Comparison of public, private and permissioned blockchains

public vs. Private vs. Allowed: an overview

Public blockchains allow access to anyone; private blockchains are available to selected or authorized users; permissioned blockchains have different levels of user permissions or roles.

Many cryptocurrencies are built on open-source public blockchains. Others have permission for anyone to use, but roles are assigned and only certain users can make changes.

Private and permissioned blockchains are generally used by organizations or businesses with specific needs.

Public blockchain

An audience blockchain is one where anyone is free to join and participate in the core activities of the blockchain network. Anyone can read, write, or audit the activities going on in a public blockchain network, which helps achieve the self-governing, decentralized nature often presented when cryptocurrency blockchains are discussed.

Advantages

A public blockchain operates on an incentive scheme that encourages new participants to join. Public blockchains offer a particularly valuable solution from the point of view of a truly decentralized, democratized and authorityless operation.

Public blockchains are used in cryptocurrencies and decentralized finance because they can serve as the backbone for almost anything decentralized solution. Additionally, the large number of network participants that can join a secure public blockchain protects it from data breaches, hacking attempts, or other cybersecurity issues. The more participants, the more secure a public blockchain is.

disadvantage

One concern for public blockchains is security. Some designers solved it using a competitive and distributed validation/proposal/reward system, while others solved it using a collateralized system.

Other problems include the complete lack of privacy and anonymity. Public blockchains allow anyone to see transaction amounts and the addresses involved. If the owners of the address become known, the user loses his anonymity.

Public blockchains also attract participants who may not be honest in their intentions. Most public blockchains are designed for cryptocurrencies, which by the nature of their value are a prime target for hackers and thieves.

Private blockchain

Participants can only join a private blockchain network through an invitation where their identity or other requested information is authentic and verified. Validation is done by the network operator(s) or through a clearly established protocol implemented by the network through smart contracts or other automated approval methods.

Thus, private blockchains control who is allowed to participate in the network. The owner or operator has the right to overwrite, edit or delete the necessary entries from the blockchain as necessary or as it deems necessary to make changes in the programming.

Advantages

A private blockchain is not decentralized. It is a distributed ledger which functions as a closed database secured with cryptographic concepts and the organization’s security measures. Only those with permission can run a full node, make transactions, or validate/authenticate blockchain changes.

By reducing the focus on protecting user identities and promoting transparency, private blockchains prioritize efficiency and immutability—the state of not being able to be changed.

These are important features in procurement, logistics, payroll, finance, accounting and many other enterprises and business areas.

disadvantage

Although intentionally designed for enterprise applications, private blockchains lack many of the valuable attributes of permissionless systems simply because they are not widely applicable. Instead, they are built to perform specific tasks and functions.

As such, private blockchains are susceptible to data breaches and other security threats. This is because there are generally limited validators used to reach consensus on transactions and data (if a consensus mechanism is required). In a private blockchain, there may not be a need for consensus, only the immutability of input data.

Blockchain enabled

Permissioned blockchains generally have similar characteristics to public and private blockchains, with many customization options.

Advantages

The advantages of permissioned blockchain include allowing anyone to join the authorized network after a proper identity verification process. Some grant special and designated permissions to perform only specific activities on a network. This allows participants to perform certain functions such as reading, accessing or entering information into the blockchain.

Permissioned blockchains enable many functions, but the most interesting for companies is Blockchain-as-a-Service (BaaS)—a blockchain designed to be scalable for the needs of many companies or tasks that providers rent to other businesses.

For example, imagine that a business wants to improve the transparency and accuracy of its accounting processes and financial reporting. They could rent blockchain accounting services from a BaaS provider. Blockchain would provide an interface where records are made by end users and then automate the rest of the accounting processes using encryption, verification and consensus techniques.

That way, there would be fewer errors and no way to change the financial data after it is entered. As a result, financial reports to management and executives become more accurate, and blockchain is accessible for viewing and generating real-time financial reports.

The company could also choose to have the blockchain and supporting systems automate its invoicing, payments, accounting and tax reporting.

disadvantage

The disadvantages of permissioned blockchains mirror those of public and private blockchains, depending on how they are configured. A key disadvantage is that because permissioned blockchains require internet connections, they are vulnerable to hacking. By design, some might use immutability techniques such as cryptographic security measures and validation by consensus mechanisms.

While most blockchains are considered foolproof, without the proper precautions, they do have weaknesses. Cryptocurrency theft occurs when applications and supporting programs on a blockchain network are hacked and private keys are stolen. Permissioned blockchains also suffer from this weakness, as the networks and applications that connect to blockchain services depend on security measures that can be bypassed.

conclusion

Public blockchains allow anyone to participate. Permissioned blockchains create different roles and have known users. Private blockchains are used by entities that need a secure ledger, allowing access only to those who need it.