How Should Businesses Use Public and Private Blockchain?

Unlocking the Potential: Leveraging Public and Private Blockchain for Business Success

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The basis of blockchains is distributed ledgers. These have been used for data management at enterprise levels for many years. They have become more popular recently, mainly because of native cryptocurrency. Depending on how the block of the Blockchain has been configured, the content and activities carried out by participants can be controlled. Blockchains are designed with specific uses, and users are given multiple access levels or tasks.

The buzzword of the past few years has been Blockchain. Technology has a significant impact on the way a variety of businesses conduct their business. There are already dozens of companies using Blockchain across industries, from supply chain management to energy distribution. There are essential differences in the types of blockchains. Public blockchains can be used by anyone, while private blockchains controlled within an organization are different.

There are advantages and disadvantages to both options for most companies, but the need to make a choice may soon be a thing of the past. In this article, we'll discuss a new chain - a hybrid between public and private chains that combines the best of both worlds to provide a platform that is genuinely flexible without compromise. We'll also look at real-world use cases of hybrid blockchains.

Private blockchains can only be accessed by a select few users. Permissioned blockchains combine the best of both public and private chains, allowing anyone with permission to use them.

Blockchain Technology

Many companies have started to look at the opportunities presented by Blockchain technology in the last ten years. Due to their speed, affordability, and security, these networks have several advantages, including data management, tracking of financial activities, value money transfer, etc. This is the reason why organizations have already adopted Blockchain to address a variety of issues, ranging from supply chain management to digital automobile passports.

But not every Blockchain has the same characteristics. The business has always required a certain degree of network security and privacy. In the wake of the popularity of the Internet and eCommerce, companies have been required to protect their networks from external attackers to maintain their workflow as well as any sensitive data they may be storing. As Blockchain is increasingly integrated into the digital workplace of today, private networks have become more popular.

It's not surprising that this is the case, mainly since one of the key selling points for Blockchain includes a transparent ledger containing data and the ability to transfer value. It's easy to see why businesses wouldn't allow anyone access to their network. The company can still reap the rewards of new technology while remaining invisible to the rest of the world. Private blockchains tend to be more efficient. These chains, which only require a few nodes to be built according to the specifics of a company, are small and fast and use relatively little energy.

Private blockchains, however, typically compromise security for privacy. A few central nodes may open several attack vectors, where the authorities control the nodes and collide for financial gain. Comparing this with a public blockchain like Ethereum, where thousands of validators can hit en masse, and it is doubtful. Some companies are hesitant to use these private networks.

A blockchain, to refresh your memory, is a digital distributed ledger (shared). It contains an unalterable record of financial transactions on the blockchain network. Distributed ledgers are also known as multiple copies of the same data stored at different locations and linked through the Blockchain.

"Blocks" of information are used to store data. A block is closed down and cryptographically linked to the preceding block once it has used up its storage. The blocks are then put in order by date. A "blockchain" is established. Last but not least, when it comes to integrating with other chains, private chains can cause problems. This could make it challenging to work together.

While private networks are transparent internally, they do not help businesses demonstrate transparency externally. They can be used to curate information before it is released. This keeps them at par with traditional networks that companies use. Private iterations of blockchains are similar to internal databases unless multiple companies share data.

The Blockchain and DLTs

Before we begin, let's clarify the confusion that exists between DLTs and Blockchain. The DLT is an open-source database that can be managed and maintained by many participants. This umbrella encompasses all the decentralized databases that are managed by and governed by participants. Blockchains are a type of DLT. DLTs are digital logbooks that circulate among users. The similarities between DLTs and Blockchains end there.

Blockchains are primarily known as a string of "blocks" (or "data") that have been timestamped and must be periodically validated by the users on the decentralized network. This means a block can only be created with the consensus of all nodes/users. In contrast to other distributed ledger technologies (DLTs), some DLTs may only sometimes need cryptographic validation of data before updating it on the network. Some DLTs grant the administrator total authority over the platform's management, including the establishment of objectives, regulations, and structures.

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Public Blockchain for Companies

Anyone can join and take part in the main activities of a public blockchain. A public blockchain allows anyone to read, write and audit all the activities that are taking place. This helps create the decentralized, self-governed nature of Blockchain.

Blockchains like Ethereum are public, allowing anyone to view everything. It is no surprise that this feature appeals to many enthusiasts of distributed ledger technology. Using a public Blockchain is generally better for this reason: the permissioned network effect. It enables you to instantly provide goods and services to anyone with a connection to the public sphere. Businesses that use open blockchains for transactions must be mindful that everything they post is visible to everyone. It may be advantageous to some companies where openness is vital.

Still, it might also call for the use of several networks to get the necessary outcomes. You can save money by using a public blockchain instead of specialized networks. One of the main disadvantages of public chains is their inability to grow. Bitcoin works well today but has experienced multiple problems with high fees and slowdowns during times of congestion. It is, therefore, not a viable solution, in its present form, for large businesses around the world.

