Basics of Public and Private Blockchains

The concept of decentralization has been around for a couple of decades; however, its most recent and robust applications happen to be in the form of blockchain technology. When it was first introduced, the entire concept used to revolve around cryptocurrencies and other FinTech use cases, but the landscape has changed drastically in the last 10 years, and blockchain technology itself has evolved.

Primarily, the fact that it happens to be a generic technology with the potential to cater to the demands of any industry has given rise to public and private blockchains. In this article, we will explore both of them by discussing the dimensions mentioned in the following table:

Image: Types of blockchain. Click to enlarge.
(Source:
Distributed Ledger Technology, Blockchains and Identity).

Let’s start with the top row and understand what “Read”, “Write” and “Commit” mean in the area of public and private blockchains:

  • Read: In both types of open public networks, the data on the blockchain is readable for anyone who connects to it. However, in private networks, there is a restriction as to who can read the data, depending on the access level.
  • Write: From the blockchain’s perspective, this is also referred to as creating a transaction. While any node on the network can write data on a public permissionless network, only authorized nodes can write data to other types of networks.
  • Commit: In this context, it means creating and attaching the blocks that make up the chain. Depending on the consensus mechanism, the actors are called Miners (PoW), Stakers (PoS), Validators (PoS and PoA), or along these lines for other algorithms. In public permissionless blockchains, everybody that invests in the hardware for a PoW or commits the capital for a stake in a PoS network can produce blocks. On other protocols, this is restricted in some way, primarily depending on how a particular network determines the “variance in loyalty” of their users before granting this privilege.

With these basic blockchain operations defined, we can focus on different types of networks along the y-axis of the figure.

Public Blockchains

All blockchains follow the fundamental concept of decentralization. However, they are split into two broad categories, primarily because of the varying access controls and permissions they impose on the users.

Since public blockchains are open, anyone on the internet can connect to them without any discrimination or rather a privilege. While reading from public blockchains is allowed for everyone, there is differentiation with regards to writing to it and generating blocks.

Public permissionless blockchains allow everyone to read, write and commit

In public permissionless blockchains, everyone can write transactions to the chain and commit blocks as well. The majority of well-known networks, such as Bitcoin and Ethereum, belong to this category and ideological purists might refrain from calling any other type a blockchain.

Please note that Anyblock indexes all the most important public permissionless blockchains of the Ethereum and Bitcoin ecosystems, including their respective test networks.

It is worth mentioning that public blockchains are not ‘literally exposed’ in terms of sensitive information and many networks have taken measures to ensure data security and privacy. For instance, zk-SNARKs are gaining popularity and the Baseline Protocol enables enterprises to use the Ethereum public mainnet as middleware to connect enterprise IT systems without competitors being able to gain access to sensitive information.

However, in between the public permissionless blockchains and private networks, there exists a category of public permissioned blockchains, where writing and generating blocks is restricted.

Energy Web Chain — a public permissioned blockchain

Since blockchains run on the primary predicate of decentralization, it is understandable that they work best when there are more users on the network and therefore, public blockchains are often referred to as more decentralized than private ones. The creators of the Energy Web Chain (EWC) have recognized the aspect’s inherent potential and decided against a private consortia chain for the energy market. The EWC is an example of a public permissioned blockchain, providing hybrid feasibility with a blockchain open for everyone to read and transact with. Since the energy market is highly regulated though and a certain degree of control over the governance of chains is vital particularly for large enterprises in the sector, block production is restricted to identified and authorized participants, following the Proof-of-Authority consensus.

Anyblock has been a member of the Energy Web Foundation for years and serves the ecosystem as a validator from the genesis block, as well as providing reliable RPC access and indexing of all EWC data.

Other examples for public permissioned blockchains include Ripple, Sovrin, and evan.network. The widely popular xDAI network can also be categorized as private permissioned, even though with the recent switch from a PoA to a PoS consensus mechanism, the validator set is now managed in a rather decentralized way. Anyblock is happy it has been helping to secure the xDAI network as a validator for many years.

