Public vs Private Blockchain: Everything You Need to Know

by | Aug 23, 2022 | Blockchain, Blog

Blockchain technologies have been rapidly evolving since their invention. What started as an innovative way to create a decentralized digital currency through Bitcoin has grown into its own universe, bringing forth countless decentralized finance platforms, NFTs, and all types of new decentralized digital assets.

A large part of the evolution of blockchain technology has had to do with the emergence of different types of blockchains, each of which has its own advantages and disadvantages, opening up different possibilities for programmers, users, and token holders.

The different types of blockchains, which can include private, public, and permissioned, vary in their degree of openness, scalability, security, and decentralization. The differences in the types of blockchains are largely represented by the public vs private blockchain dichotomy.

However, before we go into detail about what the different types of blockchains are and do, we should first go over what a blockchain is.

What is a Blockchain?

A blockchain is a type of distributed ledger software that records and validates transactions without requiring a central entity or administrator.

Users in a blockchain exchange digital tokens or assets, and the relevant data for each transaction, such as the date and time in which it was made, as well as the amount, among other things.

This data is recorded and distributed among what’s called the nodes, which are devices that allow the software to run by recording the ledger and carrying out the validation processes, by ensuring that the data in all nodes coincide.

The way in which blockchain records and distributes data allows it to function in a decentralized manner, guaranteeing security and transparency without the need for intermediaries or central administrators.

A blockchain keeps the information in the block private when it is data related to a specific user’s privacy, in which said user can decide under which conditions a third party might be able to access it.

Although there are multiple types of distributed ledger technologies, blockchain is by far the most popular. It derives its name from the way in which it structures its recorded data, by organizing it as a block and chaining it to the previously recorded data blocks, making sure that the ledger can no longer be modified.

Public vs Private Blockchain

The specific data contained in the blocks of a blockchain can be controlled to different degrees, and changed depending on the type of configuration and build that each ledger contains. 

Likewise, this will determine the type of activities that can be performed by the users in a blockchain, such as whether they can program with it, coin different types of non-fungible tokens or employ it in different software applications.

The most common blockchain types include public, private, and permissioned.

Public Blockchain

In a public blockchain, any user can join and participate in the network in various ways, whether it’s by reading, writing, or checking the ledger. Because of the self-governing nature of the public blockchain, the community that centers around it plays a central role in its functionality.

Public blockchains are the most decentralized type of blockchain, hence, they work through incentive systems that reward users who contribute to the network’s operations. 

Ethereum is a public blockchain, for instance, as it allows any user to access its network and potentially become a node. The same is true for Bitcoin, which requires exceptional amounts of computing power. 

Public blockchains generally employ systems in which specific users provide the computing power for their operations, and are rewarded with new tokens created in the blockchain, in a process known as mining. The devices that provide this computing power and carry out the operations are known as nodes.

However, the degree of decentralization with which public blockchains are able to operate comes at the cost of scalability, precisely because they require large amounts of computing power to process transactions, and thus, large amounts of energy.

These inconveniences tend to make public blockchains somewhat slower when it comes to processing transactions. 

This is largely due to what’s referred to as the scalability trilemma, or the inability of blockchains to simultaneously maximize scalability, security, and decentralization, as public blockchains tend to prioritize decentralization and security.

Private Blockchain

Whereas public blockchains are made for anyone and everyone to participate in, private blockchains are primarily hosted by companies and other organizations, only allowing specific users to access and validate operations.

Despite private blockchains requiring a verified invitation for a new user to come in, they still operate in a decentralized way, in the sense that they still need separate nodes to carry out specific consensus protocols. 

What makes private blockchains fundamentally different, however, is that the creators of the blockchain can select the nodes and the criteria for validation, as well as the rights and mining rewards that nodes get.

The private blockchain’s owners are also able to override and edit entries in the blockchain if required.

At a first glance, this might seem like it defeats the purpose of blockchain since private blockchains tend to have a much higher degree of centralization than public ones. 

Nevertheless, they can be extremely useful for organizations that require secure automated systems to carry out internal operations and transactions, as well as for users who prefer having higher security and transaction times.

Hybrid Blockchain

Hybrid blockchains are often described as the best of both worlds, as they have some of the perks of both private and public blockchains.

What makes hybrid blockchains unique is that they are essentially public blockchains, meaning that they allow anyone to participate, make transactions and access the ledger, but they use a private network to generate the record or hash

These types of blockchains are ideal to strike a balance between decentralization and security without compromising scalability. In turn, they tend to have much higher transaction speeds than public blockchains, however, the validation processes need to be carried out by specialized entities.

The balance between decentralization and scalability makes hybrid blockchain ideal for private and public organizations intending to launch blockchain systems over which they still have some degree of control, which are more efficient than traditional financial systems but mitigate some of the risks of decentralization.

The types of entities that benefit the most from hybrid systems include the organizations like governments and large companies.

Which Blockchain Type is Best Suited for You?

Each type of blockchain has its pros and cons, and they all work better depending on what they’re used for. As blockchain technologies come closer to mass adoption, it is important to know which type of blockchain will best fit you.

If you’re holding cryptocurrencies or NFTs at the moment, chances are that you are already participating in public blockchains

The most popular blockchains today, such as Bitcoin and Ethereum are prominent examples of public blockchains, and they are best fitted for casual everyday use, as their main advantage relies on their accessibility and openness. Furthermore, public blockchains are the only ones that allow full anonymity.

However, it is also possible to set up something like a private Ethereum blockchain, using the public Ethereum platform to create a network that only select people can access and manage.

Perhaps the most definitive reason to choose private blockchains over other types is to participate in the validation process of the network. That is, to become a node or, in simpler terms, to be able to mine a token. 

Private permissioned blockchains such as Ripple and Hyperledger might be better fitted for people who prioritize transaction speeds and costs, since public blockchains, due to their structure, are less scalable and require much more computing power to process transactions.

Likewise, private blockchains might be somewhat more secure and have more reliable failsafe systems, but regular users will have to settle with the fact that they are administered by authorized entities, and they won’t be able to participate or benefit from the validation processes.

Hybrid blockchains are commonly hosted by large companies, with a prime example being the IBM Food Trust ledger. Rather than being all-encompassing systems for transactions with specific tokens, they are usually made with a specific purpose in mind, so they are not usually made for common crypto or NFT users

Whichever of these types of blockchains will benefit you the most will depend on your specific needs, values, and priorities as a user. 

If you wish to better understand the way in which blockchain technologies work, and figure out which type of blockchain fits better for achieving your goals or starting to get into the blockchain world, you may visit the in-person event Expoverse

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