Even if a significant company, many alone multiples, used Bitcoin or Ethereum as the basis of their payment system, the network would bog down. The layer-2 Lightning Network and Ethereum 2.0 are two scaling alternatives that are currently in Blockchain Development. However, they still need to prepare for widespread application.

The energy consumption of public blockchains, and particularly Proof-of-Work systems, is also significantly higher than that of private chains. Blocks of transactions are validated via PoW employing a worldwide network of solid computer systems that compete with one another to solve challenging arithmetic problems. It is the first one to do it that creates the block and gets the newly-created Bitcoins as a reward.

This is a good thing for a decentralized and secure network. However, the carbon footprint of Bitcoin has recently been questioned. Any organization that works to safeguard the environment would find it challenging to defend the use of an ineffective network. These issues are handled. To adapt, several Bitcoin miners have switched to renewable energy sources. Some blockchains use Proof-of-Stake, a low-energy method of network security.

In PoS blockchains, validators do not need powerful computers to verify blocks. Instead, they stake assets to compete for the chance to be validated. The rewards are an incentive to risk assets; losing those assets is a way to deter foul play. It also has a lower energy cost, faster speed, cheaper transaction costs and can scale to a larger audience.

The Benefits and Features of Public Blockchain

The public Blockchain is considered the first distributed ledger system that led to the development of blockchain technology. Anyone in the entire world has access to send, receive, and verify transactions on these digital ledgers, as well as audit them. Each transaction must be approved by all the nodes or computers that make up the network through consensus. Bitcoin, Ethereum, and Litecoin are some of the popular public blockchains. Everyone can submit data, use it, and govern public blockchains. Features and benefits of the Blockchain include:

Distributed Ledger

The databases that are on public blockchains, unlike client-server systems, are decentralized. Every node of the blockchain platform has its master copy of the database, and each one contributes to validating new transactions. It helps eliminate the intermediaries who are often present in the chain of centralized transactions.

Security

Due to the distributed and decentralized nature of public blockchains and ledgers, there are few chances for manipulations, hacks and attacks, as it's impossible to alter or make changes simultaneously on every copy of the database available at each node.

Anonymous Users

The anonymity provided by public blockchains is also a significant benefit. The identity of the users can be protected by using cryptographic identifiers called public keys.

Read More: BLOCKCHAIN Future: How and where can we use it?

The Downsides of Public Blockchains

Despite the benefits of using public blockchains for your business, you should also be aware of some limitations. These limitations can include the following:

Scalability

All blockchain users, or nodes as they are called in the industry, must validate every new transaction. This results in slow transaction speeds and low throughput. A public blockchain would be a challenge for businesses that require instant confirmations of transactions, like Paypal and Visa.

Smart Contracts

Smart Contracts are immutable, and the outcomes of smart contracts cannot be reversed. Smart contracts are irreversible, and businesses cannot risk deploying them.

Storage Constraints

Each computer in a blockchain network stores information blocks forever. This results in imposing heavy storage requirements that could be more realistic for business applications.

Power

As public blockchains need infinite storage space, their reliance on mining algorithms and consensus require high-powered computing power and energy. The high costs are not feasible in the context of business integration.

Transparency

This is another major downside to public blockchains. There is little to no privacy in transactions.

Private Blockchain for Companies

Only through invitations can participants join a private blockchain network. Their identity and other information must be authenticated. Validation is performed by either the operator of the blockchain network or by an established protocol that has been implemented on the web via smart contracts or other automated methods.

Private blockchains restrict who can participate. The private Blockchain could limit which users are allowed to execute the consensus protocol that determines mining rights and rewards. Moreover, the ledger could be maintained by only a few users. Owners or operators can edit or remove entries from the Blockchain if they choose.

The Benefits and Features of a Private Blockchain

Private blockchains are based on permission-based relationships and restricted access. Users are typically invited to join the Blockchain and then validated according to rules set by its admin. Enterprise blockchains are usually used by businesses for internal purposes, with only employees and company members having access. Non-members are allowed to join the chain if they have a legitimate reason. Quorum Hyperledger Fabric and R3 Corda are examples of prominent private blockchains. This blockchain version has the following features and benefits:

Controlled Access

Private blockchains are characterized by the ability of their admins to control who has access and who does not have access. The business identity management system validates new users and grants them access to the enterprise's information.

Faster Transactions

Enterprise Blockchains are more secure transactions. They have fewer nodes than public blockchains. The processing of activities or transactions is rapid because the number of users who need to agree on a trade is less.

Effective Governance and Control

Private blockchains have a central authority that controls the entire virtual platform. The admin specifies standards, procedures, methods and tools that will be used to ensure the daily administration of the virtual forum.

The Downsides of Private Blockchains

Insufficient Trust

Private blockchains are run by a few nodes that have the power to validate transactions. All users, except for those who have validation rights, cannot be trusted to the point of being given governance rights.

Security

Because there are fewer users on private blockchains, it is much easier for a single entity to control the network or to alienate them for fraudulent, selfish purposes. This makes it more vulnerable to attacks and hacks.

