Blockchain is being used by enterprises in various industries that require specific systems and processes. With these specifications, different types of blockchain networks have emerged. As an enterprise manager, it is important to know which blockchain network will work for your organization.
Covering the blockchain basics, the infographic below will provide a comparative guide to the nature of private vs. public vs. permissioned blockchains, touching on their differences in terms of participants, network, application, and performance.
What is a Private Blockchain?
A private blockchain is a type of blockchain where only a single organization or entity has control over the network. It allows entry of only selected verified participants, and the operator has the right to override, edit, or delete entries as required.
In this type of blockchain, the participating parties need to be validated before joining the network and given permission before reading, writing, or editing the blockchain. Multiple layers of access are in place to keep certain data confidential. The data is private to the network, is owned by the operator, and not generally available to anyone outside of the network.
What is a Public Blockchain?
A public blockchain is a permissionless network, allowing anyone to join and participate in its core activities. It is decentralized—nobody can alter the protocols, and no particular participant or single entity controls the data.
While public blockchain operators are pseudo-anonymous the data are immutable and secure, as the ledger remains permanent, providing an unalterable history of transactions. It is not possible to modify entries once they have been validated unless a dishonest actor controls more than 51% of the network. Even if this were the case, the modification would be publicly provable and detectable, so the claim of data immutability holds.
What is a Permissioned Blockchain?
A permissioned blockchain has the features of both private and public blockchains. It maintains a level of access control that allows specific actions to be performed only by verified participants. Anyone can join the network after verification of their identity and allocation of select permissions, but users can only execute certain actions depending on their permissions. Different from private blockchains, the data is normally public and the central permissioning entity retains only control over the permissioning of new participants in the network, without direct authority over the data.
Private vs. Public vs. Permissioned Blockchain: What’s the Difference?
- Participants
In a public blockchain, anybody can participate on the network. Anyone is free to read, write, or audit the ongoing activities. This democratized nature and authority-free operation are fueled by the incentivizing scheme, encouraging new participants to join to keep the network active.
In a private blockchain, only verified participants can join the network. Validation is granted either by the network operator or a permanently locked set of rules or protocols.
In the case of a permissioned blockchain, participants need to be verified first before they can participate. The exclusive permissions give them the ability to perform specified activities on the network. This is done to protect the integrity of some data.
- Identity Management
Private and permissioned blockchains have identity management tools that allow users to plug in their own identity management solutions.
With the blockchain’s identity management capability, individuals and businesses can store their identity data on their devices, choosing which information to share with validators. In this setup, the participant may use a third-party tool to protect confidential information, like a password manager app, a digital bank vault, or an authentication protocol.
Public blockchains, by design, do not have built-in identity management capabilities. Users self-register and have full responsibility for safeguarding their private keys. This does not preclude 3rd party identity management systems from being leveraged on top of public blockchains.
- Network Latency
Network latency differs on these three types of blockchain; because private networks are smaller, nodes receive information at a faster rate and the node operators have fuller control over the network due to interconnectivity in these systems because its participants have already been identified.
Public networks operate on a larger scale and have an unlimited number of participants. Therefore, it may take longer for information to travel across all nodes. However, in practice, a core group of well connected nodes tends to form in public blockchains based on proof-of-work, due to its consensus mechanism which penalizes latency between block producers.
Permissioned networks almost have the same framework as a private network because they are small and every participant has already been identified. Therefore, data is transmitted over a shorter distance at a faster rate.
- Analytics
Blockchain analytics generate a graphical view of the transaction trends and patterns within the network. They can provide real-time alerts on high-risk activities, allowing compliance teams to focus on the most urgent cases. Enterprises can use this information to track what individuals are buying, what products are the most popular, and can use the data to come up with business insights and forecasts.
Account-based systems within public blockchains enable easy use of traditional graph analysis tools. However, one must be careful when determining internal transactions from peer-to-peer transactions so that all relationships (such as token buy and sell) between addresses will properly reflect on the graph. That said, that is outweighed by the fact that analysis on public blockchain transactions stand to be more insightful than permissioned or private blockchains, simply because the more transactions of all varieties are put on the public ledger, the more potentially useful information can be gleaned from it.
Businesses can likewise benefit from applications designed for private and permissioned ledgers. By combining the “on” and “off” ledger data stores, they can generate better analytics. They can also share the machine learning- or artificial intelligence-based outputs from their enterprise systems on the ledger for comprehensive and more conclusive analytics data.
It is important to note that analytics can be applied to any blockchain network. The only real difference is how easy it is to obtain the analytics on one chain vs. another. Private and permissioned blockchains have smaller networks which would be easier to analyze compared to a public blockchain with a larger number of players you have to identify and analyze..
- Regulations
Regulatory frameworks are still evolving, but for now, it seems unlikely that public blockchains will get a nod from enterprises due to privacy and other compliance issues. Private and permissioned blockchains have a better chance of complying with existing policies (and even with the latest standards and guidelines) since they offer more applications built in line with a businesses existing structure
Different Blockchains Address Different Requirements
Private blockchain, public blockchain, and permissioned blockchain have specific uses for different industries. Each type has its advantages and disadvantages, so when deciding which one to use, you must factor in the needs and requirements of your enterprise.
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