A private blockchain is a type of permissioned blockchain. Permissioned networks place restrictions on who is allowed to participate and the types of transactions they can participate in. When people get into blockchain, there is naturally a debate about the type of blockchain because there are so many different types of blockchains. Examples of private blockchains include platforms like Hyperledger, Hashgraph, Corda, and more.
Private blockchains are more specifically called permissioned blockchains. When we talk about private blockchains or when we hear people talk about private blockchain solutions, we tend to talk about things that are private and closed. We want to control who can write data to the blockchain, and we also want to control who can read data from the blockchain. In order to do this, the first step is identification. We need to know who is part of this blockchain network. If we don’t know who the users are, it becomes very difficult, if not impossible, to define rules about what data can be delivered to the ledger and what data can be consumed from the ledger.
When we talk about a private blockchain, imagine a permissioned blockchain that has the idea of ​​identifying you from the beginning. This is very different from a public platform like Ethereum, where the platform tries to protect and maximize anonymity. As mentioned earlier, these platforms are designed not to know who the user is.
Most of the time, private blockchains tend to come with identity management tools or have a modular architecture where you can integrate your own identity management solution. This tool can be anything from a membership service provider to an OAuth solution using Google, Facebook, LinkedIn, etc.
A private blockchain network requires an invitation and must be approved by the network administrator or by a set of rules established by him. Businesses that create a private blockchain generally create a permissioned network. This places restrictions on who can join the network. Access control mechanisms also vary. Existing participants can decide who can join; a legal authority can grant permission; or a consortium can decide. When a node joins the network, it plays a role in securing the blockchain in a decentralized manner. Hyperledger Fabric is an example of a permissioned blockchain framework and is one of the projects hosted by the Linux Foundation. It was started to support such organizational needs.
Digital identity is a critical enabler for many industries, and can solve supply chain and disruption challenges in the financial industry, and even simplify the exchange of security-sensitive data in healthcare. Permissioned blockchains allow for greater transaction efficiency at scale.
What is the idea behind private blockchains?
These blockchains are all about understanding and identifying the user, because once we understand this, we can define the role of the user, and we can use that role to determine what information they should and shouldn’t have access to.
In a public blockchain, we need to change the incentives for good behavior a bit, because we don’t know who the user is. We rely on economics and game theory incentives to ensure that everyone in the system is acting honestly and according to the rules. In this case, situations are set up through group consensus whereby honest participants are economically rewarded and dishonest individuals only incur work or costs, with no possibility of compensating for those costs.