Blockchain for Beginners: Public Blockchains and Private Blockchains

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There is an important distinction in blockchain technology: there are both public and private blockchains. The public blockchains include the Bitcoin blockchain. It is accessible to everyone, everyone has access to it and can check what other network participants enter there.

The private blockchains are something for companies. Access permissions allow them to determine who has access and who doesn’t. There are then again central decision-makers who can decide on the admission of members. Because this calls into question the crucial aspect of decentralization in blockchains, private blockchains are sometimes a controversial topic.

What types of blockchains are there?

There are public and private blockchains.

What is the difference between public and private blockchains?

The name suggests it: public blockchains are in principle accessible to everyone, with private blockchains there are access authorizations.

For whom are private blockchains suitable?

Private blockchains are well suited for businesses. You can use it to manage internal processes, for example.

What are public blockchains good for?

The best example of a public blockchain is the Bitcoin blockchain. It forms a decentralized money system in which the participants can get in direct contact without having to rely on a central institution.

Public (Non-Permissioned) Blockchains

public blockchain is best compared to the Internet itself. This is an open network. This means that anyone can participate in the network and does not need authorization to do so. On the Internet, this means that anyone can create their own website. Other people can visit this website and see the content. All you need is the domain- the software (the browser) does the rest.  

Example of a public blockchain

An example of a public blockchain is the Bitcoin blockchain. Just like on the Internet, anyone can participate here. To be a member of the network, all you need is the right software (the  wallet ) and an internet connection.

There is no authority that can censor participation, either on the Internet itself or on public blockchains. As a result, the barrier to entry is very low. Virtually anyone can become part of the system. Due to the lack of licenses for participation, such public blockchains are also called non-permissioned (access-free) blockchains.   

This publicity attracts many different actors – honest and fraudulent. However, this is no secret for public networks. All participants are aware of the risk and safety standards evolve over time. These grow with the network and quickly adapt to the changing environment.

Private (Permissioned) Blockchains

With the private blockchain , only those who have permission may participate in the network. How or when such permission is granted depends on the particular network itself. The owner can be an individual, a group or a consortium.  

The private blockchain

Participation in a  private  (or: permissioned)  blockchain  requires special permission from the owner.  

A company may want to use a blockchain to work trustfully with business partners, but does not need a public blockchain for this. The blockchain between business partners does not necessarily have to have the same properties as a public blockchain. The participants in the private blockchain could, for example, know each other. Private blockchains are about unifying cross-industry standards and the ability to assign responsibility.  

Blockchain properties: Transparent and opaque blockchains

Bitcoin is a public blockchain as anyone can participate. One also speaks of a decentralized network. The Bitcoin blockchain transparently stores all transactions that have ever taken place on the network.

This means that one can observe from the outside when and how much is sent between the participants. Bitcoin is money, but other types of content can also be sent. This property is called  transparency .  

Blockchain Transparency

A blockchain is  transparent when the information stored is visible to everyone. 

The blockchain stores the flows of money in immutable form forever. The Bitcoin blockchain is therefore not anonymous, as is often postulated, but on the contrary transparent and clearly interpretable. Privacy is only protected by pseudonymity, i.e. by the fact that addresses do not directly reveal the identity of the owner.

On the other hand, there are also public blockchains that are not transparent. This means that everyone can still participate. However, a third party cannot gain insights into the cash flows of the network by analyzing the blockchain. Such a blockchain is  opaque . In other words: It is not possible to see which address sent which other address how much money. An observer sees only incoherent information when looking at opaque blockchain. He cannot interpret this.  

How do you know that the transactions are still all valid? The computer code of such public, opaque blockchains is open source. Developers can guarantee that all transactions follow the rules, even if it is not clear who is sending whom how much money.  

Opaque blockchains

A blockchain is  opaque if an observer cannot draw any conclusions about what is happening in the system.

Private blockchains can be transparent or opaque. The fundamental difference to public blockchains is that the participants are selected. Private operators of such a blockchain could, for example, demand a verification procedure. This would allow them to document who owns which address. You can then act accordingly if you break the rules.

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