Comparison of public, private and permissioned blockchains

Public, Private and Permissioned: An Overview

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

Many cryptocurrencies are built on public, open-source blockchains. Others have permissions because they are available for everyone to use, but roles are assigned and only certain users can make changes.

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

Public blockchain

A public blockchain is a blockchain in which anyone can freely join and participate in the core activities of the blockchain network. Anyone can read, write, or check current activity on the public blockchain network, which helps achieve the self-governing, decentralized nature that is often touted when discussing cryptocurrency blockchains.

Advantages

The public blockchain operates on an incentive scheme that encourages new participants to join. Public blockchains offer a particularly valuable solution in terms of truly decentralized, democratized, and authority-free operation.

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

Flaws

One of the concerns associated with public blockchains is security. Some designers have solved this problem by using a competitive and distributed check/block/reward system, while others have solved it by using a provisioning system.

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

Public blockchains also attract participants who may be dishonest in their intentions. Most public blockchains are dedicated to cryptocurrencies, which due to their value are a prime target for hackers and thieves.

Private blockchain

Participants can join the private blockchain network by invitation only, provided that their identity or other required information is authentic and verified. Verification is carried out by the network operator(s) or through a well-defined established protocol implemented by the network through smart contracts or other automated approval methods.

In this way, private blockchains control who is allowed to participate in the network. The owner or operator has the right to override, edit or delete necessary records in the blockchain as necessary or at its discretion to make changes to the program.

Advantages

A private blockchain is not decentralized. It is a distributed ledger that operates as a private database protected by the organization’s cryptographic concepts and security measures. Only those with permission can run a full node, make transactions, or verify/authenticate blockchain changes.

By reducing the focus on protecting users’ identities and increasing transparency, private blockchains prioritize efficiency and immutability—a state that cannot be changed.

These are important functions in supply chain, logistics, payroll, finance, accounting and many other areas of the enterprise and business.

Flaws

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

In this regard, private blockchains are susceptible to data leaks and other security threats. This is because there is usually a limited number of validators used to reach consensus on transactions and data (if a consensus mechanism is needed). In a private blockchain, there may be no need for consensus, just immutability of the entered data.

Permissioned Blockchain

Permissioned blockchains typically have similar characteristics to public and private blockchains and are highly customizable.

Advantages

The benefits of a permissioned blockchain include the ability for anyone to join the permissioned network after an appropriate identity verification process. Some provide special and assigned permissions to perform only certain actions on the 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 businesses is Blockchain as a Service (BaaS), a blockchain designed to scale across the needs of many companies or tasks that vendors rent out to other businesses.

For example, imagine that a company wants to improve the transparency and accuracy of its accounting and financial reporting processes. He could rent blockchain accounting services from a BaaS provider. Blockchain will provide an interface where entries will be made by end users and then automate the rest of the accounting processes using encryption, verification and consensus methods.

This way, there will be fewer errors and there will be no possibility of changing financial data after it has been entered. As a result, financial reports for management and executives are more accurate, and blockchain is available for viewing and generating financial reports in real time.

Businesses can also choose to use blockchain and supporting systems to automate invoicing, payments, accounting and tax reporting.

Flaws

The disadvantages of permissioned blockchains are similar to those of public and private blockchains, depending on how they are configured. One of the key disadvantages is that since permissioned blockchains require an Internet connection, they are vulnerable to hacking. By design, some may use immutability techniques such as cryptographic security measures and verification through consensus mechanisms.

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

Bottom line

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