Blockchains have garnered interest from investors from all over the world due to their incredible promise of being an incorruptible ledger. When most people think of blockchains, they are referring to the decentralized or public blockchains like Bitcoin which anyone can access and participate in. However, blockchain technology is not limited to being just decentralized as the centralized or private blockchains also have some advantages for corporations over the public ones. Private blockchains are useful for corporations who want to use the power of decentralized ledgers to improve the ongoing function. Let’s take a look at an in-depth comparison of public and private blockchains.

 

Similarities Between Centralized and Decentralized Blockchains

From a technological standpoint, both centralized and decentralized blockchains are very similar as both are distributed peer to peer networks where every node is responsible for storing and securing the shared ledger. Both public and private blockchains require a consensus mechanism (like proof-of-work or proof-of-stake) among nodes to establish a single ledger. Both of these types of blockchains also have to provide upper and lower bounds on the security and efficiency of the network.

 

Differences Between Centralized and Decentralized Blockchains

The biggest factor that differentiates public blockchains from private ones is the pool of nodes that can participate in the network, and make administrative changes to the network. So, for example, Bitcoin which is the largest public blockchain in the world has no barrier to entry when it comes to accessing the ledger and sharing computer power to execute its proof of work algorithm. By contrast, IBM’s HyperLedger Fabric is more customizable in the sense that the organization that is deploying the blockchain has a say in every aspect of blockchain participation. Private blockchains are typically more restrictive in who they allow making changes to the ledger as they use the blockchain for the internal records.

 

Advantages of Decentralized Blockchains

Decentralized blockchains like Bitcoin, which is the most popular blockchain in the world, have very high security because of the enormous amount of mining resources that go in to secure the network. That means to coordinate a successful attack on the Bitcoin network; a malicious actor would have to acquire a massive amount of resources which is economically unviable. Another advantage is that anyone can use the network to send funds to any part of the world without going through an intermediary.

 

Disadvantages of Decentralized Blockchains

Due to their public nature, public blockchains like Bitcoin are susceptible to all kinds of analyses that can reveal more information about the network participants making the blockchain less private. The massive amount of miners mining on the network means that difficulty needs to keep increasing thereby leading to mostly useless computations done by miners to outcompete each other. It is estimated that every Bitcoin transaction costs about as much electricity that is required to power an average home for eight days. Therefore public ledgers are not very environment-friendly.

 

Advantages of Centralized Blockchains

Centralized blockchains offer much more customizability and control over the network to the organization deploying it as they can decide who gets to participate in the network. That means that not as much resources have to be invested in competing to secure the network which makes Centralized Blockchains more environment-friendly compared to their Decentralized counterparts. This also means that they have higher overall throughput because they get to decide the hardware that the network runs on. In practice, this means that corporations could use private blockchains to store sensitive information among nodes that they trust. This allows them to use the incredible power of blockchains without having to make the sensitive information public.

 

Disadvantages of Centralized Blockchains

Since there is not as much computing power securing the network as in the case of decentralized blockchains, centralized blockchains are less secure. It only requires a few of the nodes hosting the network to collude by amassing enough resources to hack the network. Also, since transactions are not publically viewable, it is harder to verify the authenticity of the transactions for an outside party. Also since private ledgers are not available for public use, they are of little use to anyone besides the corporations that deploy them.