What is Private Blockchain?
A private blockchain is also known as a permissioned blockchain. As the name suggests, It is overlooked by a single private organisation which has full authority over the network. They decide who can participate and invite them into the blockchain network where their identity or other information required is verified. Unlike permissionless blockchains, It is not open to the public where anyone can access, read and write on the blockchain.
In the case of mining, due to the network’s private nature, the single entity controls which users can execute the consensus algorithm required for deciding the mining rights and rewards. Apart from this, every participant’s access rights are also controlled; some are restricted from viewing all or some data on the ledger, while others may be allowed to submit new transactions. At the end of the day, the right to edit, delete or override any entry lies with the owner or organisation.
How does a private blockchain work?
A private blockchain is usually controlled by a single trusted organisation such as a company limited by guarantee or a joint venture. In both cases, blockchain technology is set up to solve a particular problem. This blockchain software is either built by the organisation itself or licensed from third parties such as Hyperledger. The private blockchain network is formed using this software to set up nodesthat require access to participate in the network. The set of core nodes is run by the organisation itself or delegated to subcontractors. These nodes, also called validator nodes, are in charge of validating transactions before they are recorded on the ledger.
Main characteristics of private blockchains
- Permissioned
It is a closed blockchain, which means they are not accessible to the public or has a layer of access control. Only users with permission can access the network.
- Privacy
Complete data privacy is their main focus. It is a more centralised blockchain and therefore authorisation is required before participating or accessing any data in the process.
- High Performance
The number of participants in a private blockchain is limited, which is why fewer validators are required to carry out consensus protocols to reach a final decision. This makes its performance much faster and therefore easy to scale.
- No Anonymity
In a private blockchain, there is no anonymity as users are known to the owner. Documentation and other information need to be provided for the user’s identity to be confirmed.
Private blockchain advantages and disadvantages
Advantages
- Empower Enterprises
A private network works towards empowering enterprises. Rather than focusing on individuals, it focuses on the benefits organisation as a whole. These blockchain solutions are usually for the enterprise’s internal systems.
- No Illegal Activity
Individuals invited into the network are made to go through an authentication process. This ensures that all participants are verified, thus reducing the possibility of any illegal activities.
- More Scalable
Due to its limited entry, private blockchains have fewer nodes on the network. This means any implementation of changes and features on the network can be done easily, making it more scalable.
Disadvantages
- Centralised
This blockchain is usually used by enterprises and businesses which is why it is more centralised. It is controlled by one central authority, which authenticates and validates users.
- Requires Trust
Since only a few trusted participants have the authority to verify transactions, external players need to trust the private network, while having no control over verification.
- Less Secure
A private network has fewer nodes that validate transactions making it easier for hackers to manipulate or take control of the network. It is more susceptible to data breaches and other security threats, and therefore less secure.
Private Blockchain Use Cases
Now that we have a better understanding of private blockchains and how they work, let’s have a look at some of their use cases in the business world.
- Logistics & supply chain
Due to their security and privacy, private blockchains are a popular choice in the logistics industry. It is used to track every stage of an item’s delivery process in a supply chain.
- Financial services
The financial services industry has also gotten a massive boost with the help of private blockchains. Its cryptography key and digital ledger help companies identify their customers, while its regulatory compliance allows for the use of automated smart contracts.
- Healthcare
In the healthcare sector, private blockchain technology can be used to secure and track patient data. It helps avoid duplication with its distributed ledger, provides confidentiality and gets rid of other management issues.
- Banking
With the help of this blockchain platform, payments and fund transfer settlements are made much faster in banking. Organisations are also looking at the use of stablecoins, a cryptocurrency that would work as a part of a centralised network, where the issuing bank or investment company would have control over the network.
Private Blockchain Examples
Why private blockchain?
Private blockchains are seen as more desirable for business adoption as opposed to public blockchains because of their viability and promising nature. What makes it more beneficial is its scalability, transaction validation speed, computing and energy power, security and several other factors. Even though the idea of a private blockchain deviates from the basic ideology of blockchain, that is decentralisation, it is still a more practical choice.
Since there are different types of blockchain technology and numerous concepts, it is important to learn more about them and their features so that an informed decision can be made for their application in the real world.
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