A public blockchain is not owned by anyone. Anybody with an Internet connection can access a public blockchain without needing prior permission. There’s no one to get permission from because it is fully public and decentralized.
Bitcoin, Ethereum, and almost all cryptocurrencies as we know today all use public blockchains.
The public blockchain can be used for transferring anything of value—money or data—within the same network. As the blockchain is public, it is totally transparent to everyone. However, public blockchains have little or no privacy or security, both of which are important considerations for enterprise businesses.
Public blockchains are also grappling with scalability issues, particularly Bitcoin and Ethereum. When they are only lightly used, transactions are extremely fast and very cheap. But as the number of users on a public blockchain grow, transactions take longer to process while fees rise sharply, raising a need for second layer off-chain solutions such as the Lightning Network.
Defining Characteristics of Public Blockchains:
- Fully transparent
- Little or no privacy or security
- Anyone can participate
- Poses scalability issues
Private blockchains restrict access to those who are allowed to participate, and only for certain transactions. These are also known as permissioned blockchains, which is suitable for companies that don’t want their data to be publicly available.
Many businesses want or need stronger governance than they could have with a public blockchain. An organization that owns the private blockchain has total control, where they can change or delete entire blocks at will.
However, this negates the real purpose of blockchain technology—decentralization. If companies want to control or alter their own data, they could just use a centralized database.
Defining Characteristics of Private Blockchains:
- Higher throughput
- More secure and private
- Fewer participants allowed
- Not decentralized
Consortium blockchains are partly private and thus offer the “best of both worlds” hybrid between public and private chains. This can be used when two or more companies want to perform a transaction, but keep it hidden from public eyes.
Instead of keeping two separate ledgers—one for each company—all records are stored on the consortium blockchain. It is important to understand, however, that this type of blockchain is not controlled by a single entity.
Like private blockchains, you need permission to gain access to a consortium blockchain. The authentication procedures for verifying voting and governance are different from both public and private blockchains—consortium members may vote to authenticate someone’s access to their blockchain. As with public blockchains, records within a consortium blockchain also cannot be altered or deleted by any entity.
Defining Characteristics of Consortium Blockchains:
- Decentralized and immutable like public blockchains
- Access limited to a consortium of companies or individuals
- High throughput due to limited access and use
- Additional security and privacy over a public blockchain
Now we get into how companies benefit from using blockchain technology over a traditional centralized system, whether they choose a public, consortium, or private chain.