What is a private blockchain and its benefits?
March 21, 2023
Table of content
- Private blockchain in 2024: The boom continues
- How does blockchain technology work?
- How can I use blockchain in my life?
- Advantages of private blockchain
- Benefits of private blockchain: Most popular scenarios
- Why is private blockchain so popular with companies?
- How a private blockchain works
- In what areas is private blockchain best used?
Blockchain is an innovative and evolving technology being adopted in various fields. Energy, finance, retail, and even entertainment and multimedia are actively using the convenience of this technology.
There are more than 10,000 active blockchains in the world. About 85% of all blockchain transactions are related to Bitcoin and Ethereum cryptocurrencies. In February 2021, the total volume of transactions was $620,329 million, with more than 50% of all projects related to the financial sector. According to a PwC study, blockchain could add $1.79 trillion to global GDP by 2023
Private blockchain in 2024: The boom continues
Nowadays, private blockchain, coupled with ML/AI, stands out as a pioneering force to upside down the digital market. This technology offers superlative security measures, mitigating risks associated with data breaches and positioning itself as a promising solution for decentralization and safeguarding sensitive info.
The global blockchain technology market, valued at 5.85 billion U.S. dollars in 2021, is on a trajectory of substantial growth. Statista forecasts it to reach an impressive 1,235.71 billion U.S. dollars by 2030, reflecting a remarkable compound annual growth rate of 82.8 percent.
The notable positive shift to the advantages of private blockchain is also seen among Wall Street clients. A prime example is JPMorgan's Onyx Digital Assets platform, facilitating the creation of tokenized representations of traditional assets, leading to increased efficiency and cost savings.
On the national front, the trend of digitization and crypto currency nationalization in a number of countries is gaining momentum, indicating growing acceptance of private blockchain at the governmental level.
How does blockchain technology work?
Blockchain technology is an advanced database mechanism that allows the exchange of information within a business network. A blockchain database stores information in blocks that are chained together. This data is chronologically consistent, as data cannot be changed or deleted without approval from the network. This technology can create an indefinite and immutable registry to track payments, invoices, orders, and other transactions. Depending on the degree of access, blockchains can be divided into a public blockchain, private blockchain, hybrid and consortium blockchain.
Let’s take a look at each type:
Public Blockchain allows anyone to join the network and does not require any permissions. All participants are granted rights to read, verify and edit information. As a rule, Bitcoin, Litecoin, and Ethereum cryptocurrencies are mostly used for mining and exchanging public blockchains.
Private Blockchain is controlled by a single organization. An authorized body decides who can be a member of the network and what rights they have. Private blockchains are partially decentralized because they imply restricted access. An example is the Ripple platform, where people exchange digital currency.
Hybrid blockchain. It essentially combines the functionality of Public vs. Private blockchain. Accordingly, companies can create private and public permission systems. In this way, they can control access to some data while maintaining public access to other data. Companies use smart contracts to verify private transactions by public participants. For example, hybrid blockchains can provide shared access to digital currency but limit it to bank currency.
Consortium Blockchain. A group of organizations controls it. In this way, companies share responsibility for blockchain operation and define access rights to information.
How can I use blockchain in my life?
Traditional database technology can create several problems in the accounting of financial transactions. For example, the sale of real estate. Ownership passes to the buyer when the money is transferred. The buyer and the seller can record the cash transactions themselves, but neither party can be trusted. After receiving the money, the seller may claim that they did not receive it. And the buyer may claim that they sent the money when, in fact, it may not be true.
To avoid possible legal problems, the right to control and validate transactions is entrusted to a credible third party. The existence of this central authority complicates the transaction itself and creates a single point of vulnerability. After all, both parties could be harmed by breaches in the central database.
Blockchain prevents such problems by generating a decentralized and tamper-proof system for recording transactions. In the case of a real estate transaction, blockchain creates a shared registry for the buyer and seller. Both parties must approve each transaction, which is automatically updated in the registries in real-time. Accordingly, any transaction history inconsistency will appear in the entire registry. Because of these properties, blockchain technology is so popular in different sectors. For example, it was used to create Bitcoin, a digital currency.
The first real estate purchase and sale transaction using blockchain was made in 2017 on the Ripple platform. A buyer from New York bought a house in Kyiv for $60 thousand.
To keep the traceability of transactions or inventory on the corporation- and company-level, private blockchain is widely used. The advantages of a private blockchain are the same as the public one, except being fully closed to the outer world. Private blockchain, first of all, is used for internal and business-to-business processes, rather than external validation.
Advantages of private blockchain
As mentioned above, private blockchains have limited access to transactions. All important functions – transaction validation, coordination, and database auditing – are available only to certain individuals. What are the advantages?
