Private Blockchain vs Public Blockchain: Which is best for businesses?

The current industry standards are fully integrated with a complex network of legal, regulatory and financial obligations from government policies to regulatory requirements. 

This convergence of multiple industries means that while it is possible to conduct business on a private blockchain and benefit from its security and efficiency, public blockchains can benefit from data sharing with other participants in the supply chain.

In light of this, a popular question for businesses is whether or not private or public blockchain would be best for them. Of course, the answer will depend on size, complexity, and anticipated information sharing between business participants. To further explore each option, let’s compare private vs public blockchains first.  

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Private vs Public Blockchain

 A private blockchain is a permissioned blockchain, i.e. it is not necessarily public and can be made accessible only to specific users. The extensive control over permission makes them more secure, provides privacy protection, and allows data sharing within the network or between networks on the same chain. 

The main benefit of using a private blockchain is data integrity and confidentiality. Data which is only accessible to the nodes inside the network can be stored in a secure, immutable and verifiable manner.

On the other hand, a public blockchain can benefit from a high degree of transparency. In an open network, trust is not only provided by the core structure of the network but also by open standards and mechanisms that allow external actors to participate in transactions.

 Open blockchains like Ethereum and Bitcoin are pre-configured frameworks for intelligent contracts. They are designed to be accessible to anyone who wishes to participate in their transactions or use them for other applications.

 If private blockchains are useful for data sharing between core participants in the network (organizations and employees, for example), public blockchains are helpful for open data and identity sharing. 

When organizations decide to share information with other organizations on the same chain or across chains, they can use smart contracts, a set of instructions coded into published code that automatically executes when certain conditions are met. These smart contracts allow all participants in a private chain to exchange information transparently. Public blockchains can also enable business-to-business interactions – an increasingly popular option.

Private or Public blockchain: Which is best for your business?

The choice between a private or public blockchain depends on four main factors:

  1. Size and complexity

Blockchain technology can be pretty helpful for companies with complex supply chains and various distribution channels. A public blockchain may be less suitable, however, if the need for an internal consensus protocol is too great since Bitcoin-based systems require the consensus of all nodes in the network to record transactions. If there are only a few participants and transactions are relatively simple, it could make sense to use a private blockchain instead. 

  1. Information-sharing intentions

Public blockchains are typically more transparent and can therefore provide greater assurance regarding data integrity and security (e.g. data sharing, security audits) and less cost (for example, any legal paperwork associated with using the blockchain may be unnecessary). On the other hand, private blockchains offer greater control over access to data, making them more suitable for sensitive information.

  1. Attractiveness of intelligent contract features

In public blockchains, a smart contract is a code published by all network participants which cannot be altered unless all nodes agree on it or if nodes can rewrite their code from scratch. In contrast to this closed-code approach of a smart contract in a private blockchain, there are also discussions about adding restrictions to limit the extent to which private chains can constrain their users.

  1. Business Control

The difference between public and private blockchains is that the former can be used by anyone with an internet connection, meaning many users can interact on each chain. Private Blockchains, in contrast, are accessible to only a select group of users who people would have invited to join the particular blockchain.

Private or Public Blockchain: The bottom line

Public blockchains offer enhanced transparency and are helpful in various supply chain scenarios involving external companies. On the other hand, private Blockchains can protect against anonymity and data manipulation attempts (like replay attacks) in complex business networks. 

Both use cases have specific advantages, making it challenging to choose one over the other if your business falls into multiple categories. There is no one-size-fits-all solution. Before deciding on a blockchain network, it is vital to explore the many options available and decide on a blockchain platform that fits your supply chain needs.

Most of these considerations can be summarized by people in what we call the “3 parties test”. So, for example, if you would have to invite 3 significant players to join your private blockchain or need to expand the public blockchain network with various external participants, you might want to choose the other option. 

Regarding setup complexity and security level, public blockchains are generally less demanding than private blockchains, with higher requirements for computing power and information sharing among participants.