Over the past several years, blockchains have evolved in a variety of flavors depending upon their build and configuration. The content stored on the blocks of the blockchain and the activities performed by the various participants on the blockchain networks can be controlled depending upon how the blockchain is configured, and how it is expected to fulfill the desired business purpose. Broadly speaking, public and private blockchains are the two most common flavors used heavily among the various cryptocurrency networks and the private enterprises. A third category, permissioned blockchains, has also gained traction in recent times.
This article looks at the key differences between the public, private and permissioned blockchain networks.
If one desires to create an open blockchain similar to bitcoin, which enables anyone and everyone to join and contribute to the network, they can go for an open, public blockchain. A public blockchain network is completely open and anyone is free to join and participate in the core activities of the blockchain network. Anyone can join or leave, read, write and audit the ongoing activities on the public blockchain network, which helps a public blockchain maintain its self-governed nature.
The public network operates on an incentivizing scheme that encourages new participants to join and keep the network agile. Public blockchains offer particularly valuable solution from the point of view of a truly decentralized, democratized and authority-free operation.
Along with the ease of use and participation, the public network also comes with a few disadvantages. The primary ones include heavy power consumption that is necessary to maintain the distributed public ledger. Other issues include lack of complete privacy and anonymity leading to weaker security of the network and of the participant’s identity. Along with genuine contributors, at times the participants may also include the faulty ones who may be involved in malicious activities like hacking, token stealing and network clogging.
If one needs to run a private blockchain that allows only selected entry of verified participants, like those for a private business, one can opt for a private blockchain implementation. A participant can join such a private network only through an authentic and verified invitation, and a validation is necessary either by the network operator(s) or by a clearly defined set protocol implemented by the network.
The primary distinction between the public and private blockchains is that private blockchains control who is allowed to participate in the network, execute the consensus protocol that decides the mining rights and rewards, and maintain the shared ledger. The owner or operator has the rights to override, edit or delete the necessary entries on the blockchain as required.
In true sense, a private blockchain is not decentralized, and is a distributed ledger that operates as a closed, secure database based on cryptography concepts. Technically speaking, not everyone can run a full node on the private blockchain, make transactions, or validate/authenticate the blockchain changes. (See also: Public vs. Private Blockchains: Challenges and Gaps.)
The third category of blockchains is the permissioned blockchains, which allow a mixed bag between the public and private blockchains with lots of customization options. The available options include allowing anyone to join the permissioned network after suitable verification of their identity, and allocation of select and designated permissions to perform only certain activities on the network. For instance, ripple supports permission-based roles for participants. (See also: What's the Difference Between Bitcoin and Ripple?)
Such blockchains are built such that they grant special permissions to each participant for specific functions to be performed—like read, access and write information on the blockchains. Businesses and enterprises are increasingly opting for permissioned blockchain networks, as they can put in the necessary restrictions selectively while configuring the networks, and control the activities of the various participants in the desired roles.
For example, if a blockchain network is used for managing dealings in farm produce from its origin (the farm) to the end customer (the market), the process involves multiple entities where permissioned networks may offer the best fit. Say, a farmer cultivates a medicinal plant that he ships to multiple markets across the globe in distant regions. Since such transaction may involve multiple parties like a country’s customs department that clears the produce to enter their respective nation, shipping companies who move the produce and storage and warehouse operators who need to maintain the product within specified temperature range.
The farmer may finalize a particular price and quantity for selling his produce to a buyer in America and another price and quantity to another buyer in Europe. The other involved entities, like above mentioned customs department, shipping company and warehouse operator and may not necessarily need information about the agreed prices between the farmer and his various buyers. They may simply need access to limited information, like quality specifications and quantity, to perform their necessary function in supporting such deals. Permissioned blockchains allow such restricted implementation and limited permission to these various participants on such business blockchains.
The Bottom Line
While public blockchains have been the most popular ones serving the purpose for wider adoption by the masses for common cryptocurrency based networks like Bitcoin, private ones have found use in a business’ secure environment. The permissioned blockchain, which offer the middle path between the two with customization allows room for a wider industry adoption across multiple enterprises, is seeing increasing usage in the industry as it allows for enabling limited activities even by external vendors and providers.