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Introduction to Private Blockchain: A Beginner’s Guide

  • July 10, 2023
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Introduction to Private Blockchain A Beginner's Guide

Blockchain has already found its place in the list of top technology trends in recent years. The need for decentralized data sharing, secure data storage, traceable and transparent transactions, etc. are some of the most prominent reasons why blockchain is so high in demand these days. Not just a variety of industrial sectors like finance, healthcare, and real estate are utilizing blockchain, but also private business entities are embracing this path-breaking technology to improve transparency in operations. Being a promising innovation of this digital age, the surge in the demand for blockchain development companies for decentralized solutions is no surprise.

Although originally blockchain technology was designed to function democratically without any intermediaries or central regulators, it can still be implemented privately by organizations for securing their systems. Private blockchain works within close parameters whose access is restricted to limited individuals who work in the organization or are a part of it. In this article, we will discuss private blockchain in detail, how it differs from public blockchain, how they are created, why they are important for businesses, and lastly, we will enlist some of its real-world use cases.

What is a Private Blockchain?

A private blockchain, also referred to as a permissioned blockchain, operates within a close network of selected members or participants. Restricted access is a primary and most important feature of a private blockchain. Private blockchain controls the participants who are allowed to engage and interact within the network.

Put simply, it is a restricted form of blockchain functioning within a closed network and anyone from outside cannot access data or information on the network. This is primarily used within business entities where only specific members are required to be a part of the network to carry out important business activities internally.

Organizations utilize the potential of private blockchain networks exclusively for making business-critical decisions and at the same time prevent unauthorized access of other individuals. So, if you are one of them, you need to connect to a top private blockchain development company for a top-level and unbeatable solution equipped with blockchain technology. The next segment of this article deals with a step-by-step process to create a private blockchain.

Statistics Showing Market Size Of Blockchain Technology From 2018-2025

Predictions regarding the global market size of blockchain technology show that the revenue will grow to 39 billion dollars by 2025. Among the various industry verticals, the banking sector is the first to invest in this breakthrough technology in its early stages with its total value comprising around 30%.

Considering the nature of this decentralized public ledger technology, its possible use cases across various industries mostly include secure storing and exchange of information and validation of payments or transactions in digital currencies.

Lately, promising startups and private organizations are resorting to blockchain to ensure tamper-proof transactions and safeguard critical information. The Statista Report on the blockchain technology market worldwide is shown below.

Statista Report on the blockchain technology market worldwide

How To Create a Private Blockchain

Recently, private blockchain development has gained a lot of attention in the business world as it has proven to be the ideal solution to safeguard crucial and sensitive information of companies. Let us see how it’s done by blockchain developers efficiently and flawlessly.

Step 1: Blockchain Protocol or Framework Selection

Before anything else, the blockchain framework needs to be decided on which the application will be built. You may choose one of the following –

  • Ethereum-compatible EVM-based blockchain protocol
  • Substrate framework, if you are seeking a quicker, less expensive, and simpler blockchain development supported by strong tech
  • Cosmos or Provenance – For scalable blockchain ecosystem
  • Choose an existing framework and create a new version with modifications to its copy of the codebase.

Step 2: Creation of the core logic

To construct the core logic of a private blockchain after protocol selection, you need to follow the below steps.

  • Modifications or changes to the existing logic – This is done to adapt and refine the pre-existing logic of the chosen blockchain framework.
  • Determining the consensus algorithm – This algorithm will govern and control the way transactions are verified, validated, and added to the blockchain network.
  • Defining the transaction fee – Establishing a fee structure for the private blockchain to incentivize the network participants.
  • Upgradation of the header information – This step ensures integrity and security as the header information of blocks contains all the additional data and metadata relevant to the network.
  • Adjusting block height as needed – Block height is modified based on the network requirements.
  • Building Pallets – Pallets are custom modules encapsulating specific functions and features like smart contracts, identity verification, asset management, etc.
  • Determining the suitable permission module – Selecting an appropriate permission module will ensure that only authorized members can enter the network.
  • Choosing a suitable file storage solution for your private chain – You can choose either a decentralized storage network or cloud-based storage to secure the data on the chain.

