Public and private blockchains differ in the way how they allow users to participate in the network. Both come with their advantages and disadvantages and are made for different use cases.
The sole distinction is how they allow users to participate in the network, maintain the shared ledger and execute the consensus protocol.
Anyone can participate in a public blockchain
Public blockchains are just that, a public network. Anyone who wants to participate in the network can do so. Anyone who is connected to the network can input transactions and read the information on the network.
On public blockchains, every network participant can take part in the consensus mechanism. That means anyone can mine new blocks, given the node has sufficient computing power.
Public blockchains are open-source. No one is in charge, there are no access rights required and no single entity is managing the blockchain.
As no one has control over the network, public blockchains are truly decentralized. New blocks are verified by the entire network. There is no need for a separate trusted party to overlook the operations. Thus, public blockchains are trustless.
Anyone who would want to alter data in the blockchain needs the permission of the entire network. As a result, manipulating data on public blockchains is nearly impossible.
The most well-known examples for public blockchains are Bitcoin and Ethereum. Anyone can run a full node and start mining, make transactions on the chain and review the blockchain in a blockchain explorer.
Private blockchains are owned by a central entity
Private blockchains are the opposite of public blockchains.
On a private blockchain, one single entity or multiple entities own the blockchain. The owner can decide who can join the network and can override and delete commands. It operates like a centralized network administrator.
Thus, a private blockchain is not truly decentralized and is really only a distributed ledger secured by cryptography. Network participates still have to rely on a third party – the blockchain owner– to conduct transactions.
A well-known private blockchain would be Hyperledger by the Linux Foundation. Only permissioned participants can run a full node and mine new blocks, conduct transactions and review the information on the blockchain.
Different use cases
Both, public and private blockchains are made for different use cases.
Whenever transparency, decentralization and data security are at the core of what the creator is trying to achieve, public blockchains are more useful than private blockchains. Thus, public blockchains are often used for cryptocurrencies.
The drawback of a public blockchain is the enormous amount of computational power that is required to maintain the distributed ledger. Hence, scalability and transaction costs are a major issue of public blockchains.
Another consideration is the lack of privacy on public blockchains. As everyone can review the data, public blockchains are not suited to store confidential information.
That’s why private blockchains are often used in enterprise applications. They are faster, more efficient, more cost-effective and the owner can determine who can view the information.
On the other hand, private blockchains are less secure. Information can be altered by the blockchain owner and the blockchain is more vulnerable to hacking.
Public and private blockchains are made for different use cases and have a different focus. In future, we will see more applications for both types of blockchains, but in different areas, and with different objectives.