What Exactly Is a Private Blockchain?
Did you know that, although they operate as completely open nodes, the technologies behind Bitcoin and Ethereum, there are also some blockchains that operate in a completely different way?
Private blockchains are a strategic evolution of traditional blockchain technology. Unlike public networks, which are open-access to all participants, these operate as secure, closed databases. They are controlled by a single entity or a consortium of authorised organisations.
Imagine an exclusive private network in which only selected members can access its validity and maintain the shared ledger. It even allows for blocking members to help ensure the integrity of the network.
Cryptography remains the backbone, but it is designed within a permissions framework that guarantees privacy and specific regulatory compliance for each organisation.
Main examples of private blockchains on the market
Hyperledger fabric: the enterprise giant
Hyperledger Fabric has become a highly prominent choice for supply chain management. Organisations have no problem sharing information securely and tamper-proof thanks to its technological architecture, while maintaining granular control over their data.
A successful case was Walmart: with this platform, they could track every food item from the farm to the plate. This implementation changed perceptions of food safety; during outbreaks, sources of contamination can be identified in minutes instead of days, which increased consumer confidence.
Corda: financial specialist
In particular, Corda has been recognised and is well positioned in trade, investment, and the financial sector in general due to the priority given to transaction privacy.
Many financial institutions employ it to share sensitive information securely; for example, Corda supports the industry by sharing contracts. Only the parties to a particular transaction have access to the data involving that transaction, while details of other operations are hidden entirely.
Quorum: scalable financial power
Quorum, originally developed by JPMorgan Chase, is recognised as one of the most efficient processing platforms, with a rate of over 100 transactions per second. In comparison, the Quorum platform has higher performance in almost every respect compared to Ethereum.
This is because, here, processing speed is a critical factor and is one of the main reasons it is adopted instead of other options. Among other reasons are the substantial improvements in privacy and security, as large financial institutions find it a well-deserved investment compared to traditional financial platforms.
What Is the consensus algorithm in private blockchains?
The consensus algorithms implemented in enterprise blockchains are optimised for use in controlled environments. Since the required level of trust is already guaranteed by limiting the validation machine to well-known actors, there is no need to waste resources on trusting protection or selecting the next validator through mechanisms such as Proof of Work.
The main feature of this system lies in the ability of the algorithms to guarantee a secure agreement among trusted nodes in terms of transaction validity and order, providing processing times that are orders of magnitude lower and far more energy-efficient.
Key benefits of private blockchains
Granular access control
Total control: organisations have full control over who can access the platform. New users are validated through rigorous processes and are granted only specific permissions to access business information via advanced identity management systems.
Superior transaction speed
Fewer nodes in consensus: with fewer nodes playing a role in the consensus process, transactions are processed significantly faster than on public networks. A smaller number of participants required for consensus means that business processes can execute almost instantly.
Efficient governance
Centralisation: a central authority oversees the entire platform. It establishes the standards, processes, and tools that ensure day-to-day administration and effective control of all operations on the network.
Is Ripple a private blockchain?
That is a legitimate question that requires clarification. XRP Ledger, the underlying technology of Ripple, was designed as a public and decentralised blockchain. Any alteration to the transaction procedure must be sanctioned by 80% network approval. Ripple relies critically on authorisations, but, like all other contributors, it has identical authorisations.
Is Ethereum a private blockchain?
No, Ethereum is essentially not a private blockchain but a public and permissionless one. Although it is feasible to create private versions of Ethereum for enterprise use—where smart contract functionality is retained but access and control are restricted.
Use cases in the private blockchain
Digital identity management
These private blockchains make it possible to provide secure identity verification, which greatly reduces the risk of identity theft and fraud in digital transactions.
Real estate sector
Furthermore, they optimise transparency in buying and selling operations, making transfers easier and dramatically reducing real estate fraud.
Insurance industry
They also enable claims automation, increasing data accuracy and strengthening fraud monitoring, speeding up processes, and enhancing system integrity.
Financial services
They simplify cross-border payments and improve settlement processes, allowing secure data exchange between global financial institutions.
Intellectual property protection
They also safeguard copyrights and patents through secure platforms for ownership and licence management, ensuring robust legal protection.
Global supply chain
They revolutionise business operations by providing full product traceability, reducing counterfeit goods, and improving consumer trust.
Healthcare sector
Regarding the healthcare industry, they ensure secure exchange of medical data, improve interoperability between systems, and enforce compliance with privacy regulations such as HIPAA substandards.
Differences from consortium blockchains
Therefore, whereas private blockchains are controlled by a single entity, consortium blockchains are controlled by a specific number of companies. This fundamental difference changes the distribution of decision-making power and consensus mechanisms.
Moreover, since it sits between the full openness of public blockchains and the complete centralisation of private ones, consortium technology is excellent for industries where there are several players who cannot fully trust one another but need to collaborate.
Why do companies choose private blockchains?
However, organisations dislike sacrificing privacy to benefit from the technology. This is where private blockchains come into play, allowing companies to leverage distributed technology without revealing internal data and policies to the world.
They use anonymity and security to enable entities to tailor their blockchains to use cases without revealing too much business confidentiality. In the end, they offer anonymity and immutability instead of transparency, shifting the focus from end to end, allowing companies to benefit from the technology without issues.
Private blockchains are an important step in implementing the technology within corporations. Organisations are increasingly opting for this option, as it provides a balanced solution to transparency, security, and control challenges.