the ability to leverage more than 30 years of technical literature to realize significant benefits. Digital identity in particular, is fundamental for most industry use cases, be it handling supply chain challenges, disrupting the financial industry, or facilitating security-rich patient/provider data exchanges in healthcare.

Only the entities participating in a particular transaction will have knowledge and access to it - other entities will have no access to it. Permissioned blockchains also permit a couple of orders of magnitude greater scalability in terms of transactional throughput.