Knowing the Differences Between Public, Private & Permissioned Blockchains

A lot has happened since Bitcoin white paper author Satoshi Nakamoto officially launched Bitcoin in 2009. Bitcoin is the first-ever functioning implementation of blockchain technology, and all cryptocurrencies are built on it. 

As trading cryptocurrencies lose its novelty and popularity due to extreme price volatility and the exposé of numerous scams, the focus is shifting toward blockchain technology and what it can do for enterprises. 

Businesses across industries that demand better and more advanced procedures and systems are now using blockchain. Specific varieties of blockchain networks have surfaced in order to address this demand: public, private, and permissioned blockchains. 

It is critical to know which type of blockchain technology will function properly for a particular business or institution. Hence, it is important to learn about the differences between these three kinds of blockchain in terms of users, networks, and operational efficiency.

1. Public Blockchains;

With a public blockchain, anyone is free to join and take part in its day-to-day operations because the network does not enforce membership restrictions. As it is decentralized, nobody is able to change the protocols, and data recorded on the blockchain are not under the control of a single individual or entity.

Public blockchain providers are mostly “pseudo-anonymous,” but that does not mean that they can easily revise recorded data because their real-world identities will not be revealed. Once an entry has been validated, data can only be altered when a partisan hack holds more than 51% of the network. 

But even if a 51% attack occurs, the alteration is recorded immutably and it can be viewed by anyone, and hence, more easily detectable on a public blockchain. Because anyone can access the blockchain records and check on what is going on, public blockchains provide the transparency that businesses are in need. 

By design, public blockchains do not have their own identity management tools, which are used for protecting private keys and other personal information. Users self-register and are responsible for safeguarding their private keys. Third-party identity management systems, however, can still be used on public blockchains.

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2. Private Blockchains;

A private blockchain is a kind where the network is governed by one company or individual, only allowing certain verified participants in, while the operator can change, delete, or override entries as needed. In other words, it is a centralized network.

To participate in this kind of blockchain, users must first be verified before being added to the network and must be granted access to the blockchain in order to perform any of the aforementioned actions. For security purposes, only approved users are allowed to join a private blockchain.

The operator of a private blockchain owns all user data; however, data remain private and cannot be accessed by people outside the network. Typically, the network operator or administrator imposes a set of rules and protocols that cannot be changed. Users must adhere to these rules for their transactions to be granted validation. 

Unlike public blockchains, private ones have built-in identity management tools. But users are usually still given the option to use third-party identity management solutions they prefer.

3. Permissioned Blockchains;

Permissioned blockchains are a combination of private and public blockchains. The system keeps track of who has logged in and what they have done, ensuring that only authorized users can carry out any given set of operations. Anyone can join the network after their identity is verified and they are given specific permissions, but users are limited in what they can do on the network.

Generally, data is made public, and the central permission organization retains control over giving permissions to new participants in the network. Participants must first be verified and approved before they can join the network. However, the central permission entity does not have direct authority over the data itself. This is done to preserve the integrity of data.

Identity management is a feature of permissioned blockchains that lets users store their personal and business information on their devices and choose which information to share with validators. In this setup, the participant might use a password manager app, a digital bank vault, or an authentication protocol to keep private information safe.

Permissioned networks are small and everyone in them has already been identified, so they are almost the same as private networks. Because of this, data is sent at a faster rate over a shorter distance. But this does not discount the transaction speed of public blockchains as block producers are penalized for latency under the proof-of-work consensus mechanism. 

Whether one is an individual, a startup, or a global enterprise, it is crucial for one to know the different features of these three types of blockchains in order to choose the most appropriate one for their needs. 

For instance, a public blockchain is more suited for an established business that relies heavily on data analytics to better address the needs of clients and provides products that are more suited to their customer demographics. 

This is because it has a much larger user base that allows for a great variety of transactions, which in turn provides for more insightful data analytics. On the other hand, it would be easier to analyze data on private and permissioned blockchains because of their relatively small user base. 

Each business that aims to build on blockchain, whether it be a startup or a global conglomerate, needs to do its due diligence in researching the different types of blockchain. This is crucial in ensuring that it is building on the right type of blockchain. This not only maximizes efficiency but also minimizes profit loss.  

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