On Public and Private Blockchains

The Great Blockchain Debate: Public vs Private Blockchains

The world of blockchain technology has been abuzz with the concept of "private blockchains" gaining popularity over the past year. While public blockchains have been the norm, private blockchains offer a more controlled environment, securing access permissions and restricting rights to modify or read the blockchain state to a select few. But what are the practical differences between these two styles, and which one is better suited for institutions?

The Three Categories of Blockchain-Like Database Applications

There are generally three categories of blockchain-like database applications:

Public Blockchains

A public blockchain is a blockchain that anyone in the world can read, anyone in the world can send transactions to and expect to see them included if they are valid, and anyone in the world can participate in the consensus process. Public blockchains are secured by cryptoeconomics, a combination of economic incentives and cryptographic verification using mechanisms such as proof of work or proof of stake. These blockchains are generally considered to be "fully decentralized."

Consortium Blockchains

A consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes. For example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which 10 must sign every block in order for the block to be valid. The right to read the blockchain may be public, or restricted to the participants, and there are also hybrid routes such as the root hashes of the blocks being public together with an API that allows members of the public to make a limited number of queries and get back cryptographic proofs of some parts of the blockchain state. These blockchains may be considered "partially decentralized."

Fully Private Blockchains

A fully private blockchain is a blockchain where write permissions are kept centralized to one organization. Read permissions may be public or restricted to an arbitrary extent. Likely applications include database management, auditing, etc internal to a single company, and so public readability may not be necessary in many cases at all, though in other cases public auditability is desired.

The Advantages of Private Blockchains

Compared to public blockchains, private blockchains have several advantages:

Easy modification: The consortium or company running a private blockchain can easily, if desired, change the rules of a blockchain, revert transactions, modify balances, etc.
No risk of 51% attack: The validators are known, so any risk of a 51% attack arising from some miner collusion in China does not apply.
Cheaper transactions: Transactions are cheaper, since they only need to be verified by a few nodes that can be trusted to have very high processing power, and do not need to be verified by ten thousand laptops.
Faster finality: Nodes can be trusted to be very well-connected, and faults can quickly be fixed by manual intervention, allowing the use of consensus algorithms which offer finality after much shorter block times.
INEvitable privacy: If read permissions are restricted, private blockchains can provide a greater level of, well, privacy.

The Advantages of Public Blockchains

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. The advantages of public blockchains generally fall into two major categories:

Protection from developers: Public blockchains provide a way to protect the users of an application from the developers, establishing that there are certain things that even the developers of an application have no authority to do.
Openness and network effects: Public blockchains are open, and therefore are likely to be used by very many entities and gain some network effects.

The Optimal Choice for Institutions

The solution that is optimal for a particular industry depends very heavily on what your exact industry is. In some cases, public is clearly better; in others, some degree of private control is simply necessary. As is often the case in the real world, it depends.

Conclusion

The debate between public and private blockchains is a complex one, with each side having its own advantages and disadvantages. While private blockchains offer a more controlled environment, public blockchains provide a way to protect the users of an application from the developers and are open, and therefore are likely to be used by very many entities and gain some network effects. The optimal choice for institutions depends on the specific industry and requirements.

Source: https://blog.ethereum.org/en/2015/08/07/on-public-and-private-blockchains