Not all blockchains are created equal, contrary to what you may think. As it turns out, there are two different kinds of blockchain networks which currently exist: private and public. Although it may not seem like a big deal, understanding the differences between the two will ultimately help your understanding of how blockchain networks function as a whole. Having the ability to further analyze and assess which blockchain networks would be best to use in specific situations will increase your overall understanding of how crypto and blockchain are related. So let’s go over what public and private blockchains are and which would be better to use in certain situations.

This article is not intended as financial investment advice.

This article will discuss the key differences between public and private blockchain networks.

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Terminology

Blockchain: The easiest way to understand blockchain is to think of it as a fully transparent and continuously updated record of the exchange of information through a network of personal computers, a system which nobody fully owns. This makes it decentralized and extremely difficult for anyone to single-handedly hack or corrupt the system, pretty much guaranteeing full validity and trust in each exchange of information.

Mining: Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the blockchain, and also the means through which new bitcoin are released.

Consensus Algorithm: A consensus algorithm is a process in computer science used to achieve agreement on a single data value among distributed systems. Consensus algorithms are designed to achieve reliability in a network involving multiple nodes. Solving the issue — known as the consensus problem — is important in distributed computing and multi-agent systems.

Hash Function: A hash function takes a group of characters (called a key) and maps it to a value of a certain length (called a hash value or hash). The hash value is representative of the original string of characters, but is normally smaller than the original.

Node: A node is a device on a blockchain network, that is in essence the foundation of the technology, allowing it to function and survive. Nodes are distributed across a widespread network and carry out a variety of tasks.

Familiarize yourself with these terms in order to get a better understanding of the difference between public and private blockchains.

Public Blockchain

The first type of blockchain is a public blockchain, which allows anyone to participate in its ledger and execute consensus algorithms. A public blockchain network is completely open and anyone can join and participate in the network. The network usually has incentives to encourage more participants to join. Bitcoin is one of the largest public blockchain networks in production today.

One of the biggest drawbacks of a public blockchain is the significant amount of computational power that’s necessary to maintain a distributed ledger at such a large scale. More specifically, to achieve consensus, each node in a network must solve a complex, resource-intensive cryptographic problem called a hash algorithm to ensure they’re all in sync.

Another disadvantage is the openness of a public blockchain, which implies little to no privacy for transactions and only supports a weak notion of security. Both of these are important considerations for enterprise use cases of blockchain.

Public blockchains are open for anyone to participate in, execute consensus protocols, and maintain the ledger. A major drawback of this is that it requires more energy and ties into blockchain energy consumption issue.

Private Blockchain

The other type of blockchain that exists is the private blockchain. As opposed to public blockchains, private blockchains are not open for anyone to access and participate in. A private blockchain network requires an invitation and must be validated by either the network starter or by a set of rules put in place by the network starter. Businesses who set up a private blockchain will generally set up a permissioned network.

This places restrictions on who is allowed to participate in the network and only in certain transactions. Participants need to obtain an invitation or permission to join. Resultantly, the access control mechanisms can vary. You can have existing participants decide future entrants or establish a regulatory authority that issues licenses for participation. Once an entity has joined the network, it will play a role in maintaining the blockchain in a decentralized manner.

You can learn how to join some of the top private blockchain networks by searching online and applying to join them. Requirements to access the platform varies from network to network but usually requires some form of previous relationship with someone in the network. Otherwise, both private and public blockchain networks function in the exact same way, with the sole difference being who gets to participate and access the network.

Private blockchains, unlike public blockchains, require an access code or some sort of requirement to participate in the network. The sole difference between public and private blockchains is who gets access to participate. ‘

Pros & Cons

Although both public and private blockchains essentially function in the same way, there are definitely some pros and cons associated with each of them that everyone should be aware of. When it comes to private blockchains, whoever is overseeing the entire network has the ability to quickly and directly modify or even revert any transactions as they please. Public blockchains, on the other hand, are open to everyone which means that they would have to give access to some central authority to further oversee the entire network, basically making it a private blockchain at that point.

Another advantage of using a private blockchain is that there is no chance of miner collusion since each validator is known and had the correct credentials to be a part of the network. In the case of a public blockchain, nobody really knows who each validator is which increases the risk of potential collusion or even the 51% attack. Additionally, since private blockchains are almost always smaller than public blockchains, they take up a lot less energy and power consumption doesn’t usually become an issue. The same cannot be said about public blockchain networks which usually have thousands of computers to go through before being verified, thus using up a ton of energy compared to private blockchains.

Public blockchains, on the other hand, also have some advantages which make them — at times — a better option than private blockchains. For example, because public blockchains are open for everyone, it’s more likely that the platform will be used by more people who have an incentive to join. This will increase awareness and popularity for the platform much faster than it would for a private blockchain network that’s limited to the small but tight-knit group of developers.

Private blockchains are more secure, safe, and use less energy. Public blockchains are more accessible, open, and increase awareness for the platform much faster.

Conclusion

So as it turns out, blockchains aren’t all the same. It may not seem that important to understand, but being aware of what makes a public blockchain different or more advantageous is key to taking your understanding to the next level. It’s one thing to know what blockchain is and how it applies to cryptocurrency, but if you can further explain and analyze which types of blockchain networks are more appropriate for a specific situation, then you’ll be in good hands. As time progresses, we can expect to witness more innovations being made in the blockchain space that can potentially alter the way we perceive each type of blockchain to be. As always, happy investing!