Motivation
When discussing building blockchain applications with corporate clients, the conversation often comes down to today’s majorindustry issues, such as scalability and privacy. The most common solution is we’ll build a private blockchain.” This article discusses the advantages and disadvantages of private blockchains compared to public blockchains.
Blockchains can have different structures for the acceptability of possible actions with them. As shown in the figure above, blockchains can be differentiated into different classes. Their distinctive features:
- Who has access to reading?
- Who has write access?
- Who maintains integrity (consensus algorithm)?
In this document, private blockchains are defined as blockchains with limited read/write access to a consensus-based algorithm that only allows a predetermined group of people to contribute to blockchain and maintain its integrity.
On the other hand, public blockchains do not allow participants to differentiate between read/write access rights or how to choose their preferred consensus algorithm.
This does not mean, however, that a particular empowerment structure cannot be implemented within a particular application/smart contract.
Interoperability
Blockchains allow direct interaction between applications within a single chain. In a public blockchain, anyone can submit a corresponding application using a smart contract. The authorization structure for this application is set out exclusively in the smart contract. This allows any user to add services or integrate data into existing applications without having to request permission to access the network.
Often, decentralized applications (DAPPs) contain several complementary parts of the infrastructure, e.g. stable coins, insurance, trading platforms, mobile interface, identity management, etc. Most of them exist or are lined up for public blockchains.
This means that if you choose one of them to deploy on a private blockchain, many of these services will have to be rebuilt for it, which greatly increases the cost of the project.
One of the main goals of blockchain is to provide communication between parties that do not necessarily trust each other. On a private chain, the process of joining a new participant is much the same as adapting a new partner in a company with some access rights to a closed database.
Many advantages of a private blockchain solution over a centralized database are now a thing of the past. Public circuits, on the other hand, facilitate the easy and straightforward process of adapting new customers/partners/members, as well as the compatibility of existing applications.
Operating expenses
A public circuit consists of a large set of nodes that ensure the integrity of the network. When using a consensus-based PoW algorithm (as in Bitcoin and Etherium), miners calculate new blocks that are checked by each complete network node.
Thus, attacking these networks is very expensive. The cost of operating a Bitcoin network (based on an estimate of the annual revenue of the miner at a price of $1,000 per BTC) is about $657 million per year. For the Efirium network (which generates about 32,000 ETH per day at a cost of $8 per ETH), this figure is about $93.44 million per year.
In order to have the same security index, a private blockchain operator must spend an equivalent amount of money. On a private blockchain, this money could be spent on protection against unauthorized access to the network, but the operator still has the problem of having a single point of failure through which the system can be attacked.
The operating costs of an application on a public blockchain mainly consist of the total transaction fees required to operate it. In the Bitcoin network, this figure is currently around $0.15 per transaction. In the Etherium, this figure varies depending on the type of transaction (net cost of translation versus code execution).
To transfer the net value, the price of one transaction will be about $0.0035. To execute the code, the price is usually an order of magnitude higher, and ultimately depends on the computational costs of the transaction.
Private blockchain operating costs are not heavily dependent on system redundancy requirements (number of full nodes deployed), and the type of applications being run.
In order to provide the same level of availability and decentralization as in Bitcoin or Etherium networks, private blockchains will need to deploy the same number of nodes, which is currently about 6000 units.
At a cost of about $10 for the maintenance of an average server, the cost of hosting alone will be about $60,000 per month. In doing so, we omit the fact that there are many additional costs (channel bandwidth, management, etc.) that are not taken into account here.
In reality, the requirements for redundancy and security of private blockchains will vary significantly from public to private, so the configuration, as well as the price, will vary greatly from project to project and, above all, cannot be adequately evaluated without understanding the specific requirements of the application.
Network effect
Applications on a public blockchain are often initiated by its early users, which has a positive impact on blockchain due to the network effect between different applications.
For example, a mobile wallet running on a particular blockchain can add a feature that makes it possible for it to interact with another application, which will greatly expand the user base. The powerful communities behind public blockchains are often ready to help test and promote useful applications to their peers.
In addition, new users will not need to install new software in order to use the application, as it can be accessed through existing software (such as the Mist browser).
On a private blockchain, you have to start from scratch and convince users to install new software. In addition, new users may need to generate a new key pair – they may not be able to use existing ones, and they may have already found a secure way to handle them.
