WHAT IS A PRIVATE BLOCKCHAIN AND WHY IS IT NEEDED?
Many people associate blockchain technology with Bitcoin, but this is not a completely correct association. Bitcoin is just one of many projects that have gained popularity due to the insane rise in its value. However, in fact, behind all this popularity lies a unique technology.
What is blockchain? Blockchain is a distributed ledger technology - a chain of blocks with a specific set of data that records information about each transaction. Blockchain allows you to transfer information faster, more reliably and cheaper. Depending on the level of access, it can be divided into two groups: public and private.
In this article, we will explain what a private blockchain is and what is the difference between private and public blockchains. Read on to find out how it all works.
What is a private blockchain?
A private blockchain is a network to which access belongs to one person or authorized body. Private (also often called controlled) blockchains are technological solutions in which each participant has a predetermined level of access. Data uploaded to a private blockchain cannot be viewed.
Private blockchains do not fully implement the core principles of blockchain (decentralization of technology and equality of participants), as this can lead to significant risks for enterprise systems.
Examples of private blockchains
The most common example of a private blockchain that can be used in various projects and industries is the Hyperledger platform.
Hyperledger is an open source project from the Linux Foundation aimed at developing a number of blockchain business platforms, including Fabric from IBM, Sawtooth from Intel, Iroha, Indy and others. Based on them, you can create your own blockchain . Hyperledger provides a foundation and a set of interoperable tools for further development and customization.
Opportunities of private blockchains
There are several key features of a private blockchain that you need to know about:
Private blockchain ensures complete confidentiality. Only authorized persons have access to the network in a private blockchain. A potential user must obtain permission before accessing any data or participating in the process.
Private blockchain has high performance. Since the number of participants is limited, consensus can be reached by a small number of validators, which means private blockchains are much faster and can scale easily.
There is no anonymity in a private blockchain system. Users are known to the administrator; they provide documents and other information to verify their identity.
Why and when to use a private blockchain?
Private blockchains can be used in many areas, from accounting to agriculture. They can help save time and money by automating transactions between different organizations.
Why do companies choose private blockchain?
Increased trust: By implementing a private blockchain, companies can track the origin of counterfeit products and recall them in a timely manner.
Immutability: Once the information is recorded, no one can edit or change it, since the blockchain concept implies immutability. This prevents data corruption and reduces the risk of fraud.
Efficiency: Private blockchain speeds up various transactions. High data processing speed is a factor influencing the overall efficiency of the company.
In what areas are private blockchain systems most effective?
Blockchain consulting systems provide direct communication between policyholders and insurers. This helps avoid the use of unreliable third party systems and time-consuming and costly manual claims administration processes.
Every financial transaction involves many parties, each using their own internal decisions. Banks can use blockchain to collaborate on one transaction tracking system, which helps speed up the process.
Blockchain is a great idea for storing and managing electronic health records that contain patient health information. Blockchain-based healthcare solutions make these records easily accessible, ensure data security, and help streamline medical reporting.
Blockchain technology allows companies to track every component of a product, determine its authenticity, and prevent counterfeits from entering the supply chain. In this way, blockchain makes supply chains faster, more open, and more reliable.
Companies using private blockchains
Here are some examples of successful implementations of private blockchain technologies:
American multinational retail company Walmart uses a private blockchain food tracking system based on Hyperledger Fabric from IBM. This allows the company to track the origin of the product and the entire chain of its production in a matter of seconds.
Streaming service Spotify has acquired blockchain startup Mediachain to create a secure environment for protecting copyrights and paying musicians.
DHL and Accenture have launched a blockchain tracking and traceability system for the pharmaceutical industry that documents every step, from production to purchase, using unique serial numbers assigned to products.
How does a private blockchain network work?
Private and public blockchains function in a similar way.
Every computer on the network must confirm every transaction on the chain. Transactions are processed in blocks, which can contain several thousand records. When a block is full, it is closed, signed, and transferred to a new block as a unique hash. Thus, each block is connected to the previous block. This structure ensures that a transaction cannot be canceled or modified.
However, private blockchains have features that distinguish them from public ones, and here are some of them:
A private blockchain has full or partial centralization. Management in such blockchains is carried out using special nodes with elevated powers. They are responsible for the data distribution policy and user identification, and also certify the entry of data into the blockchain.
In private blockchains, only authorized participants can record information. Access to information can be general or limited, depending on the system.
The operating mechanism and access policy of a private blockchain system depend on specific protocols.
The private network operator has the right to cancel, edit or delete records in the blockchain.
Public vs private blockchain
The idea that private and public blockchains are rivals is widely held. This is wrong. It's just important to understand the difference between the two to make a decision for your project. Let's take a quick look at the main advantages and disadvantages of each solution.
Safety: The more people working on a network, the more difficult it is to attack, since all elements of the chain are interconnected. It is almost impossible for attackers to take control of the entire network.
Low operating costs: The effectiveness of the public network is “controlled” by the entire community - developers, users, service providers and miners, who ensure the integrity of the network and the comfort of working in it. Therefore, the system allows you to create decentralized applications with minimal maintenance costs.
Powerful network effect: In such an environment, it is easy for a developer to gather a large user base around his application, since users of some applications in the system quickly learn about others that have just been created.
Confidentiality: A private blockchain provides better privacy because access to the network is controlled and the data is often not even readable.
Speed: Private blockchains have far fewer participants, so the network takes less time to reach consensus.
Efficiency: Fast transaction processing improves business efficiency.
Scalability: Private blockchains can increase the number of transactions without slowing down.
Low transaction costs: Transactions on private networks are verified by trusted and powerful nodes, rather than by tens of thousands of user devices, as in public networks.
Confidence: The fact that the identity and role of each participant is not anonymous forces users to behave in accordance with established rules (or be held accountable according to the policies of the blockchain owner).
Data distribution using blockchain technology reduces the impact of human error, makes operations more transparent and increases data security. In addition, blockchain opens up new possibilities for a wide variety of processes and can replace many intermediaries.
Blockchain can be divided into two main groups - public and private. The principle of operation of both systems is the same, but the main difference is that the private blockchain is less decentralized and not anonymous.
Despite this, both public and private blockchains are in demand in different areas.Each of them has benefits and drawbacks of its own. Therefore, when integrating blockchain technology into your project, it is important to ensure that you have an experienced team that can make the right decision. If such specialists are not available, you can consider hiring blockchain developers on a permanent basis or through outstaffing.
