The current bear market has revealed a significant amount of FUD (fear, uncertainty, and doubt) spreading through the industry. The state of the markets has made people uncomfortable about the future of cryptocurrency. One of the most common and insidious claims people make is that large corporations are more likely to make their own private blockchain than use a service like Ethereum or NEO to help store data or facilitate transactions. While it is possible for businesses to create their own blockchain from the ground up, this does not mean that they should.
What is a private (or permissioned) blockchain?
Before getting into the reasoning against private blockchains, let’s explain what they are first. A private blockchain is where users must acquire explicit permission to view the blockchain, run a node, mine, stake, make transactions, or fulfill smart contracts. This is in stark contrast to a project like Ethereum where anybody can do whatever they like with the software. Private, or permissioned, blockchains sometimes only require you to get permission for doing some of these actions rather than all of them, but what they all have in common is the fact they are all centralized.
If you need to ask for permission to do something on a blockchain, then the person granting it has a dangerously large power over the ledger as a whole. It means they can effectively flex their power for their own benefit.
Bitcoin, Ethereum, Monero, and almost everything else listed on CoinMarketCap and other exchanges all run on public, permissionless, blockchains. This means that nobody ever has to ask whether they can use the blockchain.
The problem with private blockchains
At first glance, it may seem sensible for a business to use a private blockchain because it gives them a special type of authority over their own ledgers, but there is a glaring problem with this. Private blockchains are centralized, and if a blockchain is centralized, that means it can easily be compromised. Public blockchains are not revolutionary because of the way they store data or the fact that mining needs to take place to facilitate transactions— they are revolutionary because they allow for transactions to be facilitated without any unifying body to govern, making it decentralized. If a company makes a blockchain that they can control privately, then the blockchain itself no longer serves any purpose.
The decentralised aspect of blockchain technology also allows for it to be resilient against attacks or compromises. One of the most famous types of attacks is the 51% attack— this is where 51% or more of the blockchain is controlled by one body. This is notoriously hard to do with a decentralized blockchain because so many individuals around the globe run their nodes or mine without ever communicating with other people who do the same as them. However, with a private blockchain, it is worryingly easy to coordinate a 51% attack. If a blockchain is used only by people who are in a particular company, then the number of people who take part in it will be extremely low. To put it into perspective: VISA employs around 12,400 people worldwide. It is impossible to find out how many people worldwide use Bitcoin, but statistics from Coinbase reveal that they have over 13 million users, which means there are many more who use the cryptocurrency. With careful coordination and planning, it would be entirely possible for somebody to take control of 51% of a blockchain run by VISA simply because of how few people would use it. All they would need is to control 6324 people in the corporation, and they can undermine the service entirely. You might ask ‘who would want to take control of somebody else’s private blockchain?’ The answer to that is any rival company would want to. Gaining 51% of another company’s blockchain would give you enough leverage to harm them in the long run. It would be tantamount to how hostile takeovers work in the world of shares and acquisitions.
Public blockchains like Ethereum and NEO cannot be taken over so easily, making them a more viable option for businesses than making their own blockchain.
Hopefully, this clears up some of the FUD by explaining why businesses will likely adopt public blockchains rather than make their own.
Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.