Public vs Private Blockchains: Challenges and Gaps

Public vs. Private Blockchains: An Overview

Private blockchains generally do not allow external communications for security and information protection reasons and are designed for use by a permissioned group.

Public blockchains are designed with distribution and decentralization in mind so that anyone can access them and participate.

Key Takeaways

• Public blockchains are designed to be used by anyone.
• Private blockchains are designed to be used by a permissioned group of users.
• To secure the transfer and storage of ownership of value, public blockchains must address the issues of security, scalability, decentralization, energy use, and interoperability.
• Entities considering using private blockchains must address the costs of finding skilled programmers, building and maintaining them, and ensuring the security of the data they contain.

Public Blockchains

Public blockchains are designed for public use. By design, they allow anyone to participate in the community in nearly any capacity, hoping to increase adoption rates. Many of the projects that have emerged aim to provide decentralized utility to as many users as possible, but they remain constricted by scalability issues and security. Many developers have created second-layer solutions or blockchains that solve some of these issues, but many of these chains and solutions have failed to become popularly used.

Public Blockchain Issues

Public blockchains must properly balance interoperability, scalability, security, decentralization, energy use, and use cases to attract network participants. In many cases, some or most of these factors must be sacrificed for others to be enhanced.

Interoperability

Interoperability is a blockchain’s ability to communicate with other blockchains. When Bitcoin was first launched, this was not a consideration, but as more cryptocurrencies were developed and created transferable value, it became one. Many developers and companies are working to create solutions for data sharing between blockchains. For example, Polkadot and Cosmos are protocols that allow blockchains that could otherwise not communicate to transfer data or value.

Scalability

One of the primary issues with public blockchains is their ability to handle varying amounts of use. Many have limitations based on the number of transactions that can be managed. Too much traffic or use causes the blockchains to become congested, and too little traffic or use causes them to become less secure.

Blockchains need to be able to scale for more and less traffic.

Security

Security is critical in public blockchains because of the value being transferred. In many cases, the number of participants is crucial to security because blockchain networks with too few nodes can be quickly taken over by bad actors.

Also, if a blockchain’s security measures are increased, decentralization and scalability generally decrease correspondingly because of the way public blockchains must be designed.

Decentralization

One of the factors most attractive to many public blockchain participants is decentralization, where control of the blockchain and the data it contains resides with the users, not a centralized entity.

Decentralization is usually achieved by distributing the ledger to as wide a network as possible and passing control to the participants. However, the more decentralized a blockchain is, the less scalable and secure it generally becomes because more measures must be taken to ensure it is secure.

Energy Use

Bitcoin overcame security concerns using its slow proof-of-work consensus model, but this model depends on widespread participation and adoption. Energy use was not a primary concern at first, but the realization that Bitcoin and similar networks can use large amounts of energy at scale created concern among governments, environmentalists, climatologists, and others concerned with energy production and use.

If Bitcoin had not attracted the attention of speculators and investors, its network would not be as secure as it is because the huge energy-demanding mining farms and ultra-fast network would likely not have been created.

Ethereum switched from proof-of-work to proof-of-stake (PoS) consensus in part to address energy use. However, PoS security depends on participants offering capital in exchange for trust, which sacrifices decentralization.

Private Blockchains

Private blockchains, while purposefully designed for enterprise applications, lack many of the attributes of public blockchains simply because they are not widely applicable. They are built to accomplish specific tasks and functions within a company, but they also face many issues.

Private Blockchain Issues

Security

The security offered by public chains with more nodes (users) is greater than that of private chains. While private chains can implement secure measures like firewalls, access and role permissions, and other security protocols, it should be noted that non-blockchain solutions also use these and are constantly targeted by hackers.

Private blockchains can also communicate with other blockchains via oracles or other solutions, but this creates security gaps via additional connections.

Available Skill

There is a lack of skilled professionals to build and maintain private blockchains, but more are emerging as awareness of the needs. O Net Online predicts a growth in the industry through 2033 that is much faster than average because of rising demand for enterprise blockchains.

Targeting

Private blockchains will likely be targeted by hackers and thieves as more companies adopt them in their solutions. Data included in these blockchains could be anything from client private information to intellectual property or other data that requires security.

Costs

Creating, migrating data to, maintaining, and upgrading blockchains is expensive. There are companies that offer blockchain-as-a-service solutions like Hyperledger Fabric, but these add costs as well.

Is Bitcoin a Private or Public Blockchain?

Bitcoin is a public blockchain that allows anyone to access it and participate.

What Is the Major Difference Between a Private and Consortium Blockchain?

A private blockchain is generally only used by one organization, while a consortium blockchain is a private blockchain used by a group of organizations.

Is Ethereum a Public Blockchain?

Yes, Ethereum is a public blockchain. Anyone can access and participate in the blockchain.

The Bottom Line

Blockchains are a technology that is revolutionizing how data is secured and transferred. Private blockchains are centralized and used by organizations for internal purposes, and they must address the issues of security and high costs. There are also only a limited number of skilled individuals who can create and maintain them, at least as of December 2024.

Public blockchains are decentralized and can be used or accessed by anyone. They are generally used for cryptocurrencies but can also be used for other purposes. Because they are public and usually open-source, security is a significant concern. However, security must be balanced with energy use, scalability, decentralization, and interoperability, each of which, when adjusted, affects another concern.