If you are new to the blockchain industry, you may be confused with these three types of blockchain: private, public and hybrid. As this technology continues to gain prominence, it has given rise to different types of blockchains, each with its unique characteristics and use cases. As a business owner, do you want to know which one is suitable for you? You must read this post to learn everything you need to know to decide the most suitable blockchain system for you.
Private Blockchain Suitable for Small Businesses
First, let’s have a brief about private blockchains: these are designed for restricted access such as within an organization. You can use it within your specific groups. These blockchains provide a controlled environment where participants have predefined permissions to access and validate transactions. However, public blockchains are open to anyone.
Hybrid Model: What is That?
Now what about the hybrid model of blockchains? As the name suggests, they combine features of both private and public blockchains. You will get a flexible approach with hybrid blockchain. It maintains a certain level of control over the blockchain while also benefiting from the openness and transparency of public networks.
These are differences for beginners. I hope you have an understanding of the basics. If you are interested to learn more about each of these blockchain, then continue reading. I am sure that you will gain a comprehensive understanding of which approach aligns best with your specific goals.
So, let’s dive in and uncover the differences of private vs public vs hybrid blockchains.
5 Characteristics of Public Blockchain
Have you heard about Bitcoin and Ethereum? Of course! These are the two most popular examples of public blockchains. Most of them have some similar characteristics; some of the features are:
Decentralization: Power to the People
When we talk about public blockchains, one of the first things that comes to mind is their decentralized nature. Public blockchains are designed to operate in a distributed network where no single authority has full control.
Now you may ask where blockchain data is stored. The power is distributed among multiple participants, often referred to as nodes or miners, and every node has a copy of the same data in the server, but I am saying this in simple terms, but the system is not that simple!
Overall, it offers a decentralization that ensures that no central authority can manipulate the transactions recorded on the blockchain. It offers transparency, trust, and security.
Open Accessibility: Permissionless Participation
Private blockchains impose restrictions on participation. However, you can join easily on blockchain like public blockchains. It adds inclusivity to the decentralized ecosystem. Anyone with an internet connection and the required technical setup can become a node. Such nodes validate transactions, and even execute smart contracts. such open accessibility empowers individuals to engage with the public blockchain ecosystem.
Transparency: See It All
We want transparency in every aspect of our lives. The blockchain ecosystem is not different. Many experts prefer blockchain to its transparency, which is a fundamental characteristic of public blockchains. Every transaction that occurs on a public blockchain is visible to all participants in the network. Anyone can examine the transaction history, trace the flow of funds, and verify the authenticity of transactions. It boosts accountability and trust-building, particularly in scenarios where multiple parties need to verify the integrity of data or transactions. Here trust is established through the network’s consensus mechanism and the visibility of transactional information.
Security: The Power of Consensus
Indeed, public blockchains employ robust security mechanisms to ensure the integrity of the network. One such mechanism is the consensus algorithm, which dictates how transactions are validated and added to the blockchain. Two popular types of consensus algorithms are:
Proof of Work (PoW): Here participants need to solve complex mathematical puzzles.
Proof of Stake (PoS): Here you can stake their tokens to earn the right to validate transactions.
These algorithms make it economically infeasible for malicious actors to control the majority of the network’s computing power or stake. Moreover, the decentralized nature of public blockchains further enhances security. Do you know that compromising security on one few nodes does not compromise the entire network?
Immutable and Tamper-Resistant: Once Recorded, Forever Stored
The public blockchains are also known for their immutability. If you confirm a transaction and add it to the blockchain, it becomes virtually impossible to alter or tamper it.
The cryptographic nature of blockchains ensures that each transaction is linked to the previous one, forming a chain of blocks. Changing the data within a block would require altering subsequent blocks, which becomes increasingly expensive and practically infeasible.
5 Characteristics of Private Blockchain
Now when it comes to a private blockchain, you have more control and authority. You should consult with a blockchain developer and discuss the purpose of creating a blockchain system for your organization. The developers will create algorithms to solve all your purposes. Some of the common characteristics of private blockchains are:
Restricted Access: Exclusivity within Boundaries
When it comes to private blockchains, one of the key characteristics is restricted access. Unlike public blockchains, which are open to anyone, private blockchains operate within a defined network or organization. You can choose the participants of a private blockchain and select specific permissions to interact with the ‘private’ network.
As a result, you can easily maintain control over the blockchain and limit participation to trusted entities. In sectors where privacy is essential like finance or healthcare, private blockchains provide a secure environment for you.
Centralized Governance: A Single Authority
Unlike public blockchains that operate in a decentralized manner, private blockchains must have a centralized governance structure.
