Oftentimes, Blockchain technology is mistakenly touted as an multi-purpose cure-all solution to various complex problems. The issue with that creates a gross misunderstandings of the true capacities and limitations of the technology and the variances found within. Not everything needs blockchain technology to function. Just because Blockchain is the hype du jour doesn’t mean that it should be applied everywhere.
In this article, we break down the the key differences of public and private blockchains and explore some of their ideal uses and when blockchain technology should be avoided.
What is the difference between Public and Private Blockchains?
It’s important to note that there are subtle nuances between the various types of blockchains.
Vitalik Buterin acknowledges that there are many misconceptions between private blockchains, opting for the term “consortium chains” as a more accurate description of the blockchains currently in development. As such, Buterin offers the following three categories of blockchain-like database applications:
- Public blockchains
To put it simply a public blockchain is one that can be read by anyone in the world. Users can expect to see all transactions sent and included if they are valid. Anyone in the world can also participate in the consensus process. Buterin defines this as “the process for determining what blocks get added to the chain and also determines its state” These blockchains are secured by cryptoeconomics and are generally “fully decentralized”.
2. Consortium blockchains
The consensus process aforementioned is controlled by a pre-selected set of nodes where the right to read the blockchain may be public or restricted to participants. Often considered partially decentralized blockchains, consortium blockchains also allows for some hybridity. That is, allowing for public root hashes of the block combined with an API restricting queries, etc.
3. Fully private blockchains
In this type of blockchain, write permissions are centralized to one organization and may be public or restricted to an arbitrary extent. Generally used for database management and auditing, Buterin states that public readability may not be necessary.
Uses of Public Blockchains
The most ambitious use and example of a public blockchain is bitcoin and other virtual currencies. Anyone has the ability to use the cryptographic keys in bitcoin, be a node, join the network, and become a miner. Although public blockchains face some fundamental challenges such as limited scalability, limited privacy, and lack of formal contract validation, to name a few, it has managed to allow for innovation that will allow it to become mainstream in the future.
Eric Larchevêque, CEO of Ledger states that “public blockchains with censorship resistance have the potential to disrupt society, when private blockchains are merely a cost-efficiency tool for banking back offices.”
To add to this, Vitalik Buterin states that “Even in an institutional context, public blockchains still have a lot of value, and, in fact, this value lies to a substantial degree in the philosophical virtues that advocates of public blockchains have been promoting all along, among the chief of which are freedom, neutrality and openness.” Unrestricted Accessibility is the key advantage of a public blockchain.
Uses for Private/Consortium Blockchains
According to Blockchain Hub, private blockchains are valuable for solving efficiency, security, and fraud problems within traditional financial institutions. They also can provide interesting opportunities for businesses to leverage trustless and transparent foundations for internal an B2B use cases. Coupled with smart contracts, Dan Wasyluk of Syscoin believes that private blockchains have the potential to eventually replace many centralized business.
Private blockchains have the potential to also re-imagine Identity-use cases and can be applied from digital identities to passports and E-residencies. The implementation of smart contracts allow for the hybridity of consortium blockchains to shine.
Although most of the applications of the various types of blockchain technology is still underdeveloped, their potential is astounding and constantly evolving.
When not to use Blockchain
Does your business need to be decentralised? No? If your business idea doesn’t need to be protected from government, prying eyes, or an arbitrary gavel, Alistair Roche of Hacker Noon believes that blockchain doesn’t need to be involved. If the business requirements are already fulfilled by traditional centralised databases, there is no need to use blockchain technology.
Take a look at the flow chart below and see if blockchain is right for you:
Blockchains are currently ideal fits for little data, financial auditors, in instances where trust is an issue and where details matter a lot. If the business is involved in big data, doesn’t require financial auditors, and trust isn’t an issue, it doesn’t make business sense to adopt blockchain technology just because it’s the trendy thing to do.