Comparing Public vs Private vs Permissioned Blockchain Types

Blockchain technology, typically associated with cryptocurrencies such as Bitcoin, has grown extensively from its initial use case. It’s positioned to disrupt industries like finance, healthcare, supply chain management, and more. Recognizing the fundamentals of blockchain becomes imperative for tech professionals. This is in addition to business leaders and policymakers, because it has the potential to change our traditional approach to business models and form a new basis for economic and social systems.

Blockchain can be broadly categorized into public, private, and hybrid blockchains. Each type has its own unique features, value proposition, and use case. 

Why Blockchain Types Matter 

Each blockchain type in cryptocurrency stems from a wide variety of implications and applications. Broadly speaking, blockchain technology can be categorised into three types, with each serving different operational needs and offering different levels of control, security, and transparency.

Loosely speaking, Bitcoin and Ethereum are public blockchain networks that allow users to join and make transactions on the network, whereas private blockchains restrict this access and allow only a specific group of users to use the network. 

Deep Dive into Blockchain Types 

Public Blockchains: The Open Network 

Public blockchain is a blockchain type where every user can join without restrictions. These are completely open, following the concept of decentralisation. Public blockchain uses a consensus mechanism like Proof-of-Work (PoW) and Proof-of-Stake (PoS) to make sure transactions are added to the blockchain as democratically as possible. 

The public blockchain’s openness enables a high level of trustworthiness and security because transactions are open to everyone for auditing. However, this might lead to high energy consumption and slow transaction speed, as witnessed in the PoW system used by  Bitcoin. 

Pros: 

• Trustless Environment – Public blockchain uses algorithms that can detect fraud. Users can use the network without worrying about other nodes. 
• Security – Public blockchain is huge, open to the public. In such a large volume, the distribution of records tends to be greater, thereby ensuring added security. 
• Anonymity – Public blockchains are secure and anonymous, as users do not need to reveal their name or identity in order to participate in the network.

Cons: 

• Energy Consumption – Bitcoin’s Proof-of-Work consensus mechanism is highly energy-consuming. 
• Slower Transactions – The transaction process is slow due to large sizes. Every node requires verification, which is a time-consuming process. 
• Regulatory Uncertainty – There is no central authority, and hence, the lack of government interference leads to issues related to the smooth implementation of the technology.

Private Blockchains: Controlled Access 

Private or permissioned blockchains have limited access to only specific groups of users. Hence, private blockchains require validation by a network starter or a set of rules put forward by the network administrator. This blockchain type offers benefits like security, immutability, and transparency, but with higher scalability and speed because of a limited number of participating nodes. They are perfect for applications, having complete control over data and high throughput, and privacy without exposing them to the public. 

Pros: 

• Speed – The transaction speed is high due to a limited number of participating nodes, the verification of which is less time-consuming. 
• Well-Balanced – Since only a few users get access to transactions, the overall performance of the network becomes more balanced. 
• Privacy – There is an increased degree of privacy for confidentiality purposes. 
• Scalability – Private blockchain networks can alter scalability as the network size can be determined manually. 

Cons:

• Centralised – Due to centralisation, trust building can be a hindrance that organisations can use for malpractices. 
• Security – There are chances of manipulation due to a limited number of nodes, making blockchains more vulnerable.

Permissioned Blockchains: Hybrid Flexibility

Hybrid blockchains are a unique combination of both private and public blockchains, and are designed to use the best functions of the two mentioned types.  

The dual structure of the hybrid blockchains allows organisations to use private permissioned nodes to handle internal data storage and transactions while also linking with public blockchains that require more transparency and verification. The hybrid blockchain type provides higher levels of privacy and security while still ensuring immutability and trust of the public blockchains.

Pros: 

• Hybrid Nature – The advantageous point about hybrid blockchain is that it performs better than public and can never be hacked, as 51% of the users do not get access to the network. 
• Architecture – Although highly customisable, a hybrid blockchain can still maintain security, transparency, and integrity. 
• Cost-Effective – Transactions made on a hybrid blockchain are cheap since only a few nodes are required to verify your transaction. This reduces computational cost. 

Cons:

• Ecosystem – The closed ecosystem of the hybrid blockchain lacks incentives for any network participation. 
• Decentralisation – The hybrid nature of this blockchain type may lead to a lack of full decentralisation. 
• Efficiency – Not every user can implement a hybrid blockchain, so organisations may face difficulties regarding maintenance and efficiency.

Comparing All Blockchain Types 

Choosing the Right Model: Use Cases & Adoption Trends 

Public: Public blockchains are most commonly used in crypto exchanges, DeFi, and public ledgers. They are also used to build fixed records with auditable chains of custody, like public records of property ownership, digital assets, and electronic notation of affidavits. One of the best examples of public blockchain is the NFTs, or non-fungible tokens.

Private: Private blockchain allows faster transactions, ideal for industries like corporate healthcare and supply chain networks, where blockchain needs to be cryptographically secure without allowing any access to private data by the public. Other important use cases of private blockchain involve internal voting and asset ownership. 

Permissioned: Highly regulated financial markets, like financial services, can benefit from using a hybrid blockchain. Real estate organisations can also use this blockchain type to run financial systems privately, where certain information is shown, such as the listings. Hybrid blockchains also potentially improve healthcare practices, such as improving management of medical records, safeguarding data, and monitoring outbreaks through digital tracking. 

No One-Size-Fits-All 

Each blockchain type has applications that improve trust, security, and transparency to build better transaction records. It is important to understand the differences between the blockchain types to determine which type fits specific use cases and applications. Essentially, it involves balancing trade-offs among accessibility, security, and control, and choosing the right balance depending on the project. 

As traditional finance and blockchain converge, networks that prioritise interoperability will be best placed to thrive in the future’s digital asset economy. Organisations that focus on integrating a balanced system will build the future of finance and unlock new opportunities across sectors.

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