A single entity must have control over the network’s operations, including decision-making processes, consensus mechanisms, and access permissions. This centralization enables organizations to enforce compliance, set rules and streamline operations according to their specific requirements. It also means, as a participant if you are using a private blockchain, you must trust the governing authority.
Enhanced Privacy: Securing Sensitive Data
Privacy is a primary concern in many industries, especially when dealing with medical or financial information. Private blockchains address this concern by providing enhanced privacy features. Transactions and data recorded on private blockchains are encrypted and accessible only to authorized participants.
It ensures that sensitive business information, customer data, or trade secrets are not exposed to the public domain. If you want such a feature, you can choose private blockchain. Moreover, your information is not in control of big brands like Amazon, Facebook or Google.
Higher Scalability: Faster Transactions and Efficiency
Public blockchains often face scalability challenges due to their large number of participants and the decentralized nature of their consensus mechanisms. Private blockchains, on the other hand, tend to be more scalable. The number of participants is limited, private blockchains can handle a higher volume of transactions efficiently.
This scalability advantage makes private blockchains suitable for enterprise-level applications where high transaction throughput and fast confirmation times are crucial. Moreover, you can customize the features of a private blockchain to meet your specific needs.
Flexibility in Design: Tailoring the Blockchain Solution
Private blockchains offer flexibility in terms of design and customization. Organizations tailor the blockchain solution to align with their specific use cases, industry requirements, and internal processes. This flexibility extends to consensus mechanisms, data storage, smart contract execution, and access control. In this way, you can leverage blockchain technology in a way that best serves your unique business needs.
5 Characteristics of Hybrid Blockchain
Hybrid blockchain can be a great alternative for your organization, so it is important to understand the key features of such an ecosystem:
Combination of Public and Private Elements
Hybrid blockchains bring together the features of both public and private blockchains, creating a unique combination for your business. You can leverage the benefits of public blockchains, such as decentralization and transparency, while also adding unique features of private blockchains, such as restricted access and enhanced privacy etc.
Flexible Access Control: Tailoring Permissions
One of the defining characteristics of hybrid blockchains is their flexible access control. You can grant different levels of permissions (depending on their role and requirements) to your participants.
Some parts of the blockchain may be open to the public, while other parts may be restricted to authorized entities for privacy or compliance reasons.
This hybrid control over access permissions enables organizations to design a blockchain solution that meets their specific needs, ensuring that sensitive data is protected while still allowing for transparency where necessary.
Scalability Options: Finding the Right Balance
Scalability is a critical consideration in blockchain technology, and hybrid blockchains offer options to address this challenge. Organizations choose to keep certain aspects of the blockchain public to benefit from the scalability advantages that come with a distributed network. At the same time, they can keep other parts private, allowing for greater control and privacy. This flexibility in scalability options helps organizations to find the right balance between network efficiency and data confidentiality.
Interoperability: Bridging Different Networks
Another characteristic of hybrid blockchains is their ability to offer interoperability. They can serve as a bridge between different blockchain networks, facilitating seamless communication and data transfer.
For example, a hybrid blockchain can connect a private blockchain used internally by an organization with a public blockchain, enabling secure data exchange or the verification of transactions.
This interoperability unlocks new possibilities for collaboration, information sharing, and value transfer between diverse blockchain ecosystems.
Customizable Consensus Mechanisms: Finding the Right Fit
Hybrid blockchains offer customizable consensus mechanisms that suit the specific needs of the network. Different parts of the blockchain may have different consensus protocols depending on factors such as trust requirements, transaction volume, or desired levels of decentralization.
For example, a public portion of the hybrid blockchain may use a Proof of Work (PoW) consensus for security and decentralization, while a private portion may leverage a more efficient consensus algorithm like Proof of Stake (PoS) for scalability and energy efficiency. This adaptability in consensus mechanisms allows organizations to optimize performance and tailor the blockchain solution to their unique needs.
5 Use Cases of Public Blockchain in Businesses
After learning the features of different blockchains, it is important to understand the use cases of these types of blockchains. Here, I am starting with the use cases of public blockchain:
Cryptocurrency and Financial Transactions
Public blockchains, such as the Bitcoin blockchain, have revolutionized the world of finance with secure and transparent peer-to-peer transactions without the need for intermediaries. Cryptocurrencies like Bitcoin and Ethereum operate on public blockchains that allow users to send, receive, and store digital assets.
Supply Chain Management and Transparency
Public blockchains offer an ideal solution for enhancing transparency and traceability in supply chain management. By recording every step of a product’s journey on an immutable and publicly accessible ledger, stakeholders verify the origin, authenticity, and movement of goods. It reduces fraud and ensures ethical sourcing.
