Private Blockchain Explained

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Private Blockchain.

Private Blockchain Explained

Last Updated: 11th December 2018

Blockchains are decentralized peer-to-peer systems that make use of network participants, or nodes, in order to maintain a shared ledger as to the current state of a network. The distributed nature of blockchains ensures the integrity and immutability of the ledger; consensus must be reached amongst network participants as to the current state of the blockchain.

The first use case of blockchain technology was in the creation and distribution of cryptocurrencies, with the most popular example being Bitcoin. Bitcoin makes use of the technology by maintaining a ledger of all economic transactions that takes place on its network. An example of an economic transaction would be: “Alice sends Bob 1 bitcoin”. Transactions such as these are then bundled together to form a block, which is then cryptographically linked to other blocks to form a blockchain.

The Bitcoin blockchain is what is known as a public blockchain. This means that there are no restrictions as to who can participate on the network, and in what form. For example, a participant on the Bitcoin blockchain could be in the form of a node operator, someone who is responsible for checking the validity of transactions against the network’s consensus rules. On the other hand, a participant may be a miner, someone who is responsible for appending blocks of transactions to the blockchain.

This contrasts with private blockchains, which do restrict who network participants can be.

Private Blockchain

A private blockchain differs from a public one only in that in order to access it, participants must be invited or meet a certain set of criteria. These restrictions ensure that only specific entities can be granted access.

One example use case of private blockchains include: the execution and recording of transactions between large financial institutions. In this context, banks could use blockchain technology to form a distributed network and transact amongst each other. This offers the advantage of a more seamless trading experience, as typically, banks have differing technologies which must communicate in order for a transaction to be successfully executed. In this scenario, access to the private blockchain is limited only to banks; there would exist a protocol on the network for admitting new banks as well as coming to consensus as to the current state of the network. In addition, private blockchains preserve the privacy of its participants and their activities, and so, is the natural choice for institutions who value privacy.

Other uses cases of private blockchains include:

  • Vote counting – governments could utilise this technology during democratic processes.
  • Digital identity – governments and corporations could use private blockchains to store the digital identities of citizens and employees.
  • Asset ownership – institutions may use a blockchain to track the ownership of financial assets such as stocks and bonds.
  •  Supply chain management – corporations may use blockchains to track goods in its supply chain.

Aside from their potential use cases, there do exist real-life examples of private blockchains.

Examples of a Private Blockchain

Examples of private blockchains include:

Hyperledger Fabric is an open source blockchain implementation framework that uses smart contract technology and is hosted by The Linux Foundation.

Corda is a private blockchain project developed by the company, R3. Corda allows companies to build blockchain networks that can facilitate for direct business-to-business transactional and smart contract privacy.

Conclusion

To conclude, private blockchains are decentralized peer-to-peer networks that rely on network participants to come to consensus on the current state of the network. Participants must be invited or meet a certain set of criteria in order to be granted access.

Example use cases of private blockchains include: monitoring and executing transactions, vote counting and supply chain management.

Private blockchain projects currently in development include: Corda and Hyperledger Fabric.