How To Choose Private vs Public Blockchain For Your Business

As cryptocurrencies become more mainstream, we have heard a great deal over the past few years about how businesses can use blockchain. But while we may talk of “blockchain,” we first have to understand that it refers to a pre-packaged group of technologies under the broader term of Distributed Ledger Technologies (DLT).  Within DLT there are a vast array of different types of blockchain platforms, tools, and algorithms, each with their respective advantages and disadvantages.

Each business will have to decide which blockchain is best suited for the intended use case and their own unique needs. Most businesses will use a blockchain platform or framework to build their application and each will have its own set of requirements. The biggest initial choice will be whether the framework’s supporting blockchain network will be public or private, then further choices are made based on the major blockchain components they need for their specific application. These two categories have their advantages and disadvantages. By understanding the differences, companies can better know how to implement them.

Understanding Blockchain

First, it is better to understand what blockchain is and how it can be useful. At its core, a blockchain is a digital ledger that is distributed across a public or a private network. It is called a blockchain because it uses cryptography to secure that ledger, with each entry being tied with a digital signature to the one before it, like links in a chain. While people tend to equivocate cryptocurrencies like Bitcoin with blockchain, crypto is just one of many application types that can utilize the ledger technology. 

The most important thing about a blockchain ledger is that (with notable exceptions) once it records a transaction, data cannot be changed or altered, making it immutable. The ledger is shared by all participants in the network and a consensus algorithm determines who can make entries on the ledger. While the security details on each system are different, the key is that all network participants end up with the exact same copy of the ledger and that it is practically impossible to alter a single entry or take over the network itself.  The result is a secure, shared ledger of information that all participants can trust and even non-participants may be allowed to verify. 

Think about how much time we must spend verifying data. We need to verify if a candidate’s resume is accurate, if a contract was upheld, the provenance of a shipment of coffee, and if data about our clients is any good. Would it not be great if there was a single ledger where we could trust the data is accurate and no hacker could break in to alter everything? That is what blockchain offers. As IBM demonstrates, blockchain has use cases in just about any industry imaginable.

The Private vs Public Distinction

However, there is an obvious question: what does “all participants in the network” mean? In a private blockchain, someone, normally a business or organization, creates the network and sets restrictions or permissions on who can access the network and write to the ledger. In a public blockchain, anyone can join without getting prior permission and can write to the ledger as long as they follow its rules. Bitcoin, Ethereum, Polkadot and most cryptocurrencies are examples of public blockchain networks, while R3 Corda, Quorum, and Hyperledger Fabric are examples of private blockchain frameworks with multiple variants that can be implemented in the cloud or locally.

Some organizations may worry about what “anyone” can mean, and this is a potential downside of public blockchains. The data in a public blockchain is not private, as anyone can read, write, and participate in adding to the data chain. It is impossible to know all the members of a public blockchain, which means that you must trust in game theory and common gain to make sure that no one does anything malicious. In a private blockchain, since everyone knows who has been invited, there is more reason to believe in everyone’s good behaviour.

Public blockchains are much more decentralized than private chains, which can be an advantage for resiliency but also means that they are less efficient. This applies both to scaling as the public blockchain expands as well as the increased energy used if any proof-of-work or similar functions are used to achieve consensus on the blockchain. If you have heard about Bitcoin slowing down to complete transactions or the concerns about the energy costs of Bitcoin, this is what is meant.  

But while decentralization means less efficiency, it also can mean greater security. A private blockchain could be more vulnerable as there is a smaller number of systems that need to be attacked to take over the chain consensus. And sometimes, there are advantages to sharing data with everyone. Imagine a cryptocurrency where you had to receive permission from some central figure to make transactions or even to receive cryptocurrency at all.

In short, private and public blockchains are suited for different tasks. If you want to put data out there for the masses and are interested in getting feedback and data from outside users, public blockchains are probably the better fit. A private blockchain is controlled by its owner, which means that the owner can set the rules and even change them after the fact. For these reasons, users may be reluctant to sign up for a private blockchain while they might for a public blockchain.

But if you have sensitive data which cannot be leaked to the public such as health records, a private blockchain should be more suitable. A company could use a private blockchain to set up smart contracts with its employees, making it easier to pay them on time and without having to deal with the tedious, time-consuming tasks that are much of our payroll process. No matter which approach you go with, there are a wide variety of ways to use blockchains to better improve your business.

Implementation Tips

However, there is much more to implementing blockchain into your business than simply picking the right type of blockchain or technology for seafood restaurants. In fact, it is not a good idea to pick the latest technology. Blockchain by its very nature does better the more users are attached to its network, and older versions will generally have more users. More importantly, many of the frameworks for private blockchains have matured to a level that enterprises can get past the proof of concept to actual production use. Discover how to secure financing with a loan against startup equity and propel your entrepreneurial journey forward with confidence.

But more than that, the one big trap to avoid with implementing blockchain is to fall into the fad of technology. Blockchain has many uses, but some businesses are only interested in blockchain because they have been told it is the “future” and so they want to jump into it as soon as possible.

Instead of looking to the future, look to the past. What problems can your company solve using blockchain? While blockchain may be new technology, the odds are that some other company has already tried using it to solve the same problem which you want to solve. Look for use cases, see what went well and what did not, and then get a better idea of what you need to do.

As an example, one B2B tech company, CertifiedTrue, is using blockchain to provide image certification and verification services to law enforcement, insurance and real estate in order to combat fraud. They chose to build a hybrid system for their SaaS service, PhotoProof, using both customized blockchain and cloud technologies. That enabled a private system for client images but with the ability for the public to verify them. 

On the reasons for creating a hybrid public/private system, their CEO, Stephen Graves, commented, “CertifiedTrue safeguards digital integrity through image verification, letting anyone verify the provenance of our customer’s photos or videos.” For other businesses creating their own blockchain apps, he recommends, “The main thing is to 1) clearly define the business process in the problem you want to solve 2) use the process model to create a list of must-have features, 3) pick a blockchain framework that most closely fits your wish list, 4) consider a service provider like AWS, IBM or Azure that have pre-packaged blockchain and, 5) don’t overbuild with features you do not need!”

Keep in mind also that there are going to be struggles in implementing blockchain. Test your blockchain first before you fully implement it to make sure that it works, and make sure any setbacks are fully resolved. Blockchain is simpler than most think, but it can still be complicated for those still getting used to this new technology. If your implementation went smoothly without any problems, you are probably missing a giant problem that will hurt you a great deal later.

Blockchain promises to be a revolutionary way in which we conduct business across the globe, offering both greater security and transparency through a decentralized system. The right system for your company, private or public, Ethereum or Hyperledger, can make a huge difference and promise greater efficiency.