International companies are starting to recognize the effectiveness of blockchain. The central banks of different countries are considering the idea of issuing digital analogs of fiat currencies. But the introduction of such a broad and open technology is unacceptable for many firms because of excessive publicity, as everyone wants to keep corporate secrets. In view of this need, a private blockchain network with a limited level of access to the system has appeared, where all transaction management belongs to several entities. This type of registry destroys the basic principle of classic blockchain decentralization. Does this mean that an open technology without a regulator will turn into a more advanced, but common, familiar accounting system?
DeCenter has repeatedly written about how distributed registries consisting of a continuous chain of blocks help various industries and change the functionality of virtually all areas of life. Due to the obvious advantages of implementing a new technology, private blockchains have appeared in the operations of companies, which kill the main feature of the industry. But despite the new tendency of the system of being "not for everyone,” it cannot be said that the fad for decentralization is fading. It is instead acquiring a different, deeper, and broader functionality. This is due to the development of the entire crypto industry.
Famous crypto experts, such as John Wolpert, director of IBM global blockchain offerings, Amber Baldet, executive director of the JPMorgan's Blockchain Center of Excellence, and other workers in the economic industry are moving into startups that focus on public ideas, and say that all the boundaries between the definitions of open and private blockchains will soon be erased.
"I would like most people in the near future to consider it absurd to talk about private or public networks. Three years ago, the industry was divided into two of these concepts, but now everything is different," said John Wolpert at the Consensus 2018 conference.
According to the creator of Ethereum, Vitalik Buterin, three types of technologies can be distinguished within the blockchain industry:
Public blockchains in which transactions occur in a free order and are not controlled by anyone;
A blockchain belonging to a consortium, or a consortium blockchain, where transactions are negotiated by selected consortium nodes;
Private networks, or fully private blockchains, where there is a central authority controlling all transactions.
Soon, there will be no clear distinction between the three types of blockchain, because each type of technology has its advantages, which need to be combined into one efficient system.
"The connection of the system in the future can be considered evolution. Soon, the lines between public and private will be blurred in a pragmatic and functional internet space," said Amber Baldet, who until April of this year led the blockchain center at JP Morgan and developed technology in the global financial holding company.
It is worth noting that JP Morgan is an active user of the Hyperledger private blockchain, which is headed by the Linux Foundation. In addition to the American conglomerate, IBM, American Express, Nokia, Well Fargo, Cisco Systems Inc, Deutsche Börse, and other global companies from various fields are participating in the system.
Private Blockchain as an Intranet
Even the strictly regulated banking services world independent of blockchains is witnessing the penetration of public blocks with open access to private networks. Private blockchains are not the first type of technology that is used exclusively within a single company. Before that, the intranet was conceived as a type of corporate internet, an internal private network of an organization or a government agency. Therefore, a private distributed blockchain-based registry can be compared to a system of integrated computer networks within an organization.
"For a private and public version, I would use an analogy of an intranet and a worldwide network, because it is the same in terms of application and development. Private blockchains will dissolve in public technology and become insignificant," said John Whelan, director of the Blockchain Lab Banco Santander laboratory.
The private blockchain system has replaced internal corporate networks in traditional banks. The block register is much more efficient and simpler than the intranet, but it is worth waiting for the moment when banks themselves start implementing blockchain into their own systems, as the new technology requires close monitoring and detailed research.
"We are testing various approaches to the use of distributed registry technologies. The solution is of interest from the point of view of developing this platform. The speed of appearance of specific products and their specific parameters depend entirely on the progress of joint efforts of participating banks," stated the press service of VTB.
The Main Differences between Private Blockchains and Public Ones
The main distinguishing feature of private blockchains is a limited level of access to the system. All management is accessible to a certain circle of entities. Even the reading of conducted transactions can be restricted to authorized users, which means that the decentralized blockchain system becomes centralized, where there is no equality between the participants. Hidden data discredits the true concept of a technology accessible to all.
Still, private systems have their advantages:
Validators are company employees who will not be able to provoke a 51% attack;
Reduction of the cost of transactions, since reliability is confirmed by a small number of high-performance nodes. Thanks to this, all processes occur quickly;
When an error occurs, the company that owns the private network will be able to cancel the transaction and make changes to the balance;
Closed blockchains are much cheaper than public ones.
The entire network is controlled by a single management center, which constantly updates and improves system performance. Functionality allows one to predict future actions and calculate economic indicators.
Unlike in a public network, the Proof of Work (PoW) algorithm is not required at all for the effective functioning of a private blockchain. A clear number of validators have their own key pairs, where one is secret, and the second is public. All blocks in a private blockchain are formed in a certain order, and this allows one to track the sequence and personalize units, which, for example, missed a cycle. Mass introduction of private blockchains enables organizations to adhere to AML requirements and comply with KYC norms.
Therefore, the opponents of this type of blockchain, despite the existing advantages, say that privacy infringes the basic principles of traditional blockchains and contradicts the main advantages of a technology that was created to avoid centralized control and make all processes open.