public vs. private blockchain
I am into blockchain since 2 years now. Me being an IT Management consultant was very quickly fascinated about blockchain and how it will change the world.
Than I started to dive into the components of blockchain and tried to identify for which use cases blockchain adds unique benefits. So I was looking for use cases which can be realized with blockchain only or at least much more efficient than with other technologies.
Than I attended a conference here in Switzerland (Blockchain Valley Conference in Zürich). One of the speakers was a leading guy (couldn't find his name) from IBM research talking about hyperledger. That was when I heared the first time about the differentiation of "private" and "public" blockchains. And he predicted that private blockchains will lead to very efficient process of companies.
First I thought that makes totally sense. But the more I am thinking about "private" blockchains the less I get the point. Maybe you guys can help me to understand that concept. How can a blockchain be private (I understand private as being controlled by one entity e.g. a company) and bring unique, blockchain specific value? In my understanding blockchain loses nearly every advantage as soon as it is controlled by one entity. Which point am I missing?
Ripple is a private blockchain, as will be the Cryptocurrencies being produced in Venezuela and Russia. The purpose of the private blockchain is total control over the digital asset and particularly the ability to control its value. There are good case uses for private blockchains related to non-currency services, and fiat substitutes where stability is desired provided you have complete trust in the supervising body. However, as you say, for cryptocurrency it makes for a far more secure system to have a public blockchain. Bitcoin was designed to use a public blockchain to secure it from seizure and manipulation. The mining network is motivated to ensure that no party gets control of more than 50% of the mining units in order to ensure integrity of the market. We have yet to see what happens to a public blockchain when the tokens are mined out. Will transaction fees be enough ensure maintenance of the blockchain once the designed total token supply is reached.
Ripple is considered a private blockchain? Interesting. What is the criteria for you to consider it a private blockchain? That mining is done centralized by one entity controlling the blockchain and eventual future forks?
This is still one of those grey areas of debate. Bitcoin is assumed to be an ideal model of a public blockchain at least whilst no single entity possess more than 50% of the mining capacity. Any change in algorithm requires a consensus of more than 50%, and in theory someone with more than 50% could alter the algorithm to favour their own mining output or transactions, to the disadvantage and security of the blockchain. Generally miners will take steps to prevent the control of the blockchain in this manner. Private blockchain networks emphasise control over the blockchain as a feature for security purposes whilst also providing a means to expand or contract supply in order to balance demand and permit pegging to other assets.
For certain purposes a private network makes more sense. The Ripple network for example places great emphasis on centralised management in order to ensure stability. The Bitcoin market driven model is generally preferred for cryptocurrency assets, we get extreme volatility in the perceived value of a Bitcoin, but we know there can be no manipulation of supply inducing devaluation or revaluation. In other words it is entirely up to the market to set value. Of course the market itself may be problematic but that is another matter.
Very important subject : Private blockchain will get some benefit in terms of security and speed, however they are not decentralised and the consensus reached is poor ( meaning it can connect entities who have already built trust).
Public blokchain however having a fully decentralized consensus model have the ability to connect and transver value between entities who have no preliminary trust within one another.
I see the future where private blockchain consortium will be able to link and transfer value within one another through dapps on public blockchains ( eth, neo, ven, icon, and so on). the more private blockchain clusters such , the more interconnectivity through decentralized consensus and dapps on public blockchain will be needed.
Private-public blockchain will be interconnected and more and more used in the industry/bank/logistic/insurance/health/financial service/audit .
wow its a great post... @resteemed
Hii @ famunger,
that's nice article about private and public blockchains. in my point of view public blockchain is best because its much trust worthy as compare to private. Thanks for sharing and pointing out this quwstion.
This is very good question. And I got your point. I must appreciate your viewpoint and welcome experts to please come and give their opinion on it. Thanks for sharing great stuff dear @famunger.
I have always imagined that the main purpose of a blockchain is to eliminate redundancy and to be store an incorruptable history.
I think what most people who love blockchain actually loves, is the distributed ledger system. A blockchain is suitable for this system because the whole state of every node in the network doesn't have to be updated. The change of state can simply be appended as a new block which is only accepted if it is compatible with the previous history.
I think the purpose of a private blockchain is that every node in the system is run by the same entity of power. This means that software can be easily updated. A public blockchain is basically unchangeable once published and requires a hardfork (or some community voting system?) to be changed.
I agree on how you define private blockchain and that is what gives me a headache. If only one entity runs the nodes and software (so also the ledger) can be updated easily doesn't the blockchain loses all of its advantages? Immutable ledger ...?
I guess it loses some security, but it is still very effective in conserving history, for example if a transaction is to be reversed. Rather than having to store a complete image of every single state, it can simply find the state of the system at any time by only considering transactions up until that point. Still, I believe blockchain is often used when it isn't needed and when it doesn't serve any purpose at all, simply because people have gotten used to thinking that everything safe should be blockchain based.
Thank you for sharing your experiences with us.