All over the world, conversations with respect to the multi-faceted prospects and use cases of the blockchain technology in business are trending. It is not all hype because its features of transparency, real-time data on transactions and activities – what happened, when it happened, with/ or to whom it happened – eliminates the need for intermediaries or subsequent reconciliation of data.
It is no joke that $23.7 Billion has so far been invested in blockchain applications globally. And like the eclipse of Nokia and Blackberry’s global popularity in the mobile phone industry, anyone who abstains from this fourth industrial revolution technology only sets himself up for future blame games.
We have previously detailed diverse use cases a business could explore as they position for the future. We have also analyzed different blockchain platforms that could be utilized in building blockchain applications. Just as well, we’ve given insights on the cost implications of blockchain applications in business. We now proceed to help you make an informed choice between deploying a private or public blockchain.
Table of Contents
- Blockchain vs DLTs
- Classifications and Types of Blockchains
- Features/ Benefits of Public Blockchains
- Features/ Benefits of a Private Blockchain
- Federated/ Consortium Blockchains
- Hybrid Blockchains as the Ultimate Option
Blockchain vs DLTs
Just before we dive in, it is befitting at this stage to address the common confusion between blockchain and DLTs. A DLT (Distributed Ledger Technology) is a decentralized form of database managed by multiple participants, across multiple nodes. It’s the umbrella that embodies all decentralized database services that are managed and governed by participants.
Actually, blockchains are indeed a form of DLT. DLTs and Blockchains can both be said to be digitized logbooks of records that are circulated across networked users. But that is where their similarities end.
Majorly, blockchains are fundamentally known for the stringing of time-stamped “blocks” or “data” which intermittently have to be validated by users of the network – meaning that no new block can be added without a consensus of nodes/ users. DLTs differ in that not all distributed ledgers deal in cryptographic validation of new data before it is updated on the network. In some DLTs, the admin has unabridged control of the network’s administration, dictating the goals, structures, and running of the platform.
Using the popular Greek syllogism of logical argument, all blockchains are DLTs, but not all DLTs are blockchains.
Classifications and Types of Blockchains
Back to our discussion, blockchains come in varying types. They are classified into three:
- Public blockchains such as Bitcoin and Ethereum
- Private blockchains like R3 Corda and Hyperledger
- Hybrid blockchains such as Dragonchain
Public Blockchains: Also known as permissionless blockchains, they are open-source, decentralized platforms that open up their network to anyone to participate either as users, developers, miners, and community members. Transactions and activities here are open and transparent, giving anyone the chance to access and manage data at any point in time.
Private Blockchains: Also known as permissioned blockchains, they are the direct opposites of public blockchains. Access to the network or the usage of their data is restricted to certain categories of individuals who have stipulated credentials/ IDs.
Hybrid Blockchains: This type of blockchain combines the strong features of both private and public blockchains, allowing for a DLT that keeps private sensitive data while making relevant data public for verification of transactions.
Similarities between Public and Private Blockchains
Before moving on to the varying differences of the duo of public and private blockchains, here are some of their similarities:
Immutability: All blockchain technologies, whether public or private variants, are immutable. That is, authenticated data (called blocks) cannot be completely altered or erased by one person or a multitude of people.
Authentication: Public and private blockchains alike rely on their users and members for the authentication or approval of edits such as entry of new transactions or activities, to the virtual ledger.
Peer-to-Peer Ledger Replica: To prevent incidences of illegal tamperings, public and private blockchains both maintain and distribute real-time replicas of blocks or data across each and every computer/ user (called a node) on the network.
Differences Between Public and Private blockchains
Magnitude: Private blockchains are lighter and possess higher transactional throughput due to the reduced volume of transactions that are carried out on them, compared to public blockchains which are heavier due to the high volume of transactional activities that are always ongoing on them.
Level of Access: In public blockchains, data verification, addition, and usage are opened up to everyone from around the world. Private ones are different in that only authorized entities can participate in the network.
Control: Private blockchains are notable for centralizing the control of the network in the hands of a few users, while public blockchains are loved for the decentralization of control in the hands of all users of the virtual ledger platform.
Security: The decentralized nature and active participation of users on a public blockchain, combine to enhance the security of the network. Private blockchains are more susceptible to risks of hacks, breaches, and insider manipulation majorly due to the fact that few players control the network.
Features/ Benefits of Public Blockchains
Public blockchains are considered to be the original distributed ledger structure behind the evolution of blockchain technology. Anybody from anywhere in the world can send, receive and verify transactions on them, in addition to powers to audit them as well. For each transaction to be validated on the network, it has to be authorized by each of the constituent nodes or computers through a consensus process. Some of the most popular public blockchains are Bitcoin, Ethereum and Litecoin. Its features and benefits include:
Open Access: Data submission, usage, and governance on public blockchains are opened up to everyone from around the world.
Distributed Ledger: Databases that exist on public blockchains are not centralized like it is in client-server platforms. Each node on the blockchain platform maintains its master copy of the virtual database and contributes to the validation of new transactions. This helps to eliminate unnecessary middlemen that often exist in the chains of centralized transactions.
Security: By implication of the decentralized and distributive nature of ledgers on public blockchains, the chances of manipulation, hacks, and attacks are slim because it is simply impossible to simultaneously alter and effect changes on all the copies of databases available on each node on the network.
