Is a Private Blockchain Worth it?
By: Amrit Mirchandani
Tags: Blockchain, Private Blockchain, PayPal, Bitcoin, Cryptocurrency

Private blockchains are the talk of the town with PayPal launching an internal blockchain for employee rewards. But are they worth it? Let us look at what a private blockchain is, what are the advantages of having a private blockchain over a public one and whether it is really worth having one compared to just a normal database controlled by a central entity.

What are private blockchains?

Blockchain’s invention is arguably linked with that of Bitcoin, the biggest, most valuable and most popular public blockchain in the world. Most blockchain projects that followed Bitcoin’s path are public, which means their ledger is available online for anyone to see. Although one cannot see the person behind every transaction since wallets can be created by anyone without any identification, the transactions are online for everyone to see and analyse. This is considered to be a feature of projects like Bitcoin, Ethereum.

However, not every use case requires and can allow such drastic levels of transparency. Private blockchains do not allow anyone to read / write / access / audit the blockchain without the required permissions. The actors are identified and given access to the blockchain network to transact.

Pros of Private blockchains

There are many positives of having a private blockchain. Let us explore the major advantages:

Privacy

Crypto movement is focused on transparency and giving power to the people. But it is often overlooked that it is the people who want privacy. No one wants their entire transaction history to be uploaded on a public ledger, protected only by a string of characters called the wallet address. It also puts an enormous responsibility on anyone transacting since they are completely in charge, they need to understand the basics of how blockchain works and secure their private keys and wallet address if they do not want the whole world to know how much wealth they own.

Scalability

Public blockchains are inefficient. Bitcoin, on its main chain, can only process a handful of transactions per second. This makes it useless when it comes to transacting on a daily basis. This problem plagues any public blockchain that is sufficiently decentralised.

A private blockchain, since it does not need to maintain a public ledger, is faster. Although there are no numbers, many companies are experimenting with more efficient private blockchains.

The Cons

Trust dependency

This is why private blockchains are not popular. Its very existence depends on a central authority maintaining it. This makes it exactly like a centralised database owned by a bank. Although private blockchain can be decentralised, it is not possible to know who owns the majority of funds making it a risky network to be a part of.

No proof-of-work or stake

Private blockchains do not require any resources to produce their tokens. So it is difficult to determine the real value of these tokens. Mining provides a backbone for valuation and projects like Bitcoin count on that to make their tokens valuable.

Private blockchains may be useful for corporates and governments to make their internal transactions faster and even decentralised to an extent that is better than traditional databases. But private blockchains are far from becoming the investment and trade vehicle as Bitcoin.

If a public blockchain project can scale on-chain or off-the-chain, private blockchains will be largely employed only for internal usage.