Cheaper cost of transactions. A few authorized individuals verify everything instead of thousands of user devices.
Higher transaction parameter per second. The only limitation, in this case, is the bandwidth of the weakest network node.
Prompt verification of transactions increases the efficiency of the company as a whole.
Benefits of private blockchain: Most popular scenarios
Private blockchains, with their closed and permissioned nature, enjoy a wide usage across various industries.
In finance (FinTech in particular), private blockchains are reshaping how transactions are conducted. They provide a secure and transparent environment for financial institutions to streamline processes such as cross-border payments, settlement, and trade finance. Private blockchain reduces fraud, and ensures real-time visibility into financial transactions.
Supply chain management is another arena where private blockchain demonstrates its value. It enables end-to-end traceability of goods, from manufacturing to delivery, ensuring accountability and transparency. Through a shared and tamper-proof ledger, stakeholders gain real-time insights into the movement and status of products, reducing inefficiencies and building strong trust among participants.
The healthcare sector is using private blockchains for secure and interoperable health data management. Patient records, pharmaceutical supply chains, and clinical trials benefit from the decentralized and encrypted nature, ensuring data integrity and privacy.
Governments can use the benefits of private blockchain for voting systems, identity verification, and land registry. These blockchains offer secure and tamper-proof records, ensuring resistance to fraud and manipulation.
Summarizing the usage of private blockchains, we shall highlight compelling possibilities for businesses to harness their trustless and transparent foundation, primarily for internal and business-to-business applications, rather than external validation.
Why is private blockchain so popular with companies?
Reliability. Companies can identify the origin and recall substandard products promptly.
Immutability. Any information entered into the blockchain cannot be altered or deleted in any way. Thus, the possibility of data corruption and the likelihood of fraud are negligible.
High performance due to a limited number of validators. This allows for much faster information exchange and easier scalability.
How a private blockchain works
By and large, a private blockchain does not differ from a public one in its work. Each computer on the network must confirm all transactions in the chain. In turn, transactions are processed by blocks storing several thousand records each. When one block runs out of memory, it is closed and signed, then transferred to the next block as a hash. Each block is linked to the next.
In this way, changing the transaction or returning it is impossible.
On this basis, private blockchain has characteristics that distinguish it from the public blockchain. For example:
Partial or full decentralization.
Only blockchain participants have the right to record information.
Specific protocols determine the access policy and the mechanism of the system.
Only the private network operator has the right to modify or delete data.
In what areas is private blockchain best used?
Finance and Banking. Virtually all financial transactions in these areas involve multiple parties with their own internal solutions. With private blockchain, banks can work in a single system to track transactions, speeding up the process many times. One of Britain's largest banks, HSBC, uses a blockchain platform to securely store digital assets and reduce costs.
Shipments. Companies can track merchandise component by component, determining its authenticity and eliminating counterfeits from entering the delivery process. This makes deliveries more reliable, faster, and more open. An example is Nestle, which incorporates blockchain technology into its supply chains.
Insurance. Blockchain payment systems provide a direct link between policyholders and insurers. This eliminates the use of unreliable third-party systems and costly, labor-intensive application management operations. AIA Group launched the first bank insurance to exchange policy data.
Healthcare. This technology could be great for storing electronic medical records containing patient health information. This would provide quick access to the records as well as data security. This makes it easier to manage medical records. UnitedHealthcare is a company that has also implemented blockchain technology to improve inaccurate physician directories.
In the context of blockchain technology, Artificial Intelligence (AI) has the potential to revolutionize private blockchains and amplify their benefits. Private blockchains, characterized by restricted access and permissioned participants, can leverage AI to enhance security, scalability, and efficiency. AI algorithms can play a crucial role in verifying and validating transactions, ensuring data integrity, and detecting fraudulent activities within the private blockchain network. Additionally, AI-powered smart contracts can automate and streamline complex business processes, reducing administrative overhead and enhancing transparency. Moreover, AI can provide valuable insights by analyzing the vast amounts of data stored in private blockchains, enabling businesses to make data-driven decisions and optimize their operations. By harnessing the synergies between AI and private blockchains, organizations can unlock new levels of trust, efficiency, and innovation in various sectors, such as supply chain management, finance, and healthcare.
To summarize, blockchain technology reduces human error and statistical error, making transactions more transparent and increasing data security.
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What is the essence of blockchain?In simple terms, a blockchain is a database that stores information in the form of blocks linked together.
What is the difference between a private blockchain and a public blockchain?A few people have access to the private blockchain, while the public blockchain is accessible to everyone.
What is the advantage of a private blockchain over a public one?A private blockchain is more powerful because of the limited number of people who manage it. This, in turn, makes it easier to use and provides instant, real-time updates.