Public vs. Private Blockchains: Examples, History, and Comparison

Traditional financial service institutions entering the blockchain tech sector are catalysts for the industry’s growth. However, as these traditional financial institutions delve deeper into blockchain adoption, their approach is undergoing a pivotal shift. The shift is away from private blockchains and toward public blockchains, like Kadena.

Blockchain is one of the fastest-growing sectors in emerging tech, with forecasts for its growth varying widely. According to MarketsandMarkets, the global blockchain market was valued at approximately $7.4B in 2022 and is projected to reach $94B by 2027, with a compound annual growth rate of 66.2%. Meanwhile, other estimates, such as those from Custom Market Insights, project the market could reach $69B by 2032, highlighting the sector's dynamic and unpredictable growth trajectory.

Shift Away from Private Blockchains

While private blockchains were once the preferred choice for institutions due to their controlled environments and perceived security, the tide is turning. Institutions increasingly recognize that private blockchains limit scalability, interoperability, and innovation. This realization is driving a move towards public blockchains, which are better equipped to support expansive growth and collaboration between parties (not to mention the added security). Notable examples of private blockchains include Hyperledger Fabric, Quorum, and R3 Corda.

In a recent interview, Jeff Cooperstein, Kadena’s Business Development Lead, highlighted the industry’s shift toward public blockchains, emphasizing the need for regulatory oversight and standardization.

Cooperstein stated, “Public blockchains are where I think the industry is going… but to make that shift, we're going to need some regulatory oversight, especially here in the U.S.” Furthermore, Cooperstein further emphasized Kadena’s strengths in scalability, interoperability, and security, positioning the network for success in this evolving landscape.

Understanding the key obstacles of private blockchains is essential to grasp why this shift is gaining momentum.

The Key Challenges of Private Blockchains

While private blockchains initially seemed ideal for financial service institutions because of controlled environments, their flaws are becoming more apparent as institutions look to scale their operations for greater adoption.

1. Centralization Risks: Single Point of Failure

Private blockchains are controlled by a central authority or small group, which can create a single point of failure. This centralization makes the network vulnerable to manipulation, misconduct, or technical pitfalls. If a controlling party is compromised, the entire network could suffer.

2. Weak Security in Controlled Environments

Private blockchains, operating in closed systems, may sacrifice security aspects to improve performance. Security risks are heightened with fewer validators and less scrutiny, exposing private blockchains to internal and external threats.

3. Weaker Consensus Mechanisms

With fewer participants validating transactions, private blockchains suffer from weaker consensus models. This increases the likelihood of collusion or malicious behavior since control rests with a smaller group, eroding the trust that is needed for secure, transparent operations.

4. Scalability and Maintenance Costs

As private blockchains grow, scaling becomes a challenge. Maintaining a private network is expensive, and expansion often requires significant resources.

5. Lack of Interoperability and Innovation

Private blockchains are isolated systems that lack the interoperability needed to integrate with broader blockchain ecosystems. This stifles innovation, limiting growth opportunities.

Other challenges for private blockchains include:

• Compliance risks: Data privacy and governance issues.
• Limited community involvement: Slower innovation and growth.

In summary, private blockchains operate more like a "walled garden." Only pre-approved participants can join the network, engage in consensus, and read or write data (e.g., create and execute smart contracts).

Private blockchains limit transparency, as only select individuals can view and verify transactions. These networks often cater to internal business use, with transactions confined to specific companies or entities. While this structure has the potential to offer enhanced privacy and control, it lacks the openness and decentralized governance of public blockchains.

Public Blockchains

Anyone can participate in a public blockchain. While geographical restrictions or transaction costs pose barriers, public blockchains are theoretically open access. This means anyone can engage in consensus processes and read or write data on the blockchain. Notable examples of public blockchains include Bitcoin, Ethereum, and Kadena.

Public blockchains are governed decentralized — no single entity controls the network. However, in practice, decentralization can vary. For instance, a 2022 Cointelegraph article noted that three major cloud providers hosted 69% of Ethereum’s nodes, with Amazon alone accounting for 50%. Similarly, on the Solana network, Hetzner hosted 42% of nodes, OVH hosted 26%, and AWS hosted 3%.

Furthermore, public blockchains like Kadena offer transparency, which has become one of our core strengths, particularly for institutions seeking to issue tokenized assets. Smart contracts deployed on public blockchains provide visibility into transaction histories and smart contract execution, allowing stakeholders to observe the entire lifecycle of tokenized assets.

Interoperability is the Future

Interoperability is another key factor that sets public blockchains apart from their private counterparts, and it's an area that even seasoned Wall Street professionals like Jeff Cooperstein find exciting.

In a recent interview, Cooperstein shared his enthusiasm for this shift toward greater connectivity across blockchains.

“And further, I actually believe that at some point in the future, it’s not just about interoperability between Kadena and Ethereum. It’s interoperability between Kadena and Ethereum, between Kadena and R3, and other public blockchains.”

Moving Toward Public Chains

As the blockchain industry continues to grow, the trend toward public blockchains, supported by regulation and innovation, is set to reshape the future of decentralized technology. Kadena is uniquely positioned to embrace the shifting market with our institutional-grade technology that is ready to meet a wide range of challenges faced by traditional financial service companies looking to use blockchain.

As the Federal Reserve’s research on tokenized assets illustrates, public blockchains are increasingly used for regulated financial activities such as bond issuance.

With its scalable and secure infrastructure, Kadena is well-positioned to meet the evolving regulatory requirements while offering the transparency and decentralization that public blockchains provide.