What Are Private Blockchains and What Purposes Do They Serve?

These days, the market is filled with both public and private blockchains, yet due to their similarities, many people tend to confuse the two. In this article, we will attempt to eliminate the confusion surrounding private blockchains and their purposes.

 The Similarities

Both public and private blockchain networks are decentralized and distributed P2P ledgers that safely record and store information through transactions. Additionally, both provide immutability guarantees and are kept in sync via consensus protocols.

The Differences

The main dissimilarity between the two relates to who can participate in the network, make transactions, maintain the ledger and see the records. Public blockchain networks are open to anyone and even have mechanisms meant to encourage more people to join the network, similar to bitcoin and other digital currencies. On the other hand, private blockchains offer limited access to authorized members only.

When it comes to using the blockchain network for business purposes, the openness associated with public networks is detrimental to the privacy of the companies involved. Not only this, but public blockchains also require huge amounts of computing power to maintain.

Most private blockchain networks are permissioned and have varying sets of rules. Consequently, the network restricts who can participate and who cannot, with access only provided via invitation. Once a new party joins a private/permissioned blockchain, it will instantly start playing a role in maintaining the network and its decentralized status, according to the initial rules put in place by the network’s developers.

The Use Cases

Currently, there are numerous use cases for private blockchains. For instance, businesses have the opportunity to base their operations on a transparent and trustless foundation which can actively keep transactions in sync and allow for better management operations. Additionally, they have the potential to improve security, increase efficiency and reduce fraud. Through the use of smart contracts, the enterprise potential of private networks grows further.

Apart from these use cases, private blockchains are also a great tool for companies researching the technology and developing blockchain-based applications. There’s no purpose in launching a public blockchain network if a company is still testing its services.