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A public blockchain is a network that is free for all to participate in, without any restrictions. Anyone can see the ledger and take part in the consensus process. Tezos, for example, is a public blockchain, which means anyone can add nodes (or ‘bake’ in the Tezos ecosystem) and use the blockchain for transactions.
A private blockchain, on the other hand, gives an organization authority over the network and is therefore not open to public participation.
This section looks at the advantages and disadvantages of public and private blockchains and provides guidance on which option could be the right fit for your company’s needs.
What is a public blockchain?
Blockchains were originally conceived as a public, open-source platform. All public blockchains have a consensus mechanism, and anyone can participate, build, transact with their peers, and take part in the consensus mechanism.
Public blockchains are fully decentralized - no one person, organization, or group holds power to decide what activity occurs on-chain. Every block added to the chain is immutable, providing excellent security and a complete record of all prior transactions.
Additional benefits include total transparency (as all participants can see the ledger), high security (see the immutability of blocks on-chain), and an open environment. Participants can also generate value by mining or baking blocks and participating in the consensus mechanism.
Depending on the KYC (Know Your Customer) procedures dApps (decentralized apps) use on public chains to verify IDs, users may be able to fully own their private keys and data stored in their on-chain wallets, known as decentralized identities. These wallets are depicted as smart contract addresses on block explorers and can also be anonymous. These users can transact with any business if the underlying blockchain technology supports it.
From a regulatory lens, opportunistic bad actors could capitalize on the lack of regulation to engage in illegal activities such as money laundering or the trafficking of controlled substances. Despite this, the community can work to punish bad actors and restore balance to the network. This can be done by auditing the flow of funds on-chain due to the transparent nature of the blockchain. So while there is no central authority, there are centrally-guiding principles of immutability and transparency embedded into smart contract code. This creates a system of checks and balances. Eliminating their transaction processing rights is one such punishment.
Public chains are also more resilient as their nature stems from accumulated code security. Put simply, Tezos offers software that has survived the constant challenge of securing large-scale public blockchains. This means they have reached a level of safety that’s not attainable by enterprise-driven efforts. These enterprise efforts only have accumulated experience in securing the chain in the form of a number of private deployments.
In essence, a public blockchain, by its very nature, is strengthened by the number of nodes participating in the network. A private chain simply can’t compete in terms of scale and exposure to a wider range of network events.
Overall, public blockchains offer full empowerment to their users. It is not governed by a central authority and all users are equally free and able to participate, generate value, or transact business.
Of course, enterprises utilizing public blockchains will need to comply with the laws of the country they’re operating their node (or nodes) in, subject to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations in particular.
This is where a mempool comes into the picture. A mempool is a set of all pending transactions, with all transactions being broadcast via a blockchain’s nodes. It’s possible for every node to have a different mempool to its peers, and bakers on the Tezos network are able to choose any transaction they like from the mempool. This means bakers can be selective by only processing transactions that are compliant with local regulations.
Mempools, however, don’t have to be public. Private mempools let a transaction issuer conduct operations on a private server, such as transfers and smart contract deployment. That server is only accessible to a group of select bakers authorized to validate the operations on that particular private node. This can offer enterprises an added layer of privacy and security when conducting transactions on a public blockchain.
Because mempools don’t have to be public, it’s critical that enterprises should consider building their blockchain applications and businesses on the public blockchain. This enables transactions to be conducted in compliance with local regulations. Furthermore, privacy is possible, the gas fees are low and because the software is open source, a business can design and launch a project on-chain.
The following section looks at private blockchains, how they differ from their public peers, and why a user or company may choose to create a private blockchain.
The main difference between public and private blockchains is that private blockchains are created by a single entity (or consortia) and therefore only have a partially decentralized authority. It’s not possible for just anyone to create a node or participate in the consensus mechanism.
Because their ledgers are not public, private chains are, as their name suggests, private, which could suit corporate users well. A private blockchain could be used for corporate intellectual property, internal transactions, and any other activity where the ability to view the ledger publicly (as in a public blockchain) would not suit corporate interests. Private blockchains are generally more efficient than their public peers because of the limited number of nodes. With a public chain, the more nodes, the greater the computational power required, and the longer a transaction takes to write to the blockchain. A private chain only allows a handful of nodes or users, and so adding blocks to the chain takes less time, energy, and resources.
The gas fees (that is, the fees charged to write a transaction to the blockchain) can be significantly less than many public chains, although this varies from public blockchain to public blockchain.
Private blockchains also don’t have the problem of illegal activity because only approved players can create nodes and write transactions to the chain. Corporations can also write the rules for their private blockchain, and everyone who participates is bound to those rules.
