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Private Blockchain

The Rise of Private Blockchains & What’s in Store for the Future

Learn all about private blockchains, how they could reshape businesses, and what’s in store for the future.

Blockchains are the backbone of cryptocurrencies like Bitcoin and Ethereum. They provide a highly secure and immutable ledger that instills trust among participants. But cryptocurrencies, non-fungible tokens, and decentralized finance only scratch the surface of how blockchains could improve data management worldwide.

Governments and businesses are quickly discovering that private enterprise blockchains could be helpful for everything from securing elections to storing patient medical records. They enable two parties to promptly validate and trace transactions, replacing cumbersome paperwork or error-prone conventional databases.

Let’s look at the rise of private blockchains, how they could reshape businesses, and what’s in store for the future.

Governments and businesses are leveraging private blockchain technologies for everything from voting to medical records. We look at how they work and what’s in store for the future.

What is a Private Blockchain?

Bitcoin, Ethereum, and other cryptocurrencies rely on public blockchains, enabling anyone to participate in the network. Since anyone can access a copy of transactions, public blockchains provide complete transparency. Meanwhile, a diverse set of miners or validators makes it nearly impossible for anyone to change block transactions.

But public blockchains aren’t always a good fit for businesses. For instance, companies may not want random individuals to insert data on their blockchains. Or, they may need to keep specific transactions private to meet regulatory requirements. Finally, they may want to avoid paying volatile gas fees to add transactions to a public blockchain.

Private blockchains operate using many of the same underlying technologies as public blockchains. For example, they rely on cryptographic techniques to authenticate and validate transactions between two parties. However, a single organization or a trusted intermediary controls the network.

This unlocks several critical benefits:

  • Privacy – Private blockchains are invite-only, providing more privacy than publicly-viewable blockchains.
  • Efficiency – A central authority controls private blockchains, meaning there’s no cost to add transactions.
  • Scalability – Private blockchains have smaller networks that enable more throughput and scalability.
  • Mutability – Blockchain data can change with permission from the central authority or trusted intermediary.

How Private Blockchains Work

Trusted intermediaries set up and manage private blockchains to solve specific business problems. For example, a healthcare software business might serve as a trusted intermediary between hospitals and patients. They might use a blockchain to secure patient records and scale across multiple providers and facilities.

The trusted intermediary builds the blockchain software or licenses it from third parties, such as Hyperledger. The software establishes the nodes that form the private blockchain network and validate transactions before recording them on the ledger. The trusted intermediary may run these nodes or delegate them to subcontractors like IBM.

In addition to blockchain software, the trusted intermediary will typically build software applications to interface with the validator nodes via an application programming interface (API). In our healthcare example, that might involve tying the blockchain to an existing hospital recordkeeping system, like EPIC, that physicians use day-to-day.

Potential Use Cases

International Shipping

Maersk, the world’s largest shipping company, developed its first blockchain proof-of-concept in 2017 using IBM’s Hyperledger Fabric framework. Shortly after, they launched TradeLens in partnership with IBM to help nearly 100 organizations, including 20 ports, cut out as many as five intermediaries per shipping transaction.

Supply Chains

Walmart partnered with IBM to leverage blockchain technologies to improve food supply chains. After teaming up with eight food giants, the company gained instant visibility into the origins of a product and how it moved from farms to plates. As a result, they could efficiently recall tainted products and prevent foodborne illnesses from spreading.

Energy Trading

Shell and BP worked on blockchain-based platforms to trade energy commodities. By removing paper trading contracts, the platform reduced administrative costs and enhanced market participants’ trust. After launching in 2018, the consortium saw tremendous interest and went on to pursue regulatory approvals.

Travel & Tourism

Travelport partnered with IBM to launch a blockchain-based platform to manage tours and activities through cruise ports or large hotel chains. By verifying a traveler’s experience, the platform aims to address fake reviews on travel sites and ensure that tour operators receive instant payments and commissions in local currencies.

Humanitarian Aid

Save the Children explored using blockchain technologies to help verify volunteers in the field. By automating background checks, the system could help deploy people faster during an emergency and access pre-approved volunteers with specific skills. Other non-profits could even efficiently pool resources during an emergency.

Enterprise Blockchain Providers

Public blockchain technology is built on open-source code, providing a clear path for anyone interested in developing private solutions. For example, Hyperledger and Enterprise Ethereum provide open-source private blockchain solutions, while R3 Corda and Paxos provide proprietary blockchains built for financial services.

Private Blockchain
Hyperledger’s growing ecosystem for private blockchains. Source: Medium

The most popular private blockchain platforms include:

  • Hyperledger is a Linux Foundation project that develops open-source blockchains and related tools. The most popular implementation is Hyperledger Fabric – the framework behind the IBM Blockchain Platform for enterprises.
  • Enterprise Ethereum is an extension to the highly secure and widespread public Ethereum network that provides enterprise-focused capabilities, such as private transactions, permissions, and scalable transaction throughput.
  • R3 Corda is a purpose-built blockchain platform for regulated financial institutions, including banks, fintech startups, and financial market infrastructure providers. In particular, it natively integrates with the databases and languages of financial service leaders.
  • Paxos is a blockchain platform that tokenizes, trades, and settles assets for enterprise clients.

As with most open-source software, businesses may choose to implement open-source blockchain solutions on their own hardware or rely on a trusted intermediary that provides high-availability nodes. The former tends to offer the most flexibility, but the latter is the most cost-effective option in most cases.

The Bottom Line

Private blockchains could unlock the benefits of blockchain technology for a much broader set of use cases. From shipping logistics to healthcare, the world could see far more blockchain-based applications come into play over the coming years. And ultimately, these use cases could surpass conventional cryptocurrencies.

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Justin Kuepper