Why do private blockchains exist?

It is worth noticing that despite lighting up a technology revolution, both pioneering blockchains, Bitcoin and Ethereum, did not yet address throughput and privacy concerns to a level where they could be adopted by a plurality of more discreet enterprises, like mortgage, banks, payment transfer companies, etc. Moreover, since public blockchains follow the P2P architecture to the very core, it is rather difficult to regulate them and this is one of the reasons why companies that hold the highest regard for jurisdictional compliance are hesitant to adopt public blockchains. These gaps gave rise to private blockchains.

Private Blockchains

As the term suggests, private blockchains are opposite in nature to public ones as they are not open for everyone to even read from. To put it simply, they can be called invitation-only networks, because if, for example, an insurance company has set up a data storage scheme for exchange with business partners and it runs on the blockchain, they must keep sensitive data hidden from unauthorized users. Other than a handful of people working in these companies, no one should be authorized to read the entirety of the ledger. Therefore, only the authorized users can access specific parts of the system and the network can never have an ‘unknown’ user.

Private permissioned blockchains, consortia networks, and enterprise blockchains — often used synonymously!

In these closed networks, the actions of reading, writing, and generating blocks can be restricted to a certain degree by different means. The distinction between the three types is blurry and less prominent than between public permissionless and public permissioned blockchains. Therefore, the terms private permissioned blockchain, consortia network, and enterprise blockchain are often used interchangeably.

It is important to discuss enterprise-grade blockchains briefly at this stage as their adoption is increasing decently. The reason why we need them is that each company has a different set of demands in terms of privacy, security, channelization, data sharing with partners, varied access controls, etc. Therefore, only blockchains that provide a very generic architecture and follow a richly modular approach, for instance, Hyperledger Fabric and R3 Corda, can be adopted by the majority of businesses. Being enterprise blockchains implies that they are suitable for ’n’ number of use cases and can cater to different workflows, functional requirements, strategies, regulatory implications, etc.

However, there is a downside to such networks because since they are managed by operators who assign access controls to users and due to a smaller number of users they can not be considered decentralized to the level that people familiar with public blockchains might expect. Therefore, one can even argue that these networks might work better in conjunction with traditional distributed IT systems.

Private permissionless blockchains as an edge case

This unique case shows the generic nature of blockchain technology. A private permissionless network is deployed particularly for a company’s internal use (e.g. to connect subsidiaries in different countries). It means that a permissionless blockchain technology, for instance, Ethereum, is used within the business’ private network or VPN rather than the open internet. While such blockchains cannot be joined by mainstream internet users, anyone from within the company network can join as a general member or contribute as a node and every existing node recognizes the new user.

However, it is worth noting that using this approach without additional security measures can be risky, as a potential intruder from within the organization could join and compromise the consensus mechanism of the network.

This is why blockchain platform Quorum adds an enterprise-oriented access control mechanism and privacy to the Ethereum core. Anyblock has successfully integrated Quorum-based networks to provide block explorer tooling and data indexing for these types of networks. Our tech stack has also been integrated into on-premise enterprise blockchain projects as virtual appliances.

Conclusion

From the comparison above, it may seem that public and private blockchains cannot coexist, but in reality, several large-scale ventures implement them at the same time to address different requirements in their systems.

Both public and private blockchains are successful in addressing their primary requirements and are gaining popularity as well. However, every organization and developer needs to understand the type of industry they operate in to select a blockchain framework accordingly.

Since Anyblock has experience with all of these networks, please do reach out to us to discuss advantages and disadvantages for your particular use case and if you need reliable blockchain infrastructure and data.

Freddy Zwanzger — Co-Founder of Anyblock

Interested or questions?

Freddy Zwanzger
(Co-Founder)
freddy@anyblockanalytics.com
+49 6131 3272372

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Originally published at https://www.anyblockanalytics.com on March 12, 2021.

Anyblock Analytics is a German blockchain solution provider. We offer consulting, tools and data to integrate business processes with blockchain.

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