Anonymity: Public blockchains also offer an important benefit which is the anonymity of users. That is, the identity of users is protected from public glare with the usage of cryptographic identities called public keys.
Downsides of Public Blockchains
With all the above asserted pros of public blockchains, it is important to bring to your notice as well, some of its limitations in its integrations in your business. Such limitations include:
Scalability: Usually, all blockchain users (called nodes) are obligated to validate each new transaction on a blockchain network. The direct consequence of this is usually slow transactions and low transaction throughput. Businesses that deal in instantaneous confirmation of transactions like Paypal or Visa for example, would definitely find a hard time coping with a public blockchain.
Smart Contracts: Smart contracts are immutable and their outcomes are irreversible. Businesses can’t run the risk of deploying faulty smart contracts that are immutable, suffering the irreversible consequences of the automatic enforcement of such smart contracts.
Storage Constraints: Every computer on a blockchain network stores blocks of information indefinitely. The result is the imposition of heavy storage requirements which isn’t realistic within the context of a business application.
Power: Just as public blockchains require inexhaustive storage spaces, its reliance on mining and consensus algorithm places an obligation on the provision of high computing and energy power. This high cost is not feasible to be borne within a business integration context.
Privacy: Another prominent downside of public blockchains is its unabridged transparency. The result is that there’s little or no privacy for transactions.
Features/ Benefits of a Private Blockchain
Private blockchains thrive on restricted access and permissioned relationships. New users are usually invited and validated in accordance with specific rules stipulated by the platform’s admin or founder. Typically, businesses use enterprise blockchains for intra business purposes with access restricted to company members and employees. Should there be a reason for non-members to be a part of the chain, they are given access on a need-to-know basis. Prominent examples of private blockchains are Quorum, Hyperledger Fabric and R3 Corda. The benefits and features of this blockchain variant include:
Controlled Access: One prominent feature of private blockchains is its over-reaching control of the admin on who can and can’t gain access to the platform. New users are validated and given access to enterprise information through the business identity management system.
Faster transactions: Enterprise blockchains have fewer nodes than public blockchains. This makes the processing and validation of transactions or activities very fast since the fraction of users that need to reach a consensus are lower.
Efficient Governance & Control: In private blockchains, there’s a central authority that controls the whole virtual platform. The admin stipulates the standards, processes, methods, and tools with which the day-to-day administration of the platform would be ensured.
Downsides of Private Blockchains
Lack of Trust: The running of private blockchains is hinged on some few powerful nodes that are responsible for validating transactions. That is, all other users except those with validation powers, are not trusted enough to have been clothed with governance rights of the network.
Security: Due to the fewer number of users that are usually present on a private blockchain, it’s very much easier for one single entity to gain control or alienate the blockchain network for selfish, fraudulent purposes. It is essentially more susceptible to hacks, attacks, and manipulations of databases.
Federated/ Consortium Blockchains
Consortium blockchains have close ties with private blockchains. The main distinguishing factor is that consortium blockchains are controlled and governed by group(s) rather than a single entity. Call them a sub-category of private blockchains and you’ve hit the bull’s eye because it embodies almost everything that private blockchains are known for. In summary, they:
- Offer a collaborative model of use cases where business competitors can gather to work together as well as compete against each other.
- Promote individual and collective efficiency, through the collaborations that it makes possible.
Hybrid Blockchains as the Ultimate Option
Hybrid blockchains combine the two worlds of public and private blockchains. Hybrids typically combine the privacy features of private blockchains alongside the security/ transparency features of public blockchains. It avails businesses’ substantial flexibility to choose what data to make public and what data to make private. With a hybrid blockchain, a business can make the platform accessible to everyone in the world (through a public blockchain), while a private blockchain runs in the background with the purpose of controlling access to ledger modifications and editing.
A popular example is Dragonchain.
Benefits of Hybrid Blockchains
Low transaction Cost: The fact that transactions on hybrids only need to be verified by a few powerful nodes, makes the running of this blockchain very cheap in terms of computing, energy power and by extension, charges of use.
Fused Privacy & Communication: Just as private blockchains are best for resolving data privacy issues in businesses, they don’t do so well with communications with the outer world. Hybrids help businesses configure blockchain models that facilitate easy communication with the public, including their numerous shareholders, combined with the protection of sensitive corporate data.
Closed Ecosystem Workings: The one big advantage of hybrid blockchains lies in their ability to work effectively in closed ecosystems. With it, businesses who want to take advantage of blockchain technology don’t have to worry about having their data leaked to the public.
Private blockchains appear to be more viable and promising for business adoption, than public ones due to factors like scalability, computing and energy power, transaction validation speeds and security, amongst others. A closer look at private blockchains would, however, reveal that they fundamentally deviate from the one thing that makes blockchain solutions attractive and promising – decentralization. Hybrid blockchains which are an amalgam of both private and public blockchain appear to be a better choice than exclusively private ones, towering over public ones.
In the final analysis, the choice of which blockchain type to adopt from the tripod of public, private, and hybrid blockchains, lies with each business organization bearing in mind their respective corporate strengths and weaknesses, goals and objectives.