This week I want to talk about one of the aspects of the blockchain space that is fascinating - which is the ideology difference between public and private blockchains.
The first blockchain, Bitcoin, was introduced as a public network where anyone could join the network, and people could leave the network at any time. As long as users were paying fees for transactions, they would be allowed to transact on the network. Since Bitcoin, a number of public blockchains have surfaced, spawning almost every industry you can think of.
Capitalism has always structured itself around centralized control of resources, and it is through control of these resources that companies derive their power. Public blockchains aim to bring about decentralization of this power and give it back to individuals. The ideological underpinnings of public blockchains are important to understand since they determine the range of uses of public blockchains.
Although currency was the first application of a blockchain, it can be applied to various other industries to bring about decentralization and therefore a redistribution of power and control. However, it is clear that the organisations which have been hurt by the potential of blockchain to redistribute power and control are now building private blockchains in an attempt to hold on to that power.
The first such example which comes to mind is the consortium of banks which have come together to build a blockchain which will help in a range of financial and business situations. Bitcoin was and is a direct threat to the banking system - it currently allows money transfers which happen quickly and cheaply, and in the future, Bitcoin and other cryptocurrencies will inevitably offer almost all services that banks currently do. As such, it is no surprise that banks are doing their best to build private blockchains which aim to mimic the advantages of public blockchains while also having centralized control over the underlying blockchain.
One of the biggest innovations brought about by Bitcoin was that it enabled a methodology to reach decentralized consensus. In other words, it allowed all participants in the system to agree on the state of the ledger while also making it difficult to cheat the system.
With private blockchains, some parties (banks for example) will have greater power than other users. On a private blockchain, some entities will have the power to reverse transactions and even ban users. Put simply, private blockchains will look a lot like the centralized systems we have today - with the added benefit of greater speed and lower cost.
What is interesting to me is that we could have public and private blockchains co-exist together in the future. As for users, the decision of which one to use will inevitably come down to your own ideology. If you are a libertarian and aren't happy with the status quo, you will probably end up using public blockchains. On the other hand, you might feel that there is nothing wrong with centralized systems and therefore will prefer to transact on private blockchains where there is a higher degree of transparency.
History has shown that those in power will do everything they can to preserve that power. Given that public blockchains are a direct attack on the power of governments and banks (since governments issue currency and banks distribute it throughout the economy), it is no surprise that one hears a lot about private blockchains which take the form of national cryptocurrencies and blockchains for implementing government functions.
It is still early to say which way we are headed, but regulation will play a big role in how the world starts to adopt and use blockchains.
With that said, there is a strong possibility that users will still get to choose which platforms they use.
What do you think? Shoot us an email at [email protected]university.io with your thoughts.