Step 3: Logic Development

The third and most important step undertaken by private blockchain developers is the DevOps stage after core logic is figured out. The development operations (DevOps) include –

  • Preparing a test network for hosting
  • Deciding file storage for the private chain
  • Creation of a Genesis key store
  • Selecting the total number of nodes during deployment and their geographical locations
  • Integrating APIs to facilitate seamless information exchange with external sources

Step 4: Testing Stage 

The blockchain development team is ready to launch the test network after the completion of the DevOps phase. The testing process ensures the proper functioning of the private network. Further, it also checks how the various chain attributes are working using the testnet such as wallet, SDKs, and block explorer. The process includes the following steps –

  • Checking if all the API integrations are working properly
  • Network scalability check on the private chain
  • Testing the blockchain to check its functionality
  • Identifying security threats in the network and fixing them
  • Checking the network connectivity and resolving issues, if any
  • Looking for the possibility of network migration
  • Assessing and evaluating the performance of the chain

Step 5: Deploying the main network

Once the test network is checked and every single issue detected is resolved effectively by the developers, it is time to launch the main network of your private blockchain.

Step 6: Network Integration

Last but not least, seamless integration of faucet, wallet, benchmarking, block explorer, monitoring tools, and as well as SDKs, with the mainnet is done, and the setup of your private blockchain network is completed.



div
{
pragma solidity ^0.8.0;
contract PrivateBlockchain {
mapping(address => uint256) private balances;
address private owner;
event Transfer(address indexed from, address indexed to, uint256 value);
constructor() {
owner = msg.sender;}
modifier onlyOwner() {
require(msg.sender == owner, "Only the contract owner can call this function."); _;}
function getBalance(address account) public view returns (uint256) {
return balances[account];}
function deposit() public payable {
require(msg.value > 0, "Deposit amount must be greater than 0.");
balances[msg.sender] += msg.value;}
function transfer(address to, uint256 value) public {
require(balances[msg.sender] >= value, "Insufficient balance.");
balances[msg.sender] -= value;
balances[to] += value;
emit Transfer(msg.sender, to, value);}
function withdraw(uint256 value) public onlyOwner {
require(balances[msg.sender] >= value, "Insufficient balance.");
balances[msg.sender] -= value;
payable(msg.sender).transfer(value);
emit Transfer(address(this), msg.sender, value);}
}

Private Blockchain vs. Public Blockchain: What’s the Difference

The choice between a private or a public network in an organization depends on the business requirements. Business owners are always in a tight spot regarding which one to pick to meet their specific goals. Therefore, to make their job easy, we have highlighted the key differences between a private and public blockchain.

As mentioned earlier, a private blockchain is a permissioned blockchain that is managed by an administrator or centralized authority. The participants require consent or permission to join and interact with the network. Whereas public blockchain is a permissionless open network where anyone can participate and exchange information on the chain. Apart from the permission facet, other features in which both the networks differ from one another are summarized below in the table.

Public and Private Blockchain Compared

Features

Private Blockchain 

Public Blockchain 

Access

Single Organization

Anyone (Public)

Authority

Partially Decentralized

Completely Decentralized

Transaction Speed

Light and Fast

Slow

Consensus Mechanism

Permissioned

Permissionless

Transaction Cost

Low

High

Who can participate

Network members and known identities

Anyone

Immutability

Partial

Full

What is the point of a Private Blockchain network?

In a private blockchain, users can only access data, exchange information, and perform transactions, while other things remain completely off-limits. Authorized access is granted to network members only for specific purposes by the network administrator.

The whole purpose or point of decentralizing and privatizing a blockchain is to carry out transactions and exchange of information in a closed network where access is controlled by the network creator. The mechanism on which private blockchain functions as per the rules set by the controlling authority.

IBM’s Hyperledger Fabric is a real-world application of private blockchain technology in which the system is technically “decentralized” but the nodes of the blocks are under the governance of the network controller. So, you can say that the power in a private network is centralized but the network is decentralized.

Read Also: Understanding Multichain in Blockchain: A Detailed Insight

Benefits Of Private Blockchain Development For Businesses

The nature of the private blockchain network makes it appropriate for data sharing, transactions,  auditing, etc. and this is why, enterprises are seeking services of top blockchain development agencies to protect the privacy of the members and give access to critical and sensitive information only to those who require it. Now, let’s explore the key advantages of private blockchains for business entities.

