A blockchain is a digital database that stores transactions or information in the form of blocks. Each block contains the list of transactions and a reference to the previous block. This reference creates a chain of blocks, which is why it is also called a “block” “chain”. Data is secured by cryptographic hashing functions and is checked and managed by a network of computers (nodes). Cryptographic hash functions are special hash functions where an input value produces a constant output. Depending on how they are used, they are divided into private and public blockchains.
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What is a private block chain?
At first glance, it seems obvious: private blockchains have a limited circle of potential access. In contrast to general rights, access rights are required here to be able to view stored data. They are usually used by companies or organizations to protect sensitive information. Private strings are suitable, for example, for insurance companies or the healthcare sector, for example for managing medical records. With private chains, it is much easier to protect participants’ data.
What is public blockchain?
In contrast to private blockchain technology, public blockchain technology provides control to all people. In theory, everyone has access to the network and anyone can validate transactions. However, the latter applies only with one limitation. In order to be able to validate transactions in proof of stake systems like Ethereum, you need a certain number of coins. On the other hand, PoW systems require special mining equipment.
The classic and most common use case for public chains is cryptocurrency. Anyone can create a wallet and send cryptocurrencies, provided they have the appropriate technical and knowledge skills. Typical public chains are, for example, Bitcoin, Ethereum or Litecoin. This is also referred to as tier one solutions.
Differences at a glance
- Access: Private blockchains have limited access, while public networks are open to all.
- Control: Private chains provide greater control and governance to the participants, while public chains are decentralized and more transparent.
- Data protection: Private strings provide a higher level of data protection, while pseudonymous public data can be viewed more easily.
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