Voting and Governance Systems
Public blockchains can improve the transparency and integrity of voting and governance systems. Blockchain makes it possible to create tamper-proof and verifiable voting platforms. Public blockchains provide an open and transparent infrastructure that allows voters to independently verify the accuracy of election results. It ensures fair and trustworthy outcomes. However, it may have privacy risks too!
Decentralized Applications (DApps)
Public blockchains support the development of decentralized applications (DApps) that run on the blockchain. DApps offer various functionalities such as decentralized finance (DeFi), decentralized social media, gaming platforms, and more.
Public blockchains provide a transparent and secure infrastructure for these applications, enabling developers to create innovative solutions that are not controlled by a central authority.
5 Use Cases of Private Blockchains
A private blockchain is suitable for private companies that prefer data protection, privacy, and a certain level of authority. IBM launched Hyperledger Fabric framework which is an open-source enterprise-grade permissioned blockchain platform.
This Hyperledger Fabric offers controlled access, making it suitable for businesses requiring privacy and scalability. IBM has applied its private blockchain technology in various use cases, such as supply chain management, digital identity verification, and cross-border payments.
Some of the use cases are:
Enterprise Data Management and Sharing
Private blockchains are well-suited for enterprise data management and sharing. Many organizations leverage private blockchains to create a secure and transparent network for sharing sensitive data among trusted parties.
This technology allows for efficient collaboration, data synchronization, and real-time updates that enhance operational efficiency.
Supply Chain Confidentiality and Consortiums
Do you have an export business? Private blockchain can be a game changer for you. It offers a solution for secure supply chain management. With a private blockchain, you can form consortiums or networks with select participants that ensure sensitive information remains within trusted boundaries.
For example, the retail giant Walmart has been actively exploring the potential of blockchain technology to optimize its supply chain operations and enhance transparency. In collaboration with IBM, Walmart has developed a private blockchain system to track and trace food products through its supply chain. Walmart’s private blockchain solution enables real-time visibility into the movement of products. It also automates processes like inventory management, order tracking, and supplier payments.
Inter-Organizational Transactions and Settlements
Private blockchains are suitable for streamlining inter-organizational transactions and settlements. For instance, in the banking sector, private blockchains can be used to facilitate faster and more secure cross-border payments, reducing intermediaries and transaction costs.
Regulatory Compliance and Auditing
Private blockchains offer an excellent solution for regulatory compliance and auditing purposes. Industries with strict compliance requirements, such as healthcare or finance leverage private blockchains to maintain an immutable (auditable) record of transactions.
5 Use Cases of Hybrid Blockchain
Hybrid blockchain technology is gaining momentum in the digital world, offering a blend of public and private blockchains to cater to diverse needs. Here, I’ll introduce you to two companies leveraging this innovative technology:
IBM is a giant in the tech industry, renowned for its innovations in blockchain technology. The company has been actively developing and promoting its hybrid blockchain solution Hedera Hashgraph that aims to combine the benefits of both public and private blockchains. It allows enterprises to securely share data and collaborate with partners and customers following the regulatory requirements.
Now it will be easier to understand the use cases of hybrid blockchain because you know the features and use cases of private & public blockchain. Read the following segment to understand the use cases of hybrid blockchains and the use of consortium blockchains.
Cross-Organizational Collaboration and Data Sharing
Hybrid blockchains are well-suited for facilitating cross-organizational collaboration and data sharing. Organizations can utilize the public aspect of the hybrid blockchain to connect with external partners, suppliers, or customers. It promotes seamless information exchange, enhances transparency, and fosters trust in the collaborative ecosystem while maintaining the privacy and security of sensitive data within the private components.
Multi-Level Access Control and Data Privacy
Hybrid blockchains provide a unique solution for implementing multi-level access control and ensuring data privacy. Organizations leverage the private aspect of the hybrid blockchain to store and manage confidential data. The public aspect allows for transparent and auditable interactions, enabling stakeholders to verify and track specific transactions or activities.
Supply Chain Transparency and Verification
Hybrid blockchains offer an excellent use case for enhancing supply chain transparency and verification. By leveraging the public aspect of the blockchain, stakeholders can track and verify the movement of goods, ensuring their authenticity, quality, and compliance. At the same time, the private aspect of the hybrid blockchain enables participants to securely share sensitive information within the supply chain network.
Interoperability between Blockchain Networks
One of the key use cases of hybrid blockchains is facilitating interoperability between different blockchain networks. Hybrid blockchains can serve as a bridge, allowing for seamless communication and data transfer between various blockchain ecosystems. This interoperability enhances the efficiency of value transfer and facilitates cross-chain transactions.
Distributed Applications with Customized Privacy
Hybrid blockchains enable the development of distributed applications (DApps) that require customized privacy features. The public aspect of the hybrid blockchain allows for transparent and decentralized execution of certain DApp functions, ensuring fairness and security.
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