Similarities of Public Blockchains and Private Blockchains

Here are some similarities between the two types of blockchains:

Immutability

Blockchain technologies are all immutable, regardless of whether they're public or private. This means that authenticated data, also called blocks, cannot be altered or deleted by a single person or group of individuals.

Authentication

Both public and private blockchains rely on the users or members to authenticate or approve edits, such as the addition of new activities or transactions.

The Peer-to-Peer Ledger Replica

Both public and private Blockchains retain and disseminate in real-time copies of data or blocks across all computers/users (referred to as nodes) of the network in order to prevent instances of illegal tampering.

Read More: How Will Blockchain Technology Be Beneficial For Companies In The Future?

Differentiating Between Public and Private Blockchains

Magnitude

Due to their reduced transaction volume, private blockchains have a higher throughput. Public blockchains, on the other hand, are much heavier because of the large volume of activities they are constantly undergoing.

Level of Access

Public blockchains are open to all users. Data verification, addition and use are available for everyone. In private blockchains, only authorized parties can join the network.

Control

While private blockchains tend to centralize control over the network into the hands of a select few, public blockchains enjoy the fact that they decentralize authority and put it in the palms of every user of the platform.

Security

A public blockchain's decentralized nature, combined with the active participation of its users, enhances the network's security. Due to their private nature, they are at greater risk of insiders manipulating the system, hacking, or breaching.

Three Considerations and Uses for Employers and Businesses

It is essential to consider your specific needs before deciding whether you should use a private or public blockchain. Before making your choice, you need to consider three things:

Confidentiality

Do you intend to use blockchain technology in transactions that contain proprietary, sensitive or confidential data? Are you comfortable using public blockchains to store and transfer employee medical records, personnel files, personal identification information, records of the business, intellectual property, or trade secrets?

Businesses may be concerned about using a public blockchain, depending on the type of information. Remember that anyone who uses a public chain can see your transactions. There are ways to protect this data, including encryption or using NFTs. However, you might want to avoid storing or transferring it on a public blockchain, especially if an accidental release could violate privacy laws or healthcare laws or terms of confidentiality agreements. Companies that are looking to control their data, privacy and access to it can benefit from private blockchains.

Private blockchains, however, pose risks to businesses operating in competitive markets. As an example, since the owner of a blockchain is in control and can set the rules and access, companies that use private blockchains risk being locked into poor solutions (since most blockchains are fee-based or subscription-based), losing the ability to manage potentially competing data and becoming at the mercy the company that controls the Blockchain. Once participants have been locked into a platform, the owner may only continue doing business if they accept new terms.

Speed and Congestion

Payroll is the most significant expense of many businesses. Blockchain technology can have a dynamic impact on the payroll process. The payroll process is currently a manual one, requiring many tedious, repetitious and time-consuming activities. Smart contracts, however, allow blockchain technology to eliminate delays in the payroll process and speed up the whole thing. The ability to increase the speed and efficiency of payroll is essential when you consider the time and resources that are spent on this task. Which Blockchain is best for you?

In general, a private blockchain is capable of handling hundreds to thousands of transactions per second. Some public blockchains, on the other hand, can only handle 20 transactions per second. Congestion has increased as more users compete for space on public Blockchains, which in turn can slow down transaction speeds.

Private blockchains are likely to avoid the same issues of congestion because they can restrict the total number of users and place transactional restrictions. Private blockchains, however, sacrifice security and decentralization to achieve speed. The result is a greater vulnerability to malicious attacks and hacks.

Auditing

It's no secret that audits can be stressful and intimidating. Unannounced, a government agency will arrive at a company and ask for records dating back several years. These records can include financial documents, payroll records and tax records. It cannot be easy to gather and organize this data. Failure to comply with the request can lead to a substantial penalty. Blockchain technology is beneficial as it allows auditors to securely and quickly share documents while reducing costs.

The information on the Blockchain is secure, so the likelihood of fraudulently altering or manipulating documents is significantly reduced. Decentralized public blockchains offer better security, reliability and trust because they are decentralized. Will auditors know how to use a public Blockchain and gain access to the records? Is it a good idea to store these records in a public Blockchain? You can keep records on Blockchain that are subject to government audits. All of these are issues that you will need to consider.

Government agencies may find it easier to access a private blockchain as an employee of the company could give specific directions about where and how the information is located. If an auditor is required to examine data related to transactions made by a particular individual, a private chain would make it easier for them to do so than a publicly accessible blockchain because the controlling authority will know each of its users.

Would an auditor be able to trust that the data was authentic due to its centralization? Is it wise to store your data in a central blockchain, given the fact that there are more cyber-attacks and a single failure point? One careless employee could bring your system down. Would you continue to take on these risks if there were other alternatives? These are all issues that you need to take into consideration.

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Conclusion

The use of Blockchain technology in business will increase over time. When deciding whether or not to implement a private blockchain, employers should compare their needs to those of the Blockchain. To determine which route is best for your company, it's recommended that you conduct a thorough evaluation with blockchain developers and entities who are familiar with the technical side of blockchain implementation for business cases, as well as with legal counsel.