Blockchain
Public, private and permissioned blockchains compared
Public, private and authorized: an overview
Public blockchains allow access to anyone; private blockchains are available to selected or authorized users; Permissioned blockchains have different levels of permissions or user roles.
Many cryptocurrencies are built on open-source public blockchains. Others are permissioned as they can be used by anyone, but roles are assigned and only specific users can make changes.
Private and permissioned blockchains are generally used by organizations or businesses with specific needs.
Key points
- In a public blockchain, anyone can join and participate in the core activities of the network.
- A private blockchain allows only selected and verified participants; the operator has the right to overwrite, modify or delete entries on the blockchain.
- Permissioned blockchains assign specific roles or permissions to various users on the network.
Public blockchain
An audience blockchain it is one where anyone is free to join and participate in the core activities of the blockchain network. Anyone can read, write, or control ongoing activity on a public blockchain network, which helps achieve the self-governing, decentralized nature often touted when talking about cryptocurrency blockchains.
Advantages
A public network operates under an incentive scheme that encourages new participants to join. Public blockchains offer a particularly valuable solution from the perspective of a truly decentralized, democratized, and authority-free operation.
Public blockchains are extraordinarily valuable because they can serve as the backbone for almost anyone decentralized solution. Additionally, the vast number of network participants who join a secure public blockchain keeps it safe from data breaches, hacking attempts, or other cybersecurity issues. The more participants, the more secure a blockchain is.
Public blockchains can be secured with automatic validation methods and cryptography that prevent individual entities from changing information in the chain (such as cryptocurrency blockchains), or can allow anyone to make changes.
Disadvantages
One concern with public blockchains is security. Some designers have solved this using a competitive, distributed block/reward validation/proposal system, while others have solved it using a collateralized system.
Other issues include the lack of complete privacy and anonymity. Public blockchains allow anyone to view transaction amounts and the addresses involved. If the owners of the address are revealed, the user loses their anonymity.
Public blockchains also attract participants who may not be honest in their intentions. Most public blockchains are designed for cryptocurrencies which, due to the nature of their value, are a prime target for hackers and thieves.
Private blockchain
Participants can join a private blockchain network only through an invitation where their identity or other requested information is authentic and verified. Validation is performed by the network operator(s) or by a clearly defined protocol implemented by the network via smart contracts or other automated approval methods.
Therefore, private blockchains control who is allowed to participate in the network. The owner or operator has the right to overwrite, modify or delete necessary entries on the blockchain as required or as he sees fit or make programming changes.
Advantages
A private blockchain is not decentralized. It’s a distributed ledger which works as a closed database protected by cryptographic concepts and the needs of the organization. Only those with permission can run a full node, make transactions, or validate/authenticate changes to the blockchain.
By reducing the focus on protecting user identities and promoting transparency, private blockchains prioritize efficiency and immutability, the state in which you cannot change.
These are important features in procurement, logistics, payroll, finance, accounting and many other business and commercial areas.
Disadvantages
Although designed specifically for enterprise applications, private blockchains lose many of the valuable attributes of permissionless systems simply because they are not widely applicable. Instead, they are built to perform specific tasks and functions.
In this regard, private blockchains are susceptible to data breaches and other security threats. This is because there are generally a limited number of validators used to reach consensus on transactions and data if a consensus mechanism exists. In a private blockchain there may not be a need for consensus but only for the immutability of the data entered.
Blockchain permissioned
Permissioned blockchains generally have similar features to public and private blockchains, with many customization options.
Advantages
The benefits of permissioned blockchain include the ability to allow anyone to join the permissioned network after a proper identity verification process. Some grant special, designated permissions to perform only specific tasks on a network. This allows participants to perform particular functions such as reading, accessing or entering information on the blockchain.
Permissioned blockchains enable many functions, but the most interesting one for businesses is Blockchain as a Service (BaaS)—a blockchain designed to be scalable for the needs of many businesses or businesses that vendors rent to other businesses.
Blockchain-as-a-Service reduces costs for many companies that can benefit from using blockchain technology in their business processes.
For example, let’s say a company wants to improve the transparency and accuracy of its accounting processes and financial reporting. It could rent blockchain accounting services from a BaaS provider. Blockchain would provide an interface where entries are made by end users and then automate the rest of the accounting processes using encryption, verification and consensus techniques.
This way there would be fewer errors and there would be no way for someone to alter the financial data after entering it. As a result, financial reports for management and executives become more accurate, and blockchain is accessible to view and generate real-time financial reports.
The company could also choose to have blockchain and supporting systems automate invoicing, payments, accounting and tax reporting.
Disadvantages
The disadvantages of permissioned blockchains mirror those of public and private blockchains, depending on how they are configured. One major drawback is that because permissioned blockchains require internet connections, they are vulnerable to hackers. By design, some may use immutability techniques such as cryptographic security measures and validation via consensus mechanisms.
While most blockchains are believed to be unhackable, they do have weaknesses without proper precautions. Cryptocurrency theft occurs when applications and supporting programs on a blockchain network are hacked and private keys are stolen. Even permissioned blockchains suffer from this weakness because the networks and applications that connect to blockchain services depend on security measures that can be bypassed.
What are private blockchains?
Private blockchains are distributed ledgers available only to those who have been given express permission to have specific levels of access or abilities on a blockchain.
Are there authorized Blockchains?
Many businesses have found utility and value in permissioned blockchains. For example, Walmart uses a customized version of Hyperledger Fabric, created as an open source project by IBM and the Linux Foundation for enterprise use, to trace food origins much faster than it could previously.
What is the Difference Between Permissioned and Private Blockchain?
A private blockchain is one where only specific users have access and capabilities and is generally only used by the entity to which it belongs. A permissioned blockchain is one in which multiple users are granted permissions and capabilities.
The bottom line
Public blockchains allow anyone to participate. Permissioned blockchains create different roles and have known users. Private blockchains are used by entities that need a secure ledger, allowing access only to those who need it.
The comments, opinions and analyzes expressed on Investopedia are for online information purposes. Read ours warranty and exclusion of liability for more information.