Key concepts of public vs. enterprise blockchain
The distinctions between public and enterprise blockchain matter. Gain insight into those differences and what to consider when implementing the distributed ledger technology.
Although Bitcoin and other cryptocurrencies dominate blockchain discussions, this technology could disrupt far more than the financial sector. That's because there are different types of blockchain, and some are fit for enterprise use.
In the broadest terms, blockchain is a distributed ledger technology that records data in a public ledger without requiring third-party validation. Instead, unidentified parties confirm the data's validity via an established consensus method.
To understand blockchain's potential business value, CIOs and other leaders must first recognize the difference between public blockchain and enterprise blockchain and the benefits and drawbacks of the latter.
What is public blockchain?
Many consumers are familiar with a public blockchain, also known as a permissionless blockchain. Information on a public blockchain is transactional data stored on digital nodes, distributed via a decentralized, peer-to-peer (P2P) network of computers. Users are pseudo-anonymous and confirm the authenticity of data added to a blockchain by consensus. The distributed ledger technology underlying blockchain records the details of an asset's transaction in several places, accessible at any time.
Well-known public blockchain uses include cryptocurrency and nonfungible tokens (NFTs). NFTs are cryptographic assets converted into exclusive, digital representations that exist as a singular copy on the blockchain. Consumers buy, sell and hold these digital collectibles with the NFTs authenticating their ownership. Usage of NFTs ranges from trading cards to real estate and art pieces. In addition, NFTs and cryptocurrency are examples of decentralized finance. Each utilizes blockchain technology to remove the intermediary processing of a financial transaction.
Two drawbacks of public blockchain are performance and scalability. The system slows down, is costly to support, and becomes less sustainable as the number of transactions it must support increases. The number of transactions also inhibits its ability to scale at a reasonable pace. Blockchain, especially cryptocurrency, also uses an enormous amount of energy.
What is enterprise blockchain?
One difference between public and enterprise blockchain is their permission levels. To access enterprise blockchain -- also known as private blockchain -- approved users are granted permission to a closed network via assigned cryptographic keys. Unlike a public blockchain, an enterprise blockchain is anonymous to the general public. Also, the enterprise blockchain is not open to anyone; the firm that controls the private blockchain determines who can view, change or add data to the digitally linked nodes.
A private blockchain isn't decentralized in the same manner that a public blockchain is. The P2P aspect remains, but the relationship may exist as business-to-consumer or business-to-business, as seen with a consortium blockchain.
A consortium blockchain combines functions from both public and private blockchains. Rather than utilizing the open system of the public blockchain or the closed system of the private blockchain, a consortium blockchain grants access to a limited group. With this blockchain type, consortium blockchain can be a combination of preapproved internal and external users.
Enterprise blockchain's intrinsic security and privacy limit the ability of an outside party to alter the data. An unapproved external user couldn't interact with the recorded data unless the controlling firm granted access. However, that doesn't mean enterprise blockchain is infallible. An example of this is if an external user with bad intentions finds a way to exploit a security weakness, gaining unauthorized access to the private blockchain.
Benefits of enterprise blockchain
Industries that depend on transactional exchanges, such as banks, identity management and NFTs, aren't the only ones that can make use of enterprise blockchain. For example, blockchain technology could support supply chain management, hospitality and healthcare operations.
Some other blockchain use cases include:
- Drug supply. To cut down on counterfeit drugs in the prescription medication supply chain by recording drug types and batch numbers on the blockchain
- HR. To minimize the time to process mundane tasks such as confirming job applicant education levels, employment history and other career qualifications
- Utilities. To automate tasks such as P2P solar energy sales, energy trading between conglomerates, and billing for autonomous electric vehicle charging stations
Because blockchain requires a significant financial and change management investment, an in-depth look into how a business processes its transactions is an important consideration. Furthermore, the research might explain why a blockchain project could work well. For example, automating transactions and other processes via smart contracts could make business functions efficient and secure. As a result, investing in an enterprise blockchain project could solve a current issue and reduce the risk of increasing IT expenditures.
Concerns about enterprise blockchain
IT leaders may choose not to implement enterprise blockchain for various reasons. One is the challenge of being an early technology adopter in a business setting. An enterprise blockchain requires a mutual agreement between several entities to share or grant access to a singular ecosystem.
Some leaders are concerned that it's more challenging to achieve trust than public blockchain. Only specific, centralized nodes have the power to do so. Fewer nodes mean less security, meaning a few rogue nodes could compromise the baked-in consensus mode.
Another concern is speed and performance. The closed network of an enterprise blockchain doesn't need to support multiple public transactions. As a result, business requirements limit the data stored on the enterprise blockchain.
Like any software implementation, blockchain requires change management as all participating parties must adopt unambiguous criteria for success. Those specifications may include the following:
- joint business rules;
- shared data definitions;
- legal agreements; and
- governmental regulation adherence.
Implementation can be more costly and complex than building or staying with a centralized database ecosystem. Blockchain as a service, or BaaS, could minimize costs. But a cloud-based architecture could incur expenses in other ways.
IT leaders may encounter considerable internal and external weaknesses unique to blockchain. These disruptions could include vulnerabilities such as stolen cryptographic keys, flawed data input or developer incompetence. There are also security issues such as the 51% attacks threats, which occur when a majority takes control of the transaction consensus process.
Employees and others also have concerns that enterprise blockchain will take away jobs. The worry is that blockchain will replace the administration of routine tasks such as data entry, manual verification and managing paperwork.
An organization with sustainability as part of its agenda needs to consider whether enterprise blockchain will conflict with its sustainability goals. While the decentralized aspect of blockchain is one of its main selling points, its colossal carbon emissions footprint can significantly impact sustainability initiatives.
Blockchain adherents and industry watchers are discussing changing the core technology to improve its carbon footprint. But it's another indicator that enterprise blockchain may not be ready to support the goals of a sustainability-conscious organization.