The technical details of Blockchain technology can be difficult to understand at times and one of the things which confuse corporations is whether to use private or public blockchain for their supply chain. This blog will help you understand the difference between private and public blockchain networks.
Among the numerous use cases of Blockchain, its application in Supply Chain Management is widely regarded as one of the most revolutionary. According to a research by ResearchAndMarkets.com, The Global Blockchain Supply Chain Market was valued at $93.16 Million in 2017 and is projected to reach $9,852.91 Million by 2025, growing at a CAGR of 80.2% from 2018 to 2025. This shows the immense potential of Blockchain technology in the Supply Chain Management domain.
But Blockchain technology can still be intimidating and the decisions regarding the selection of a Blockchain network might affect a lot of factors including the performance of the system or the cost involved or its interoperability. These factors depend highly on the decision about whether the Blockchain network is Public or Private in nature.
What are Public and Private Blockchains?
A Blockchain network is a peer to peer in nature which means that each participant has a copy of the ledger and each time a new block is added it gets updated in all the systems.
The sole difference between a public and a private Blockchain network is regarding who is allowed to participate in the network.
In the case of public Blockchain networks, anyone and everyone are allowed to participate. This means that they can have a copy of the Blockchain and can see all the transactions happening. The public networks have some kind of incentivizing mechanism which encourages more participants to join. Bitcoin is an example of a public blockchain network.
A public blockchain network requires a substantial amount of computing power as the participants are required to solve complex cryptographic problems called Proof of Work to verify the transactions and keep everyone on the same page.
In Private blockchain networks, participants can only be added after an invitation and the network is usually permissioned in nature. This means that unlike public blockchain networks, not everyone is allowed to participate and also that the scope of participants is also limited. This scope is dependent on the network starter. Hyperledger Fabric is an example of a private blockchain network.
Private Blockchain networks are particularly aimed at enterprise usage. Private Blockchains can be set up in a way so that only the entities participating in the transaction will have access to it and the other entities do not have access to it.
Requirements for Blockchain-based Supply Chain Solution
The discussion and debate regarding the use of Private or Public Blockchain networks will go on but in this debate, we must remember that a Blockchain-based Supply Chain solution for enterprises should adhere to the following requirements:
- Operational Integrity
There needs to be well defined and clear contractual agreements regarding the daily operations, so organizations and corporations have some sort of accountability and liability mechanism in case something goes wrong.
- “Know Your Customer” Compliance
KYC is an important and crucial regulatory issue, especially in services that deal with payment and financial service providers.
A blockchain-based supply chain solution should work seamlessly with the existing ERP, CRM, and WMS systems that the corporations already use.
- Security Requirements
There should be adequate measures for the protection of data of the entities with proper data segregation, control requirements, and data privacy.
A blockchain solution should not only be limited to a pilot but has to grow along with the corporation in terms of transaction volume, customers, and other metrics.
Features to consider regarding Blockchain Network
While we may weigh down the pros and cons of Private and Public Blockchain networks, we must consider that the solution will depend on the particular requirements of the enterprise. These requirements will be completely unique for the enterprise or the industry.
Corporations must also keep in mind that if there are some existing consortiums in their industry, it is easier and more suitable to join those consortiums as it promotes standardization in the industry and makes it easier for businesses to do work with each other.
The following are some considerations for the blockchain network whose importance defines which network is suitable for your enterprise.
- Data Access
In public Blockchains, everyone has access to the data and can take part in the network, while in private networks only selected and authorized entities can make additions or changes to the network. In public networks such as Ethereum, every transaction is broadcasted to all the participants while only selected entities who have access to private networks can see the transactions.
Since most of the data regarding enterprises is confidential, public blockchain networks are incorporating new and innovative concepts to allow the sharing of data. One such concept is Zero-Knowledge Proof. Zero-Knowledge Proof allows for the sharing of data without disclosing the details such as price or people involved.
- System Performance
System Performance refers to the speed with which transactions are written on a blockchain network. Generally, public networks tend to be slower than the private networks because of the wider polling needed to achieve consensus. Hence, if enterprises need to store and share huge amounts of data, a private blockchain is the way to go.
- Interoperability and Standards
Public Blockchain networks are more interoperable since their decisions are based on the wider community consensus in comparison to the selected few who make decisions in the private network. Although, organizations such as International Standards Organization (ISO) and industry groups such as the Blockchain in Transportation Alliance (BITA), Digital Container Shipping Association (DCSA), W3C and the United Nations Centre for Trade Facilitation and Electronic Business (UN/ CEFACT) are heading the work to achieve standardization in the industry.
- Total Cost of Ownership
There is a cost involved when using a Public Blockchain called ‘gas’ which is the transaction fee paid to the creator of the block. There is no such transaction fee involved in the private blockchain networks but the upfront cost is usually higher than that of a public blockchain. Private blockchains also require resources to support and maintain the infrastructure which is quite less in public blockchain projects.
- Compliance for Personal Data Protection
Governments all over the world are enforcing stronger policies regarding the storage and processing of personal data. One such law is the European Union’s General Data Protection Regulation (GDPR) which presents a robust global standard for the storage and processing of the personal data of persons living in EU member countries.
Since data on public blockchains can be accessed by anyone, enterprises are facing difficulty in protecting their personal data and their trade data. This is why enterprises are moving towards private blockchain networks to comply with the data protection laws.
Although, some public blockchains are coming up with innovative solutions to comply with the data protection laws such as sophisticated ID management with obfuscation.
Public blockchains are governed by the masses i.e. majority of the users whose interests might not align with those of the supply chain operators. Private Blockchains on the other hand are constituted of supply chain entities only whose goals, objectives, and interests align more.
Private Blockchains can also face some governance issues if, say, the owner of the network introduces some fees or changes regulations. Hence, there needs to be a prior agreement between the parties of the supply chain regarding the interests, goals, and objectives.
The debate between whether private blockchains are better or the public ones, comes down to the enterprise which has to use it. There is no clear cut answer to the question as it totally depends on the individual needs and requirements. The industry is still in the building phase and enterprises need to learn about what they specifically need instead of what’s better for everyone else.
The decision on whether to use Public or Private Blockchain will depend on the particular use case and the features which are particularly required by the enterprise.
QuillTrace, A Complete Supply Chain Solution
QuillTrace is a Blockchain-based procurement platform by Quillhash which makes the supply chain of any business transparent, sustainable, and secure by integrating with the existing Supply Chain systems.
The Blockchain experts at Quillhash will guide you in selecting the perfect Blockchain network for your supply chain. We can build a Blockchain-based supply chain solution specifically for your requirements to aid you in increasing transparency in your supply chain, in turn increasing sales.
Contact us now for a demo!