The past few years have seen a growing interest in the blockchain, the technology which sits behind Bitcoin, with organisations as diverse as banks, shipping companies and manufacturers seeking to leverage the power of the blockchain to streamline business processes and to improve efficiency, thus driving increased profits.
There is no doubt that the blockchain has the potential to revolutionise processes which involve a series of transactions (such as the settlement of payments or the operation of a global supply chain). However, the blockchain is not a single, unified entity. There are a number of competing blockchains in the market such as the Bitcoin blockchain, Ethereum, Ripple, Corda and Hyperledger all of which operate in subtly different ways.
One of the key differences between the various blockchains is whether they are "private" or "public" blockchains. This is a point of contention in the blockchain industry, with many individuals arguing that private blockchains are not, in fact, blockchains at all and that the very nature of private blockchains undermines one of the purposes of blockchains – that they remove the need for a trusted third party to determine the accuracy of transactions and to arbitrate in the event of any dispute.
Public blockchains, such as Ethereum and Bitcoin, are blockchains which are accessible to anyone. For example, any individual can access the Bitcoin blockchain and enter into transactions using the Bitcoin blockchain. In addition to being open access, all of the data on public blockchains is public. Anyone can access the Bitcoin blockchain and see the ongoing flow of transactions, the value of those transactions and the parties to the transactions (although these are often anonymised). For an example of the public nature of the Bitcoin blockchain you can visit their website and see transactions taking place in close to real-time.
The key advantage of a public blockchain is that no one individual or company controls the information which is contained on the blockchain or the rules governing the blockchain. It is not possible for the "owner" of the blockchain to unilaterally change the rules of the blockchain to the detriment of the users and the information contained on the blockchain is authenticated by means of some form of agreement between the users of the blockchain.
Therefore, there is no need for the users of a public blockchain to place their trust in a third party in order to use the blockchain, rather, any user of a public blockchain can trust the blockchain itself.
In contrast to public blockchains, private blockchains are blockchains which are operated by an organisation or consortium of organisations and which are only accessible to individuals or organisations which have been granted permission to use the blockchain by its operator. Private blockchains are essentially private databases which are structured as a distributed ledger. An example of a private blockchain is Corda a distributed ledger developed by R3, a consortium of major banks.
For some companies, the private nature of a private blockchain is a key advantage, as it maintains the confidentiality of information concerning transactions made on the blockchain and prevents commercially sensitive information from being viewed by anyone with access to the internet. However, many supporters of the public blockchain argue that the confidential nature of private blockchains actually diminishes security, as blockchains might be manipulated without any of the users of the blockchains being aware of the manipulation due to the confidential nature of the transactions.
Another emerging advantage of private blockchains is the faster transaction speed which they offer, particularly when compared to the Bitcoin blockchain. Public blockchains tend to have relatively slow transaction speeds due to the large amount of information which needs to be transferred and processed in order for transactions to be validated. For example, it takes upwards of 10 minutes for the Bitcoin blockchain to confirm transactions, whereas private blockchains are likely to have significantly quicker confirmation times as less data has to be processed and transferred for transactions to be validated.
In the next few years it is likely that public and private blockchains will continue to co-exist, with different industries adopting different approaches depending upon the features of blockchains which are most important to them.
It seems likely that financial institutions will continue to be key promoters of private blockchains (probably through consortia such as R3), as fast verification of transactions coupled with the potential to keep information on the blockchain confidential is highly attractive to them. In addition, financial institutions have sufficient financial muscle to invest heavily in the development of private blockchains.
In contrast, other industries seem more likely to rely on public blockchains, as this will not require them to make a significant financial investment and the slower time to verify transactions is less important outside of the financial services industry.