Blockchain technology has a lot of value for many enterprise use cases, notably its built-in immutability, transparency, and distributed trust. Despite those clear benefits, however, adoption has been slow, partly because shared ledgers represent not just a new technology, but a fundamental shift in perspective. In order to enable adoption, enterprises must first become comfortable with fundamental changes in how they look at networks and use data.

It’s vitally important that more enterprises make such a transition as society moves towards data as the most valuable global commodity. The security and protection of, usage or analysis of, and monetization of that data are rapidly becoming the most important fundamentals of the world’s largest entities, be they corporations or governments. It can also be a liability, and DLT (Distributed Ledger Technology) can help greatly.

The need for a technological shift is evidenced by the myriad data leaks and thefts in recent years from traditional platforms, the growing importance of meta-analysis and big data, as well as by a growing public awareness that personal data is valuable yet provides no value to those generating it.

Pragmatic adoption must however show the benefits of these technologies in concrete ways before enterprises and governments will be able to overcome decade-old conceptions around data silos and central control. Thus the private blockchain has actually become one of the first cases of real blockchain adoption, despite the fact that private shared ledgers do not inherently make sense. They are a paradox in that they essentially seek to make information more secure and trustworthy based on the strength of a large system, while intentionally keeping that same system small.

In the case of applications on private networks (like IBM’s Hyperledger), a traditional centralized system will often provide a better, faster solution at lower cost. Despite this, private DLT solutions can be an important stepping stone for enterprises to eventually adopt DLT down the line.

Though they may not be as strong as public ledgers, as Colin Thompson of Intrepid Ventures succintly puts it: “At the end of the day, private blockchains provide higher levels of error checking and transaction validity than regular shared databases.” If error checking and validity are priorities (as they are for many use-cases where blockchain is applicable) then the sacrifice of speed is worth it, however if those are in fact the priorities then the greater strength of a public ledger in that area would make them the logical choice.

In order to clarify this, we must examine the core differences between public and private ledgers.

According to IBM (who notably is behind HyperLedger, the largest of the current private ledger solution providers), private and public blockchains share the following properties:

Both are decentralized peer-to-peer networks, where each participant maintains a replica of a shared append-only ledger of digitally signed transactions.

Both maintain the replicas in sync through a protocol referred to as consensus.

Both provide certain guarantees on the immutability of the ledger, even when some participants are faulty or malicious.

Furthermore, IBM states that “The sole distinction between public and private blockchain is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger.” The private nature of these systems is a double-edged sword. Controlling who can participate in the network means private ledgers, in general, don’t have to worry about speed or scalability, can change or update whenever they want, can be closed source, and can have custom network-wide properties. It also means that they are much smaller, and thus more prone to 51% attacks, or in general, attacks if malicious actors manage to enter the closed system.

One key area which is currently anathema for most large enterprises is the usage of open-source software. Permissionless distributed ledger technologies (DLTs) need to be open source in order to establish the trust which is so valuable. In the vast majority of applications that make sense for DLT, a public permissionless blockchain or other DLT is superior to a private or permissioned blockchain.

Permissionless or public shared ledgers, like Bitcoin or Dispatch, let anyone enter and become a part of the network. As such, the network’s strength is determined by its size and participation. Every person who joins a permissionless shared ledger technology makes that technology stronger, and thus they are innately stronger and more secure than private ledgers once they reach scale.

Additionally, as permissionless ledgers require approval of the majority of the network in order to make changes, they are (at least conceptually) less prone to major failures, as the number of voters involved in approving major decisions is much, much larger.

In less technical terms, a private ledger is like a local club with limited membership; a public ledger is more like a democratic country. The local club can act more quickly to make changes and run cheaper, but it probably doesn’t have the resources to ensure the protection of large assets, and is vulnerable to a takeover if a group of members decide they want to change the rules or vote in a new president with different values. The country is slower to act and change, but is governed by the will of the people, and has the pure scale and momentum to ensure protection and changes only as the result of the majority.

Private centralized systems are not inferior or deprecated by DLT or blockchain, they are just different types of solutions. Problems and enterprise needs come in many shapes and sizes. For the places where distributed systems do make sense, we have a different kind of problem, that of adoption, and that is where the private ledger comes into play.

Private ledgers allow experimentation and validation of new solutions and systems without changing the rules too much. Optimally, these private ledgers are built on spun-up local versions of public ledgers, so that when the public ledger is of sufficient stability and maturity the programs can transition to those more secure, distributed systems with minimal effort. As DLTs are open source, anyone can copy their code and create their own, locally controlled version of a public network, effectively creating a miniature private version of a public network.

Private instances of large public ledgers may become the testing ground for the first major adoption of DLTs, paving the way for large enterprises of any kind to see first-hand proof of the value of those systems. Enabling proof of value, without requiring fundamental shifts in methodology as a precursor presents one method to overcoming major adoption hurdles. Once that value is proven, justifying a transition to public ledgers should be possible, hopefully without requiring multiple major breaches of private ledger systems to incentivize the change.

So, yeah we are going to start you on a private ledger to prove it works and be comfortably within the rules, and if or when you are ready to go on a permissionless ledger it will be super easy and cheap.