Understanding Private Blockchains: Advantages and Challenges

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Blockchain technology has revolutionised the way we manage transactions on the internet. It allows us to store data in a secure and decentralised manner. Blockchain technology is a revolutionary method of storing and managing data in a secure, decentralised manner. It is a distributed ledger that can be used to record transactions and store data across a network of computers in a way that is tamper-proof, transparent, and resistant to hacking. The technology was originally developed for use with the cryptocurrency, Bitcoin, but its potential exceeds far beyond that.

Blockchain technology works by maintaining a chain of blocks, each block contains a collection of transactions or data. Once a block is added to the chain, it cannot be altered or deleted. The blocks are connected in such a way that any change to one block will affect all subsequent blocks in the chain, making it virtually impossible to manipulate the data. Each node in the network has a copy of the entire blockchain, ensuring that the data is decentralised and cannot be controlled by a single entity.

However, not all blockchains are alike. In this article, we will be discussing private and public blockchain networks, which are becoming increasingly popular among organisations due to their unique features.

What makes a blockchain private?

Private blockchains, also known as consortium blockchains, are a type of blockchain technology that are designed to be used by a select group of participants. Unlike public blockchains where anyone can join, they offer a controlled environment for conducting transactions and storing data. They are typically set up by organisations for a specific purpose, such as supply chain management, financial transactions, or medical record keeping.

Advantages of private blockchains

They are a type of blockchain technology that offer several advantages over public blockchains. This makes them an attractive option for organisations that require secure, efficient, and customised solutions for handling sensitive information. The main advantages include increased security, improved efficiency, customisation, and increased privacy.

One of the key advantages of these blockchain networks is their permissioned access, which makes them more secure than public blockchains. In this type of blockchain network, access to the network is restricted to a select group of participants. They are carefully chosen and vetted by the organisation setting up the network. This reduces the risk of unauthorised access or hacking. 

Another advantage they offer is their improved efficiency. As the number of participants is limited, the consensus mechanism is often simplified, resulting in faster and more cost-effective transactions. This can result in significant cost savings and improved operational efficiency. This is particularly in industries such as finance, supply chain management, and logistics.

Blockchains that are private can also be customised to the specific needs of an organisation. For example, they can be set up to handle certain types of transactions or to comply with certain regulations. This level of customisation makes them a versatile solution for organisations with specific requirements or limitations.

Finally, a blockchain which is private provides increased privacy compared to public blockchains. The participants in a private blockchain are known entities. Thus, the transactions can be kept confidential. This makes them an attractive solution for organisations that need to maintain privacy, such as those handling sensitive medical information or financial transactions.

Challenges for the blockchain networks

While these types of blockchain networks offer several advantages over public blockchains, it is important to consider the challenges that come with implementing this type of solution. These challenges must be carefully weighed when deciding whether to implement the solution or not. The implementation of this technology can have a significant impact on the success of the network.

One of the major challenges of such blockchains is the risk of centralisation. These blockchain networks are restricted networks because the number of participants is limited. This can result in centralisation. Centralisation goes against the core principles of decentralisation that are at the foundation of blockchain technology. This can result in a concentration of power within the network, making it vulnerable to malicious actors and increasing the risk of security breaches.

Moreover, they are also limited by their size, as the number of participants is restricted. This can result in scalability issues, especially as the number of participants and transactions increase. As the network grows, it may become slow and inefficient. If the blockchain is unable to keep up, it can become difficult to handle large amounts of data and transactions. This can have a negative impact on the overall performance of the network, limiting its potential for growth.

Setting up and maintaining a blockchain which is private can be a costly endeavour, as it requires specialised hardware and software. This is due to the need for secure and efficient consensus mechanisms, as well as customisation options to meet the specific needs of the organisation. This can be a significant challenge for organisations with limited resources, as the costs of implementation can be prohibitively high

Finally, these blockchain networks can suffer from a lack of incentives for participants to maintain the network. Without proper incentives, participants may not see the value in maintaining the network. If this happens, then there will be a lack of participation and reduced decentralisation. This can make the network vulnerable to security breaches and other malicious actors, as there may not be enough participants to secure the network.

While these kinds of blockchain networks offer several advantages over public blockchains, it is important to carefully consider the challenges that come with implementing this solution. These challenges, including centralisation, scalability, expense, and lack of incentives, can have a significant impact on the success of the network. Organisations should weigh the benefits and drawbacks of and make an informed decision based on their specific needs and requirements. By understanding the challenges of private blockchains, organisations can choose the best solution for their needs and ensure the success of their network.


Blockchain networks that are private are becoming an increasingly popular choice among organisations due to their unique features and benefits. They offer increased security, improved efficiency, customisation, and increased privacy. However, they also come with their own set of challenges, including centralization, scalability issues, cost, and lack of incentives for participants. The choice between a private or public blockchain ultimately depends on the specific needs and requirements of an organisation. For businesses and organisations that handle sensitive information, they are an ideal solution. On the contrary, may not be suitable for more general-purpose applications.