Do Private Blockchains Make Sense?

Do Private Blockchains Make Sense?

January 11, 2019.
Learn about why private blockchains may defeat the very essence of blockchain technology

Blockchain has a huge potential in transforming multiple industries beyond the financial sector. Today, various diverse companies have started to adopt and explore the implementation of blockchain technology—from the tech industry to manufacturing, retail, healthcare, telecommunications, education, food and beverage, and even governments.

The crux of the matter is that blockchain is essentially meant to be public and decentralized. This poses a risk to private enterprises, as sensitive customer and corporate data cannot be shared to the general public for practical and obvious reasons. This gave way to the implementation of private blockchain networks.


Private Blockchains vs. Public Blockchains

A private blockchain network, as the term suggests, is a permissioned and closed system that is owned and governed by an individual or an organization. Contrary to the open and permissionless nature of a public blockchain, only the central in-charge of a private blockchain can read, write, and audit the blockchain, as well as provide permissioned access to selected nodes to participate in the network.

Examples of blockchain applications that are based on a private blockchain network are Bankchain, Monax, and Hyperledger, while most of the mainstream blockchains we know today (for example, Bitcoin and Ethereum) are public.

A private blockchain has inherent advantages over public blockchains, the main one being that it ensures no unauthorized access to private enterprise data. Additionally, as the network is relatively smaller, consensus can be achieved more efficiently without the risks of outages, delays, and high transaction costs.


Issues with Private Blockchains

Private blockchain, however, is not without its fair share of disadvantages. Despite being coined as “private,” they are not immune to malicious attacks and security issues. Practically, the integrity of the network is only as strong as the honesty of each participant and the strategy of its implementation. Anybody with sufficient access to a centralized and private database is capable of corrupting the data within it. Users in a private blockchain are, therefore, reliant on the security infrastructure of the governing network and the integrity of the administrator.

Moreover, the main critique on private blockchains is that, in principle, it defeats the very essence of blockchain technology.

Being owned by a central authority, decentralization is taken out of the equation and exclusivity could translate to censorship and lack of transparency. It also follows that since the network relies on permissions granted by an administrator, nodes in a private blockchain must trust each other, which is in contrast with the trustless and pseudo-anonymous nature of the underlying technology.

Private blockchain networks, in essence, are subjected to the same vulnerabilities that any centralized system might face, such as bureaucracy, abuse of power, inflexibility, and having a single point of entry.


Do Private Blockchains Make Any Sense?

The question now is, do private blockchains make any sense? The answer is both yes and no.

Private blockchains may make sense in certain circumstances, such in the case of a consortium of banks needing a shared ledger for their business transactions. However, in the grand scheme of things, the implementation of a private blockchain seems to be just another way to seek control and centralization over a decentralized system such as the blockchain network, ultimately stripping away its core value proposition: decentralization, transparency, security, and censorship resistance.

It cannot be denied, however, that both public and private blockchains each have its own set of pros and cons, and neither are perfect solutions. At this point, the development of the blockchain community is still in the works, considering that it’s a relatively new technology.

There are a lot of vistas yet to explore, and the limitations we see in both blockchain network types may be the precursor for a better and more efficient solution to make blockchain technology work best for every industry.


– Article written by Tinny

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Categories: Blockchain