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 checked and managed by a network of computers (nodes). Cryptographic hash functions are special hash functions where the input value produces a fixed output. Depending on how you use them, they are divided 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 circle 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 companies or the healthcare sector, for example for the management of medical records. With private chains, it is therefore much easier to protect the data of the participants.
What is a public blockchain?
In contrast to private blockchain, a public blockchain offers control for all people. In theory, everyone has access to the network and anyone 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 they have the right technical and cognitive skills. 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 open to everyone.
- Control: Private chains offer greater control and governance to participants, while public chains are decentralized and more transparent.
- Data protection: Private chains offer a higher level of data protection, while public pseudonymous data can be viewed more easily.
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