Public Vis-A-Vis Private Blockchain

Blockchain technology, that underpins bitcoin, started off as a decentralized public ledger that records bitcoin transactions. The past year witnessed growing interest in not just public blockchain but also private blockchain. What exactly do these terms mean?

BitFury defines public and private blockchain in a research paper:

A public blockchain is a blockchain, in which there are no restrictions on reading blockchain data (which still may be encrypted) and submitting transactions for inclusion into the blockchain; while a private blockchain is a blockchain, in which direct access to blockchain data and submitting transactions is limited to a predefined list of entities.

Ethereum founder Vitalik Buterin further explains the distinction in an article on CoinDesk.

Public Blockchain

Buterin says that public blockchains are secured by cryptoeconomics – the combination of economic incentives and cryptographic verification using mechanisms such as “proof of work” or “proof of stake”. It follows a general principle that the degree to which someone can influence the consensus process (determining what blocks get added to the chain and what the current state is) is proportional to the quantity of economic resources that they can apply. These blockchains are generally considered to be “fully decentralized”.

Private Blockchain

It is a blockchain where write permissions are kept centralized to one entity, while read permissions may be public or restricted to an arbitrary extent, Buterin explains. Possible applications include database management, auditing, etc, which are internal to a single company. Therefore, public readability may not be necessary in many cases at all, though in other cases public auditability may be required.

“This could be a concept with huge interest from FI’s and large companies. It could find use cases to build proprietary systems and reduce the costs, while at the same time increase their efficiency” – Lets Talk Payments

Consortium Blockchain

There is also a third kind – a partially decentralized blockchain – where the consensus process is controlled by a pre-selected set of nodes, latest example: R3 blockchain consortium.

LetsTalk Payments explains that a consortium blockchain is where the ability to read & write could be extended to a certain number of people/nodes. This system could be used by groups of organizations/institutions/firms, who work on developing different models by collaborating with each other. The result will be a blockchain with restricted access and the participants will be able to work on their solutions and maintain the intellectual property rights within the consortium.