Public vs. Private Blockchains: Bitcoin, Ethereum, Hyperledger
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What difference does it make?
You might be familiar with Bitcoin, Litecoin, or all the other cryptocurrencies. What about blockchain? Apart from knowing that it is the basis of all crypto, what other real-world use cases does blockchain technology bring? Or simply, what are the differences between a public and a private blockchain? Which is better?
Public vs private: Same but different?
In a nutshell, public and private blockchains are two very different things.
Most of us understand the rationale behind blockchain – a distributed, decentralized public ledger that stores lists of records in blocks that are interconnected to each other through cryptography, thus ensuring the confidentially of the transactions. They are time-stamped, immutable and not managed by any central authorities or computers.
This is called public blockchain.
For example, Bitcoin, Ethereum, and the soon-launching OKChain are public blockchains. It allows anyone to join the network, read, write, or participate within the blockchain, but no one has the authority to control the whole network. Data on a public blockchain are secure as it has been validated and impossible to modify on-chain.
Private blockchains, on the other hand, are controlled by one or more entities and restrict participants’ access to the network, only people involved in the transaction know the whole picture, such as the Hyperledger network.
The major difference between public and private blockchains is the level of access granted to participants. Public blockchains are permissionless and decentralized. Anyone can verify and add transaction data on-chain. It is completely open, with open-source computing codes that can be inspected, verified and downloaded by those who wish to become a full node or a miner. Private blockchains are more centralized in nature as they only allow certain people to participate in a closed network. In a private blockchain, every validator knows each other and is appointed to be a part of the network, and they have the ability to alter or modify transactions according to their needs. Thus, a private blockchain is more prone to a 51% attack as it is relatively easier for bad nodes to gain control over the network.
Another fundamental difference between public and private blockchain is scalability. Scalability has been one of the major concerns for crypto, especially for the “older” coins such as Bitcoin, which can only process 7 transactions per second (tps). Hyperledger is now capable of handling up to 20,000 tps, keeping its network fast and efficient for users. Public blockchains are generally slower as the number of authorized participants in greater. Hence these blockchains process transactions at a delayed pace, while transactions on private blockchains do not need to go through hundreds or thousands of nodes to verify the data. Therefore, these transactions can be supported and processed at a much faster rate.
Are public blockchains more secure?
Public blockchains were created to eliminate intermediaries and remove trust on the network by incentivizing participants. It is true that the greater the decentralization, the more secure a blockchain is. Perhaps the transparency of a public blockchain is what attracts a wider array of use cases than private blockchains. With more nodes in the network, it definitely makes it harder for hackers to attack the ecosystem or gain control through a 51% attack, but it is also extremely slow. Public blockchains like Bitcoin are no match for centralized payment processors that are on the market, such as Visa which is capable of handling 24,000 tps. It takes forever to reach a consensus on the state of a transaction on the Bitcoin blockchain, not to mention its scalability issue.
To process more transactions per second, limiting access to data or certain functions is indeed what private blockchains are trying to achieve. They can process transactions at a much higher rate compared to public blockchains, but is it worth sacrificing security over transaction speed? Private blockchains are generally much more vulnerable to hacks and data manipulation too.
It’s all about trust
Public blockchains like Bitcoin and Ethereum are designed to protect anonymity. That’s why cryptocurrencies are based on public blockchains. Yet in the corporate world, we see businesses adopt private blockchains at scale as they don’t want full transparency or the sharing all their business data to competitors. Private blockchains ensure they have control over who is able to write or read details of the information on the chain.
Concluding the debate on which blockchain is superior, the public blockchain seems to stand out as a better option for its ability to be applied in a majority of use cases with no restricted access. Yet the concern of privacy will likely continue to be an issue for both blockchains, along with developing seamless cross-chain technology to interact and exchange values.
The premise of decentralization might be to offer transparency, security, and cost-efficiency (the main goal of creating blockchain), but in the end, it really all depends on the objectives and goals of those adopting the technology.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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