Blockchain technology first appeared almost ten years ago as a way to provide and support Bitcoin. Despite the fact that this was its original purpose, this technology has developed numerous new cases of use and has touched almost all the major industries.
Blockchain promises a new way to exchange information, make transactions and preserve data. All this is done in a decentralized way, which means that no single governing body would have control over it. In this way, data is prevented from manipulation and tampering, while power over transactions and money is subtracted from financial institutions and delivered to the community.
What is Blockchain?
Simply put – blockchain is a digital record of transaction history. However, even this is not the best way to describe it, since it has numerous other features that differentiate it from a digital ledger in a traditional sense. It is managed and distributed on P2P networks that include numerous IT devices. Transaction data is transparent and available to all participants in the network. In addition, transactions are recorded on the blockchain at the time of validation through consensus mechanisms, which eliminate tampering and provide the truth.
We have already mentioned decentralization, but it is important to understand that this is one of the fundamental principles on which this technology is based. However, over time, many have begun to doubt that complete decentralization can ever be achieved. That is – without sacrifices in some areas, such as privacy, scalability, performance or security.
This is an important thing to note for all those looking to get closer to blockchain technology. It is also the place where the difference between public and private blockchains is. These two types of blockchain are categorized as unauthorized and authorized, and understanding the difference between them is important for understanding the different trade-offs that must be considered when developing a blockchain.
Public vs private blockchain
Both types of public and private blockchains are based on distributed ledger technology. However, the difference lies in five important aspects. They are permits, security, scalability, consent and performance.
As mentioned above, the public blockchain is without authorization. This means that anyone can participate and access it. There are no previously established criteria or necessary information that each participant must provide to join. In reality, participants do not even need to reveal their identity. Instead, they can use a pseudonym or even alphanumeric addresses. One thing to remember is that the transactions that are recorded on this version of blockchain are completely visible to everyone else.
However, while this may be acceptable to individual blockchain participants, it is not suitable for business entities. Large blockchain companies have many concerns, including things like security, regulations and the like. They need to know who is on the other side of the transaction, which is why their rules need to be much stricter. This is why they are using private blockchains, where only authorized participants can participate.
Shared data on this type of blockchain is often sensitive company information. However, even on the private blockchain, the degree of privacy can vary and participants must determine what level of privacy is actually needed. Of course, protecting business secrets is important, but practicality is also needed. In the end, it all comes down to what the company that uses the private blockchain wants to achieve. They can create a network that would connect them to numerous participants, or one that will link only some of them, in a small, close community.
Both types of blockchain must have their transactions verified, and this is done by consensus. However, there are several ways to achieve it. Public blockchains also have a large number of different consent mechanisms available. However, most of them choose a structure that rewards those who contribute more to the network.
Proof-of-Work, or PoW, is one of the best known mechanisms, thanks to Bitcoin and many of its altcoins. This type of mechanism allows miners to solve cryptographic problems to verify transactions. For their trouble, they receive a certain amount of cryptocurrency as a reward.
The problem with PoW is that it takes a lot of time and large amounts of resources like computing power and electricity. Moreover, since it is a slow process, it also translates into a slow transaction speed. For this reason many other mechanisms have also appeared that deal with these problems differently.
Private blockchains manage this in a different way, through a process known as selective approval. Basically, as the participants are already allowed to join the network, they are considered reliable. For this reason, they have the possibility to validate their transactions. This accelerates the process immensely and the whole operation is much more practical.
When it comes to the security of the public blockchain, its quality depends on the transaction registration mechanism. After the transactions have been registered, they can not be changed or altered in any way. They can only be reversed by making a completely new transaction. However, the old transaction remains visible even then.
The blockchain is difficult to hack due to its design. Each transaction is part of a group and each group represents a single block. Furthermore, each block is a part of the chain that constitutes the blockchain. Obviously, the whole chain is much harder to break. However, it is still vulnerable to 51% attacks, which are situations in which a wicked majority of the network gains control over the transaction approval process.
While private chains also use a similar way to group block transactions, their blockchain is protected with additional measures. These include things like horizontal protection, data encryption and attack prevention only allowing privileged users.
When it comes to performance, the private blockchain tends to have much better results than the public one. The public blockchain, as we have already established, takes a long time to confirm transactions, which affects performance. Until a group of transactions is validated, all other groups must wait their turn.
The performance of the public blockchain depends on the design of the network and the infrastructure of its system. Their method of transaction validation does not require much power, which allows for greater transaction volume and greater speed.
The final aspect that makes the difference between the two is scalability. Scalability is often closely linked to the performance itself. Basically, since anyone can join the public blockchain, it can be difficult to maintain. The more users there are – the more transactions there are. Furthermore, with an increase in the number of transactions, more time is needed for their validation.
Private blockchains usually start small, but soon grow as the managing company adds more partners. Since predicting the number of participants can be difficult, it's a good idea that the blockchain has a modular architecture. In addition, it must have resizing capabilities that allow it to grow and remain practical, in addition to a decent capacity.
In the end, the type of blockchain depends on the sector in which it is used, as well as the commercial goal of its creator. Creating a blockchain that works correctly often comes down to getting the right mix of aspects previously described. It is also important to remember that this is still a new technology and that it will probably change and grow over time. Many of his problems have yet to be resolved, but the developers believe they will eventually solve everything that needs to be corrected.