How do… private vs public blockchains work?

As blockchain remains a hot topic in adland and beyond, Fraser Gordon provides an explainer on the differences between public and private versions of the technology. A PhD in advanced mathematics is not required.

There are a lot of articles written about blockchain, many by people who are so clever that if you don’t have your PhD in advanced mathematics, you could struggle to keep up. I’m not one of those people.

While the use of blockchain is often associated with cryptocurrency and the technology has been touted as the solution to improved transparency and security in other areas, there are in fact two different types of blockchain networks. Only one of them is likely to have the capacity for widespread use outside of cryptocurrency.

Public blockchain

A public blockchain is what most people would be familiar with. It’s what Bitcoin and Ethereum are built on. Without getting too techy, transactions are recorded on the blockchain. These transactions are verified by people known as miners and these miners get paid for verifying and validating these transactions. Anyone can join the network, anyone can mine on it and get paid. If enough miners agree on something, they can actually change how the network operates. Crucially, no one owns a public blockchain.

Private blockchain

On the other hand, private blockchains, also known as permissioned blockchains, are essentially the opposite. It’s invite only. The network is controlled by a central organisation who decides who can or can’t join. Private blockchains are essentially using blockchain technology without employing the principles of blockchain. Bitcoin was invented so that a currency could exist that wasn’t reliant on a bank or regulatory body. A bank could have its own private blockchain. Why bother, I hear you ask? Blockchain as a technology framework is as close to unhackable as exists in the modern world. What’s in the chain can’t be replicated, changed or hacked. That’s appealing to banks and lots of other people too.


The reason public blockchains work so well for cryptocurrencies like Etha is that the information being stored on the chain is small and the transactions themselves have a monetary value – the transfer of currency from one account to another. Small transactions are cheap and quick to mine, relatively speaking. In fact a quick transaction time is round about 30 minutes. The bigger the amount of data to be processed, the longer it takes, the more it costs.

Smart contracts

Blockchain is thought to be able to revolutionise record keeping through smart contracts. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Legal documents, medical records, essentially any important document that stores confidential information would be better kept on blockchain than anywhere else. You might not, however, want to spend $2,000 on a public network every time you want to save someone’s medical history. Imagine the hike in your health insurance premiums!

By keeping records and smart contracts on a private blockchain, in a controlled network, where a business could have their own bank of computers mining the data automatically, the transaction cost element is taken out of the equation.

The tech isn’t all there yet, but with IBM’s open source Hyperledger Fabric and other private frameworks cropping up, it’s getting closer every day. There’s no quick or simple way to explain Hyperledger Fabric, but if you’d like to find out more then this IBM page explains it well.

Whether cryptocurrency will endure remains to be seen. Given the current restrictions and technology it’s never going to be much use for anything other than large, infrequent and non-time-critical transactions. If you want to buy a car in Bitcoin and it takes half an hour and costs $2 to process, no worries. If you want to buy a coffee with it, it’s less of an appealing prospect. Private blockchains however could be about to replace all current records management and storage solutions for sensitive documents.

And this is why private, or permissioned blockchains, are on the rise. A company could have its own bank of computers auto-mining documents to get them onto its private blockchain and have nothing to pay other than their electric bill. Which would still not be small, but a hell of a lot cheaper than the alternative. You also have full control over the running of your blockchain. All of the benefits of security and immutable records history, with none of the drawbacks. It’s not how it was originally intended to be used, but does that matter? Not to the people who have their medical records safely stored it doesn’t.

Fraser Gordon is general manager at Engaging.io.


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