A blockchain is a digital database that stores transactions or information in the form of blocks. Each block contains a list of transactions and a reference to the previous block. This reference creates a chain of blocks, which is why it is also called “block” “chain”. The data is secured by cryptographic hash functions and is verified and managed by a network of computers (nodes). Cryptographic hash functions are special hash functions in which the input value produces a fixed output. Depending on how you use them, they are differentiated into private and public blockchains.
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What is a private blockchain?
Sounds self-explanatory at first glance: private blockchains have a limited range of possible access. In contrast to public ones, access rights are required here in order to be able to view the stored data. They are usually used by companies or organizations to protect sensitive information. Private chains are suitable, for example, for insurance or the healthcare sector, for example for the management of medical records. With private chains, it is much easier to protect participants’ data.
What is a public blockchain?
In contrast to private blockchains, a public blockchain offers control for everyone. Theoretically, everyone has access to the network and everyone can validate transactions. However, the latter only applies with one restriction. In order to be able to validate transactions in proof-of-stake systems such as Ethereum, you need a certain number of coins. Proof-of-Work systems, on the other hand, require special mining equipment.
The classic and most common use case for public chains is cryptocurrencies. Anyone can set up a wallet and send cryptocurrencies, provided he or she has the appropriate technical and cognitive requirements. Typical public chains are, for example, Bitcoin, Ethereum or Litecoin. This is also referred to as Layer 1 solutions.
The differences at a glance
- Access: Private blockchains have limited access, while public ones are accessible to all people.
- Control: Private chains offer participants greater control and governance, while public ones are decentralized and more transparent.
- Data protection: Private chains offer a higher level of data protection, while public chains make it easier to view pseudonymous data.
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