Public/private blockchain hybrid systems explained
Traditionally, blockchain is synonymous with decentralization. It remains true that decentralization is the foundation of public cryptocurrencies, but as blockchain technology improves, we are entering a new era where blockchains are powering other ecosystems. Blockchain is driving systems like securities trading, IoT identity, supply chain, and public ownership records. Unfortunately, public chains have problems when they need to handle private data.
For many business leaders it’s an uncomfortable idea to put their company’s vital data on an open network. The complexity and security risks may not be worth the benefits. Regulated industries like healthcare, banking, and government contractors often have rules about how data must be managed and stored. For these organizations, putting data on an open network would be unthinkable.
Fortunately, there are plenty of options for configuring chains. In this article we’ll take a look at the business benefits of blockchains in general, advantages of public chains, then the advantages of private chains, and lastly, the power of public/private chain Hybrid systems.
Advantages of blockchain for business
Blockchain networks bring inherent benefits, whether public or private.
Immutable and auditable – Blockchains create an untamperable, timestamped, user-signed record of every transaction. Reporting can be easily automated and verified. It’s even simple to set up a useful blockchain for internal company accounting.
Little need for backups or redundant systems – With many nodes, the system will have little to no downtime, even during power outages and hardware failures. As long as one node remains operational, the system can’t crash. There is no special maintenance needed. This is potentially a big efficiency and cost savings over other redundancy and backup solutions.
No Special Hardware or Networking – Blockchains are simple, fault-resistant, and run on a wide variety of hardware.
Advantages of public blockchains
Transact with third parties – Some companies will want their system to interact with assets on a public chain. For example, a loyalty rewards program may use tokens that can be exchanged for goods on partner retail sites. Or a game service might pay out winnings that can be traded for public cryptocurrencies. Or a certain set of anonymized health data may be released to a third party research lab.
Public Access and Ownership Tracking – Many use cases require that some data is publicly accessible. This requires a public chain. For example, an iOT device (like a smart TV) may need to confirm its identity to payment service providers. Any token that needs to be traded on a public exchange will also have to be on a public chain.
Advantages of private blockchains
A company can also set up a completely firewalled blockchain system accessible only to those with permission. What are some advantages of this type of chain?
Privacy – Data on a private blockchain can remain completely inside a company firewall. Account data and transactions are accessible only to those who need them.
Speed – When a blockchain is configured as a private chain it becomes much faster. Public chains include features designed to resist attacks of many kinds, requiring more processing steps. For example, Bitcoin’s staggering energy consumption is an intentional design to make takeover more difficult. A private chain has less exposure to constant attacks, reducing the need for these features and increasing speed.
No transaction fees or volatility risk – A decentralized blockchain depends on transaction fees to keep it running. A company using a public chain for their business data will end up with very high costs in transaction fees, making some business models non-viable. Further, market volatility of public cryptocurrency tokens come with price risks. In a private chain, the company runs its own nodes on the company’s servers so there’s no cost per transaction and no coin price to worry about.
Secure apps and ease of development – Apps on a private blockchain are easier to develop and don’t have the same kinds of security risks as those in public smart contracts. Developers can use familiar languages to create any business logic needed.
Advantages of public/private hybrid chain solutions
A hybrid blockchain solution is composed of two chains integrated with each other. By keeping one chain private and one public, this type of system can provide the best of both worlds.
Pay fees for needed public transactions only – Hybrid systems let you operate as much business logic as you like on your private chain, and then update those aggregated changes in a single transaction on the public chain. This gives you control over how much you’ll pay in transaction fees. This represents a huge cost savings for something like a game that may have a lot of gameplay logic, but only a few types of data that need to be publicly recorded.
Keep some data public and other data private – Hybrid solutions let private data remain compliant in regulated industries and ensure any other needed privacy. But data that needs to be publicly accessible can make transactions with public chains and exchanges.
Get high speed, reporting, resilience, and low maintenance – Keep the advantages of a private chain system.
Symbol is the most effective hybrid chain platform
Symbol is designed for exactly these types of hybrid solutions. It’s highly performant for single chain use, but no other blockchain project offers the same native compatibility for hybrid chain systems.
For example, no other platform offers the same ability to easily respond to public coin price volatility. For example, if you build on the Ethereum platform, public chain transaction fees may be equal to USD $0.10 per transaction. If the coin price spikes, your transactions may suddenly cost USD$1 each.
With a Symbol hybrid system, if the public coin price spikes, you can rapidly shift some of your publicly recorded transactions to your private chain, where they are essentially free. Then update the public chain with proportionally fewer aggregated transactions, keeping your public chain fees about the same no matter the public coin price volatility. This represents a significant reduction in operating cost risk.
Visit the Symbol community to ask questions and dig deeper into hybrid chain systems.