Enhanced security – Due to the immutable nature of information, it cannot be altered. The private blockchain serves as a valuable tool in preventing fraud by utilizing identity verification to confirm membership and access privileges. Typically, only known organizations are allowed to join the blockchain.

Faster Performance – The presence of fewer nodes in this type of blockchain leads to improved performance, as the validation of blocks takes less time. This particular blockchain variant exhibits higher throughput and lower latency, which becomes even more significant as the transaction volume increases. The performance of this system relies heavily on network and distributed system simulators, which serve as crucial tools.

Trust – Since users are not anonymous in the network the level of trust among the participants increases in the blockchain. Also, these private blockchains offer more privacy compared to public ones because access is only provided to authorized individuals. Therefore, it is considered an optimum solution by companies that want to ensure data privacy and information security during data exchange.

Cost-effective – Private blockchain can be implemented on a company’s existing infrastructure, thus lowering the costs linked with establishing an entirely new network. In addition to this, this network facilitates transactions and data sharing between participants with the lowest possible fees, sometimes even without a fee.

No Third Party Involvement – There is no scope for intermediaries or any third party to act as a moderator to the network and control the private blockchain. This makes the system more reliable, trustworthy, and secure for the members of the organization. They are partially decentralized and controlled by the business itself which also sets guidelines and rules on how the network needs to be utilized.

Immune against technical issues – Since members are few and limited and everyone has access to the data, the risks of data loss due to cyber-attacks or technical failures are minimized. If one device of any user goes offline, others can still access the data and carry out transactions from other devices. Centralized and individual servers are prone to hacking, cyber thefts, and technical glitches.

User Empowerment – Although private blockchain operates in a closed network, the data stored there is accessible and open to all the network participants. If required, they can object or defend themselves against any particular information or data and this gets shared automatically with other members of the network. This way private blockchain enhances transparency among users and empowers them to share their opinion.

These points, in favor of private blockchain, help you comprehend better why this technology is gaining momentum in recent years. Nevertheless, keeping all the hype and excitement aside, there are some unexplored areas and downsides of this technology that needs to be examined to get a better picture.

Limitations of Private Blockchain

Let’s have a rundown on the drawbacks or disadvantages of private blockchain in a business organization.

Private Keys – Although anyone outside the network cannot enter the private network, there is still a fear of data loss. Every segment in the chain has its unique address which can be accessed only by network members using private keys. Losing these private access keys makes the locked data inaccessible, leading to potential irretrievable data loss.

Partially Centralized – The degree of centralization is higher in a private blockchain because it is primarily adopted by business entities and small enterprises. Due to the presence of fewer nodes, it becomes possible to gain control over the network of a certain individual in the chain. The nature of the private blockchain makes it inherently centralized and can expose the network to potential manipulation.

Security issues – With limited participants in the network, hackers and cyber attackers can easily gain access and control of the network and misuse the data. Therefore, when it comes to security, public blockchains are safer and more secure than private networks. These are prone to security vulnerabilities and threats.

High Power Consumption – For efficient and smooth transactions a series of rigorous processes are implemented which demand significant computing power. This results in a high level of energy consumption which increases expenses.

Private Blockchain and Their Use Cases

The private blockchain is already being applied by various industries starting from finance, healthcare, real estate, and insurance. According to the opinion of David Treat, the senior managing director of Accenture who also leads the blockchain business unit. Blockchain provides enormous scope to businesses of various industries to streamline their operations and strengthen security.

Let’s have a glance at the use cases of private blockchain.

Finance & Banking – Financial service providers are relying on this new-age technology to improve the speed of transactions and offer greater privacy to customers for sensitive data. Increased efficiency and transparency in transactions is one of the reasons why blockchain was adopted by the finance sector before anyone else in its early stages. In banking, private blockchain aids in faster payments and quick settlements regarding fund transfers.

Real Estate – Fragmented operations and monotonous paperwork make the real estate market stressful. The introduction of private blockchain simplifies operations, automates lengthy manual paperwork, and reduces monetary expenses. Real estate agencies hire private blockchain companies to integrate smart contracts using blockchain to streamline the process of ownership transfer. Most importantly, it is used to get rid of potential criminal problems and reduces the possibility of fraud.

