There is a crucial differentiation to be made between private (permissioned) blockchains and blockchains that focus on privacy concerns. In this article, we will explore the differences between the two.
The vocabulary associated with the vast blockchain technology landscape can be confusing even to those who have spent some time in the space. This does not come as a surprise! The ecosystem has expanded considerably in recent years, indulging us with new concepts and projects. Every week, it seems that there is a new buzzword to watch out for. This makes it essential to differentiate between the myriad of terms. We have to tell apart a blockchain from a distributed ledger, a ZK-SNARK from a ZK-STARK, and an sMPC, and understand DeFi and NFT’s. It gets hectic really fast! We also have to watch out for using the terms private blockchain and privacy blockchain interchangeably. They are not the same! Let’s look at the differences between them and why it’s important for Aleph Zero.
What is a Private Blockchain?
A private blockchain is a protocol where one entity has complete control over the network. In contrast to public blockchains that are open for everyone, private blockchains require some form of authorization. Essentially, this means that they are not decentralized systems the way public blockchains are. This allows private organizations to take advantage of the security and immutability of blockchain technology while also complying with privacy regulations, most notably the General Data Protection Regulation (GDPR). The GDPR is the European framework that dictates the conditions on how both private and public entities can store data. Despite being a European initiative, the influence of the GDPR reaches across the globe. To find out more about the GDPR and its impact on the blockchain space, check out our previous blog post on the subject. The matter effectively comes down to specifying a single data controller.
The “kicker” about private blockchains is that they don’t exactly qualify as decentralized. Not exactly what Satoshi Nakomoto was going after when he/she/they/it/etc.; decided to grant us this fantastic concept for creating a more transparent world. Oftentimes, they serve nothing but experimentation in a closed, controlled environment.
Private Blockchains and Business
As blockchain technology spilled over into mainstream awareness, countless well-known companies took notice of the potential applications for their use. We’ll take a look at some of the household names that began employing blockchain solutions for various aspects of their business practice, such as storing data or managing supply chains.
One of the first companies to hop onto the blockchain bandwagon was IBM. The intrepid company has spearheaded mainstream adoption among enterprise users. The company has been active in the Hyperledger open-source program since 2016. Hyperledger is the brainchild of the Linux Foundation and functions as a hotbed of private blockchain activity aimed at enterprise applications. Over 67 organizations are now part of this initiative, taking advantage of the services Hyperledger has brought to the table. They offer solutions for a wide range of industries, including those associated with finance, manufacturing, IoT, and insurance.
“It’s not an esoteric technology discussion at this point. If you are trying to do multi-party integration with security and privacy, and you need to do it quickly in a way that is going to have a rapid business impact. In that case, blockchain is a suitable technology to pursue that business goal.”Alistair Rennie, IBM Blockchain General Manager who served at the company until March 2021
Use Cases for Private Blockchains
Due to IBM standing at the forefront of private blockchain adoption, they have been in a privileged position to introduce many compelling use cases for the technology. IBM has used its expertise in setting up private blockchains in a number of ventures, including the tracking of raw materials in the mining industry. This use case stems from the need to regulate resources that could have been sourced by unethical entities. An example of this application is in monitoring mines in the Democratic Republic of the Congo that profited thanks to western corporations and then redirected those profits towards war. Blockchain technology permits manufacturers to know where the raw goods were sourced and through whose hands they passed. This allows businesses to make socially responsible decisions.
A use case explicitly aimed at healthcare providers was established by the MIT associated project called MedRec. Proudly claiming that they are “a network, not a service,” the company has dedicated itself to introducing blockchain solutions to the medical industry, specifically through enabling patients and healthcare providers to share information in a secure manner while also giving patients complete control of the information they wish to divulge. We have explored this facet of blockchain technology in one of our previous articles found here.
A Look at Privacy Blockchains
On the other hand of the blockchain spectrum, we can find privacy blockchains. This kind of blockchain focuses on maintaining the privacy of its users. It does so without sacrificing the traits that make a blockchain an egalitarian, transparent, and immutable space. By remaining a public blockchain, everyone has equal access to the information stored on the chain. Additionally, every user can potentially take part in establishing consensus. This means that they can decide along with other users on a single version of the truth stored on-chain.
The focus in privacy blockchains is to offer state-of-the-art privacy solutions while remaining decentralized. Safeguarding this privacy is the use of zero-knowledge proofs and secure multi-party computations (sMPC). In Aleph Zero’s case, we use a combination of both.
This is especially useful to businesses of all shapes and sizes. Firms get to take advantage of multiple benefits offered by a public chain—such as superior security or lowered operational costs—and yet be able to keep their transactional data private whenever necessary.
Moreover, Aleph Zero’s privacy solution is entirely software-based, which means that there is no hardware vendor lock-in. Such a solution is then notably more cost-effective than its alternative. Even if a business decides to switch to another technology, it can avoid the substantial cost associated with investing in different hardware.
Why Should We Decentralize? The Case for Privacy Blockchains
There are countless ethical and socially responsible reasons for wanting a decentralized world. If you haven’t spent the last ten years under a rock, you have probably come to grips with the idea that something is “rotten in Denmark” when it comes to Big Tech. Something we should all be rooting for is giving power back to the user. Our entire political and social system could be in for an upheaval because of the decentralized solutions blockchain envisions. These solutions go far beyond our computers and enter our daily lives. Even now, voting on the blockchain is a concept undergoing debate, yet still, the most incentivizing aspect of decentralized blockchains is, of course… money.
Permissionless blockchains have been the catalyst for creating new online markets and have fostered countless opportunities for creating fresh sources of capital. They have incentivized people from all over the world and from every background to enter the world of decentralized finance. Control has been wrestled away from gatekeeping institutions that have prevented countless people from accessing the financial system, especially those with less fortunate stories.
Finally, we build permissionless blockchains on the concept of cooperation. They are interoperable and flexible. Even at this stage of its development Aleph Zero has plans to bridge to the Kusama, Ethereum, Near, or Binance Smart Chan blockchains. These kinds of initiatives are popping up throughout the blockchain ecosystem and will create a genuinely multichain world.
Is Aleph Zero a Private Blockchain or a Privacy Blockchain?
Those of you that answered “private blockchain” should rethink the answer! Aleph Zero’s mission has always been about creating a public and transparent decentralized ledger that all can enjoy. A blockchain that also possesses the most advanced privacy solutions currently on the market. The privacy aspect of our protocol has to do with the novel cryptographic solutions we have introduced by combining ZK-Proofs and sMPC’s to create a highly secure environment on which to trade and build. We believe privacy is a fundamental human right and have high hopes for the introduction of new regulations by decision-makers who will see the immense value that supporting this right to privacy brings to society.