There are tons of questions about the merits of a private vs public blockchain, as well as confusion of what a consortium blockchain is. For those looking to start their own blockchain project, understanding the benefits, the cons, and the strategic value of each and how it’ll fit into your overall plan is imperative.
If you’re looking to get started on blockchain, check out my previous post.
With blockchain so new, having strategy in place and fully understanding the structure and feasibility of different solutions will make or break your project. Companies and entrepreneurs are already recognizing why getting in early is so advantageous, you get to create the industry standards, meaning you have to get it right. You want the best possible team, advisors, consultants, those who understand this in-depth.
So diving right in…
The core property that constitutes a blockchain is its validators and the incentive mechanism that drives the validators.
This is the key point to creating a decentralized economy, and it is both the strength and weakness of a public blockchain. It is also heavily lacking in a private blockchain, making a consortium an intelligent compromise between the two.
Taking a look specifically at the pros and cons of a public vs private blockchain, you can see the comparison below.
This is a simple comparison provided by experts I spoke to at BlockchainDriven consultancy who recognize the vast confusion of decision makers and executives who opt toward private blockchain or hyperledger due to a lack of understanding blockchain technology itself.
“Right now no one knows much about blockchain which is leading them to misguided solutions. Especially the top decision makers. The ones looking into blockchain for various companies are all right hands, who then need to educate the decision makers and it slows down the entire process with valuable information lost or misunderstood in the process.”- Peter Borovykh, Blockchain Solutions Architect at BlockchainDriven
The primary weakness of a private blockchain is its lack of validators and incentives.
Why are validators so important?
Transactions rely on validators, the more validators there are in the system, the more secure and less likely it is to be hacked. Public blockchains have the best incentives for this process as validators, or miners, are able to earn cryptocurrency through the randomized validation process.
Private blockchains lack this incentive as they are designed purely for internal use for just one company with little to no interoperability. There are fewer validators possible, and only one central organization is responsible for overseeing the validation process, meaning it is not able to become a self sustaining, evolving mechanism and is far less flexible. Without validator incentives, the system could die which is not optimal when creating a system for long term use.
This is the greatest weakness of private blockchains.
Imagine Microsoft Word versus Google Docs as if they were blockchains. The user must download Word onto their computer and keep track of updates on their own and even then updates are largely spread out with bugs only being discovered internally. Google Docs on the other hand is online making for easier but safe access, anywhere, and because of this updates happen without the user needing to do anything, and it updates consistently, automatically. It’s also easier for users to catch and report bugs, meaning the system has better, faster improvements.
This is a very simple analogy, but it works here. Not only that, but the public blockchain can be worked on by all the best developers in the world rather than limited by a single internal team.
Of course public blockchains do have their weaknesses as well.
With the current incentivisation system, Proof of Work (PoW), the cost of transactions is high, plus they have too many transactions making it easier to trace transactions back to a source and figure out private keys. There are solutions to work around this and maximize security, but this is the primary reason enterprises opt to not use public blockchain.
Misconceptions:
#1 Companies fear making information public, which is a major misconception about public blockchains. An example is, I make a statement to a business partner and input that info onto the blockchain. Validators don’t see these details, they are validating that I made this statement and to whom, not what the statement itself might be. That information is still private and secure, plus, I do not have to put this on the blockchain at all.
#2 All information validated on the blockchain is the truth. If I say that I shipped one ton of organic produce, and it’s validated on blockchain, that doesn’t mean the produce is actually organic. Blockchain works best for digital, not physical information, however it does create a system of accountability. Should that produce prove to not be organic, that input is still stored on the blockchain and traced back to me.
#3 Blockchain cannot be used for anything other than digital information… which is true and not. With the IoT (internet of things) technology making major strides, digitizing the physical and creating automated processes for it is feasible in the foreseeable future.
Consortiums
As mentioned earlier, consortiums are a great compromise for enterprises as it allows communication between different departments and companies while still granting decision makers the ability to limit access to data and validation. Consortiums are the best enterprise solution right now until blockchain technology improves.
Private blockchains such as hyperledger are not real blockchain solutions. They don’t have real decentralization, they’re too reliant on internal teams, and do not have the ability to grow long term. Security is perhaps the biggest fear holding blockchain back and the main reason behind the popularity of hyperledger.
But ultimately, privacy is time-stamped, meaning any private information meant to be recorded, will eventually become public in a matter of time. And as shown in misconception #1, companies don’t have to make details on a public blockchain visible to everyone.
Of course strategy for blockchain projects goes much deeper, so stay tuned for my next article that will cover blockchain strategy in depth.