Logistics or Supply Chain – The logistics industry benefits from enhanced security and privacy through the implementation of private blockchains. Manufacturers and supply chain participants like courier and delivery companies can track assets, maintain shipment records, and share transparent record-keeping with others in the supply chain. Also, it allows customers to trace orders seamlessly from their source to their destination.

Insurance – Implementation of blockchain technology in the insurance sector helps settle claims faster, reduces the lengthy process of paper trails, and protects customers’ sensitive information. The decentralized, secure, and transparent nature of the private blockchain prevents the exploitation of customers and gives them peace of mind that their data is safe and claims will be settled sooner.

Healthcare – Blockchain technology has the potential to revolutionize and transform the healthcare sector by enabling the tracking and secure storage of patient data. Additionally, it can facilitate the chronological logging of patient records, their past diagnoses and treatment, medical history, etc. This prevents duplication through a distributed ledger on a healthcare company’s centralized network. This utilization of private blockchain assists in proper data management and streamlines administrative processes in the healthcare industry.

Government – Nowadays, blockchain technology is used in governmental services which involve the security of citizen rights and the protection of their digital identities. Furthermore, it is implemented in elections for ensuring a transparent voting system. The application of private blockchain technology speeds up the various processes in the government sector such as record keeping, transfer of aid and welfare money, and other administrative operations.

 

Read Also: How Web3 technology is redefining user experiences?

 

Private Blockchain: Concepts and Examples

Private Blockchain, to a great extent, has helped enterprises and large-scale corporations deal with business inefficiencies. Sending emails and messages individually to stakeholders, organization members, and others back and forth to exchange receipts, invoices, etc. creates confusion and sometimes is the reason for conflicts within an organization. Also maintaining spreadsheets to track records becomes difficult, especially when there are too many people involved.

In such a scenario, a shared view and access to all the records and transactions via a private blockchain network is the best thing to consider. Besides validating the data, it makes the process secure and safe for the organization. Below are some real-world examples of private blockchain and its applications in big and reputed companies.

IBM – IBM’s Hyperledger Fabric is arguably the most popular private blockchain currently in the world. This open-sourced blockchain platform allows only “permissioned” users or members to transfer data and records.

Walmart – After IBM, it is Walmart that developed its own private blockchain system using Hyperledger Fabric to track the origin of their products. Suppliers upload authenticity certificates of the products to the ledger system which can be viewed and verified by the company.

Spotify – In 2017, the leading music streaming company Spotify developed Ethereum-based Mediachain intending to connect audiences and creators more fairly and transparently. It is a decentralized peer-to-peer database to share information across applications.

How media chain works

Comcast – Comcast collaborated with other industry leaders to introduce a privacy-focused blockchain system called Blockgraph. This system allows advertisers and marketers to target specific ads to viewers while safeguarding their privacy.

BurstIQ – The big data blockchain platform on BurstIQ assists doctors and patients in the secure transfer of sensitive and confidential medical information. The platform uses smart contracts by establishing clear parameters for data sharing.

In addition to this, other big giants like DHL, Metlife, and Metlife, are also at the forefront of blockchain-powered systems and are creating their own private blockchain to simplify, automate, and validate contracts and streamline transactions that were done manually earlier compromising with security and would take longer time to complete.

Wrapping Up

Hopefully, by the end of this article, you have a basic understanding of private blockchain and how it is created. And enterprises are taking complete advantage of this emerging and trending technology to scale their business and reach new heights. For those who want efficient data management and transparency in transactions without exposing critical information or data, a private blockchain is the answer. Moreover, it assures integrity and trust among the authorized users in the chain.

It also helps entities comply with regulatory guidelines and rules by providing greater control and governance over the network. Particularly for industries like finance and healthcare that demand strict compliance requirements, private blockchain can provide them with an ideal solution.

If the idea of creating a private blockchain sounds intriguing to you, you can schedule a consultation to speak to our certified blockchain experts. We offer full-cycle private blockchain development services starting from requirements analysis and consultation to testing and deployment.

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