Can a private blockchain be the best for organisational use?

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  1. Private blockchain or centralised database?
  2. Examples of private blockchains
Photo by Shubham Dhage on Unsplash

More and more companies are opening up to the use of the blockchain technology, and most signs are pointing towards a great level of adoption of this technology within organisations.

The current most popular use and experimentation of the blockchain technology is widely done on public blockchains, for example the Ethereum and bitcoin blockchains.

Public blockchains, are blockchains where anyone is free to join and participate in the core activities of the blockchain network, it is a blockchain that is open to anyone. This has been a cause for concern for organisations who want to maintain their transactions and activities private and closed off from the public world.

Perhaps then, a different approach would be required to adopting the blockchain technology for organisations that feel this way. Instead of using a popular public blockchain, why not use a private blockchain?

What is a private blockchain?

A private blockchain is just that…private. It is a closed ecosystem that can only be accessed by those who are allowed access to it. It is a distributed ledger that operates as a closed database secured with cryptographic concepts and the organisation’s needs.

A private blockchain is not fully decentralised, it is controlled by a single entity and access to a private blockchain is given and controlled by this ‘trusted intermediary’.

This is why private blockchains are often referred to as ‘permissioned’ blockchains.

Unlike public blockchains, where anyone can download the software, form a node, view the ledger and interact with the blockchain, private blockchains are often run and operated by an entity (the “trusted intermediary”) who selects few individuals to act as validators. Only those with permission can run a full node, make transactions, or validate/authenticate the blockchain changes.

Private Blockchains are perfect for creating a closed B2B transactional ecosystem among a few business entities that evolve within a same vertical.

Organisations can deploy a private blockchain using either a distributed ledger model or a shared ledger model. Both of these methods require the presence of a trusted intermediary to run and control.

This does raise a number of questions though, questions like ‘How is this different from a centralised database? Wouldn’t this then defeat the whole purpose of a blockchain, making it decentralised? and How can invited participating entities get the assurance that their existing systems and data won’t be compromised by the implementation of a private Blockchain?’

These questions will have to be explored by management carefully to arrive at the best possible solution for the organisation.

Of course taking into consideration and weighing a lot of other advantages that a private blockchain offers, would have to be part of that exploration.

Private blockchain or centralised database?

What are the differences between having a centralised database and using a private blockchain within the organisation.

The private blockchain does retain some core blockchain properties. Although it is run through a trusted intermediary, the private blockchains do retain some unique features that make them preferable to centralised databases. Two of these features that are very important for an organisation are:

Digital signatures

Private blockchains retain the feature of using digital signatures.

When users submit transactions, they must prove to every node in the system that they are authorised to spend those funds, while preventing other users from spending them.

The use of digital signatures makes it easier for parties that don’t know or trust each other to approve and send transaction data for recording on to the blockchain without third party involvement.

This makes it easier to coordinate input from disparate parties.

Immutability

Much like Public blockchains, private blockchains retain the key feature of Immutability, meaning that it is hard to manipulate data once it has been written into the blockchain.

If data is changed it becomes immediately obvious to all participants, and rejected by them.

And since organisation historical transactions can be audited at any point in time, immutability enables a high degree of data integrity, therefore also reducing the time and cost of audits since verifying information becomes much simpler or effectively redundant.

Examples of private blockchains

There are a number of private blockchain services an organisation can utilise to adopt the blockchain in an organisation.

One of them is built on ethereum, ETH’s underlying blockchain, also has a private blockchain that serves enterprises. It is called Enterprise Ethereum, and it allows businesses to leverage Ethereum-based private chains and the public mainnet.

Another example would be the Hyper ledger Fabric which is a blockchain framework for developing applications with unique identity management and access control features. It gives management the ability to use the blockchain in supply, communication and financial services within the organisations.

Of course, they are still a lot of concerns that are raised and left to be answered with the use of the private blockchains, and pursuing these answers will mean discovering and developing more practical solutions that will advance the adoption of the blockchain.

What are your thoughts on this? Leave a comment and share your thoughts in the section below?