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How useful are private blockchains?

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Almost every particular business is obligated by contracts to collaborate with a lot of different organizations in order to deliver their goods and services, and a private blockchain is presented as something that can add more efficiency by automating these operations between different parties.

Back in 2008, the original Bitcoin blockchain was created to act freely without intermediaries such as banks or central governments. However, this kind of technology can still work within the locked radius.

This means a private entity, usually the company, can implement its own blockchain and observe all the transactions added to the chain. This doesn’t mean the system isn’t secure, but it means that the project is based on the trust of decision-makers.

There are numerous big suppliers of digital platforms based on the private type of block technologies, such as Ripple or R3’s Corda. These are called permissioned blockchains as they usually halt access to transaction data.

Back in 2019, China started building a platform that seeks to boost the implementation of this kind of technology in companies. Dubbed the Blockchain-based Service Network (BSN), its product is focused on companies, especially their operating cloud computing infrastructure. However, outside of China, companies suddenly discovered that enterprise, or private chains were totally useless. In 2021 IBM decided to dismantle its blockchain team. Just few months later, Microsoft decided to ditch its service on its Azure cloud.

Even though it was once seen as a great initiative in the health and medical sector, the U.S. Food and Drug Administration decided to not proceed with exploring blockchain use cases in its field.

According to technology market research company, Gartner “successful permissioned enterprise blockchain projects are scarce.”

Gartner commented that even though things such as DeFi, tokenization and digital payments can seem attractive, enterprise blockchain doesn’t work that way since its users “are stuck trying to align use cases to the technology.”

“The value of permissioned blockchain is hard to understand since it does not implement the most revolutionary aspect of public blockchains – i.e., trust minimization and elimination of central authority, achieved via decentralized consensus,” Gartner wrote.

What is a private permissioned blockchain?

Private permissioned blockchain means it operates within the closed framework — meaning it can be good for companies as it handles immense amounts of data and transactions that businesses normally process.

In a private permissioned blockchain, the whole network is shared by a consortium of companies. The network administrator is the one who configures roles and permissions for all nodes and users who act as participants within the consensus process.

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How does a private network work?

• Not all network users have equal rights. The latter is the result of the position user has within the organization

• Not every user has the granted permission and different data types are accessed only by those who have

• Network participants set the rules for the access mechanism

One of the most famous enterprise blockchains is Hyperledger Fabric.

It provides strong reliability of the state itself and, at the same time, manages to do numerous transactions in only one second.

When should one consider private blockchain?

The main difference between private and public blockchain is that anyone can join the public one. Only authorized users can become members of a private one.

Usually, startups like to accentuate the importance of the trustless concept within the public one that is fertile ground for innovations, and enterprises are more inclined to the usage of a private chain in order to create multi-party business applications that have high scalability and operate inside of a trusted environment.

What is it more appropriate to use in a business enterprise environment?

For companies, private blockchains tend to be more efficient than public. Still, the problem is that these sometimes alternate speeds for decentralization.

Still, private blockchain companies can earn profit by simply signing contract deals with other companies. They enter in arrangements with other firms in order to create this kind of infrastructure and, therefore, design and develop blockchain applications. They also provide services for some period of time by signing this contract.

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Author: Teuta Franjkovic

Author: Teuta Franjkovic

A sincere writer with a strong will to share knowledge on all things blockchain, crypto, metaverse and DeFi. Starting out as a writer with Cosmopolitan, Teuta has risen through the ranks of business journalism, editing newspapers and websites within the fintech industry for over 15 years. She holds a double MA in Public Politics and Entrepreneurship.

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