Blockchain technology has evolved since the creation of Bitcoin in 2009. Today, there are various types of blockchains, with the most popular being private and public blockchains. This article focuses on the former. Keep reading to learn more about private blockchains and how they work.
Understanding a Private Blockchain
A permissioned blockchain, popularly known as a private blockchain, is a network controlled by an organization or a company, which dictates who can run nodes, access its database, and engage in transaction validation.
In other words, only parties selected by the controlling organization can access a private blockchain. The goal is to ensure information stored on these networks remains private.
Private Blockchains’ Key Features
Private networks share some features with other types of blockchains, such as consensus, distributed ledger technology, transparency, and immutability. However, they have extra features that make them unique, including:
Permissioned Access
As mentioned, only authorized parties can access private blockchains. That means controlling organizations or companies have the power to decide who joins their blockchains and who gets restricted. Furthermore, the controlling entities know the identities of all the involved parties.
Enhanced Security
While the controlling entity of a particular private blockchain can see information about each participant, this data is not accessible to any other party, making it confidential. Additionally, the process of selecting new participants is done thoroughly to ensure no malicious actor accesses the private blockchain, thus keeping the network secure.
Controlled Consensus
The consensus mechanisms adopted by private blockchains have rules customized by the controlling organizations/companies. The rules guide the governance and transaction validation processes.
How Private Blockchains Work
Private blockchains have several parts that enable them to work as expected. They include:
Nodes
Devices that validate and store data on a blockchain are called nodes. Each private blockchain has a network of nodes usually operated by the controlling entity, which has the power to delegate nodes for validating transactions to specific participants.
It is worth mentioning that delegated nodes cannot access the entire ledger of a blockchain. Instead, they only access data of the transactions they validate.
Consensus Mechanism
As stated, controlling entities of private blockchains set the rules for validating transactions to ensure selected validators reach an agreement before any transaction is completed. Consensus mechanisms used by private networks promote accountability, given that all validators are known to the controlling group.
Privacy blockchains use different consensus mechanisms, which include Federated Byzantine Agreement, proof-of-authority, proof-of-elapsed-time, and proof-of-importance.
Data Privacy Measures
By verifying each participant, entities behind private blockchains ensure bad actors are restricted from accessing the networks, thus keeping blockchain data secure.
Pros of Private Blockchains
Permissioned blockchains have several benefits, including:
Data Control
Controlling entities limit access to blockchain data. This blocks unauthorized parties from getting their hands on confidential user information.
Scalability
Most private networks have fewer users. Therefore, they rarely face network congestion issues, allowing them to process transactions quicker than public blockchains. Furthermore, since these blockchains have fewer nodes, agreements are reached quickly, thus enabling necessary changes to be implemented fast.
Cost Efficiency
Transaction fees on private blockchains are considerably cheaper than those incurred on public blockchains. Moreover, these fees do not increase when demand surges.
Cons of Private Blockchains
Like other blockchains, private blockchains come with their own disadvantages. They include:
Centralization Concerns
Centralized organizations control private blockchains. They have the power to alter or delete on-chain data. This has led to concerns over data integrity.
Limited Transparency
Unlike public blockchains, private blockchains are not full transparency, considering only the controlling entities have access to the entire ledger.
Integration Problems
The consensus mechanisms adopted by private blockchains limit interoperability. That means most private networks cannot integrate with other blockchains to allow the transfer of digital assets from one network to another.
Conclusion
Although some blockchain enthusiasts have concerns about centralization on private blockchains, these networks have the potential to revolutionize how traditional companies record and manage data.
