Blockchain is the technology that underpins Bitcoin and Ethereum. It’s the technology that brings the idea of decentralization to the fore. Seen by many experts as means to remove intermediaries from transactions, it’s believed to reshape entirely the way the finance sector operates.
However, it isn’t restricted to enhancing the finance system (Banking). Blockchain can be of immense value for large corporations as well as SMEs. Though, in a bit different way.
In fact, corporate giants like Microsoft and JP Morgan already have invested their multi-million dollar hats into the private blockchain development.
Today, we’ll be discussing private blockchains and, when properly executed, how they can elevate business operations and prove to be cost-effective for companies in various sectors.
Currently, existing blockchains fall into the following three categories:
These networks’ key distinctions depend on mainly two factors; who is governing them and how.
A public blockchain refers to a blockchain that anyone can read, send transactions, and expect to see them included after the verification. In a public blockchain, anyone can participate in the consensus process- it’s the process that determines what blocks should be added to the chain.
Cryptoeconomics is the technology that makes Public blockchains secure. Cryptoeconomics is the combination of cryptographic verification and economic incentives that uses the mechanisms such as Proof-of-Stake (PoS) (Ethereum) and Proof-of-Work (PoW) (Bitcoin). Public blockchain can be considered as “fully decentralized.”
One problem with these type of blockchain is that they require a substantial amount of power to manage a distributed ledger at a large scale.
In a consortium blockchain, a pre-selected group – for instance, a group of corporations- controls the consensus process. The permission to access the blockchain and submit transactions to it may depend on; whether its public or restricted to participants. Known as the “permissioned blockchains, “Consortium blockchains are most suitable for use in business.
Controlled by a single entity, group or organization, Private blockchains determine who can submit transactions, read it, and take part in the consensus process. As they are 100% centralized, private blockchains can be used as sandbox environments. However, should not be used for actual production.
Private blockchains have no single point of failure as they’re distributed databases. The node of a private blockchain doesn’t depend on a single central machine running it. Thus, there are fairly negligible chances of a system shut down due to some unforeseen error.
As mentioned earlier, there’s no way to impose restrictions on who can transact on public blockchains because of their explicit design that lets everyone in. Moreover, numerous nodes at distinct places that are all far apart, substantially hamper the network’s agility. While private blockchains consist of a limited number of participants. Therefore, their capacity is much greater when compared to public networks.
They are extremely secure as the miners or validators can’t be anonymous on private blockchains. An organization(s) pre-selects the participants and, thus, are highly trusted. Then, the chances of someone acting maliciously on a company’s network are very less. Also, hack or virus attack is out of the question, which public blockchains fear the most.
It’s not possible that you haven’t heard that Bitcoin was being used for criminal purposes. It was used by crooks to launder money, buying guns and all of that was possible because of no regulations. Well, this isn’t the case with private blockchains. They can be developed along with being compliant with AML (Anti-Money Laundering), KYC (Know Your Customer) and HIPPA (Health Insurance Portability and Accountability Act) laws.