What is blockchain? The difference between public and private blockchain

by August 31, 2018 0 comments

Blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data.

What makes them truly decentralized and usable for financial transactions or for contracts between two or more parties is, they can be combined with the difficult to achieve “Proof-of-work”. With proof-of-work, the system can be open, shared and yet secure against tampering. Cryptocurrencies are successfully using this system, where their blocks are backed by proof-of-work and resides on open sharable ledgers in public computers.

blockchain

Blockchain power lies in the fact that, the public open ledger with proof-of-work and critical enough nodes, have the potential to replace the centralized and regulated banking system. Blockchain can replace the recordkeeping of land records and deeds. It can also make the system transparent and foolproof.

It can be a very useful tool for the contract between two or more parties. However, the proof-of-work adds constraint of spending significant resources in mining. Secondly you need a critical mass of miners for your system, otherwise, it remains vulnerable to be taken over or played by someone with a powerful set of computing resources.

“Proof-of-work” cannot be very simple, its difficulty level is adjusted depending on the number of mining nodes, which constrains the speed at which the number of blocks that can be added to the blockchain. However, if you make the blockchain private between a limited number of trusted parties then you may let go the “proof-of-work” and instead may use the “Majority-vote” or other algorithms to solve the agreement problem in case of any disagreement. In this case, the trusted parties collectively become the source of trust rather than a public open ledger accessible to anyone to maintain and contribute to.

With private blockchain, businesses can form a consortium and store the agreements and private transactions information among themselves.

But private blockchains are subjected to the same risks as any other closed network. However, the good thing is, now a hacker has to hack the majority of the nodes to be able to change any significant number of transactions. But there is a good probability for a hacker to be able to hack into more similar nodes, if he or she hacks into one node as most of the companies just adopt the same technology with the same set of vulnerabilities.

In this case, the hybrid blockchain comes into play, the hybrid blockchain can secure the private blockchains with almost the same level of security as public blockchain with the proof-of-work. What usually done is, after every predefined number of blocks, their latest hash is secured on the public blockchain.

Once the block’s hash has reached into a public blockchain backed by proof-of-work then all the previous blocks become virtually immutable as a hacker has to go and change record in the Public blockchain. So the newly added blocks remain vulnerable only until their hash is not sent to the public. Please remember adding anything into public blockchain has monetary cost and a little time delay associated.

The private blockchain with the hybrid model has a huge potential to be adopted by a lot of departments in Govt. and financial institutions. Especially which deal with the record keeping work, such as land records and deeds or contracts.

Authored By: Nitin Gupta, Co-founder, CEO and CTO at NeuroTags

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