With cryptocurrencies becoming more popular every day, so do blockchains. Blockchains are the underlying database to store information like transactions. Does everybody has access to all the information on a blockchain?
Information on blockchains from Ethereum or Bitcoin is fully public. It’s accessible to everybody. There are so-called private blockchains where only selected people or organizations have access. Also, there are public blockchains that hide sensitive information.
Types of blockchains
There are 3 types of different blockchains.
- Public blockchains
- Private blockchains
- Public blockchains that hide sensitive information
Every blockchain type has different uses cases. Neither of the types is better or worse. They have different use cases where they are a better fit for a certain scenario.
What are public blockchains?
Bitcoin, Ethereum, or Litecoin have public blockchains. They store every transaction on the blockchain that is ever made by somebody on the network. This included, how many coins you sent, who sent the coins and who received the coins. This is currently the most common use case for public blockchains.
Why are the blockchains public?
Because everybody around the world can set up a so-called node (computer). With this node, he takes part in the crypto network. If you become a node, you help the network confirm data. For instance, transactions. You need the full blockchain to do that. Otherwise, you can’t tell if a transaction is legitimate or not. So, you download the blockchain from other nodes at the start. Afterward, you start validating transactions if you synced the blockchain with the network.
This makes the network more secure and robust. If one node crashes or goes offline, there are still other nodes that take care that everything works fine. The network works fine even if there is one node less in the network. That’s why Bitcoin or Ethereum had a 100% uptime since its launch. In other words, the network was never offline. You could’ve made a transaction at any time.
Also, Bitcoin and Ethereum can only be decentralized if they are transparent. This includes who has how many coins, even tho you can only see which address has how many coins. That’s why people trust Bitcoin or Ethereum. Because it’s a trustless and secure system.
What are private blockchains?
You can put everything on the blockchain. If it’s information, you can put it on the blockchain. For instance, you could put medical data instead of transactions on the blockchain. It’s not good if everybody could join a medical network. Imagine somebody discovers a bug and has access to all medical data of an organization.
That’s where private blockchains are useful. Private blockchains are blockchains where only selected people or organizations have access. Also, the network is robust and even if one node gets offline, every other node still has the blockchain data. If the node comes online again, it could sync the data with other nodes. To make this work, the network needs many nodes.
For example, let’s image data from servers in a hospital that gets encrypted by a hack and is not recoverable. If they would store the data on a blockchain, they could reset the computers. Afterward, they can download the blockchain from other nodes from other hospitals. Because they synchronized data with each other, no data gets lost in the process.
The crucial part here is that you could still control the access to your own data as a person. Even tho you are not a participant and don’t have a node like in Bitcoin. It works by knowing the private key and using it when you give hospitals access to your data.
For instance, if you have an accident and need medical help. You could give the hospital your private key and they have access to your medical data. They could give you the best treatment possible based on the data. On the other side, other hospitals can’t access your medical data without your private key.
The difference is, that only hospitals have nodes in the medical network. If they are not participants in the network, they would not be able to gain access to medical information. In other words, they don’t have the data of the blockchain.
The problem with private networks/private blockchains
There are some problems that occur with private networks/private blockchains.
- Too few nodes
- Manipulative requests
If there are too few nodes, it is possible that syncing times are longer or the network is not that robust. Because fewer nodes confirm the legitimacy of data, it is easier to manipulate data or attack the network.
What are private or privacy cryptocurrencies?
Now it becomes interesting. What if you want everybody to become a node but you want some anonymity on the blockchain? So, you would need a system that hides specific information on the blockchain. That’s what private or privacy coins do. Privacy coins hide specific information for other nodes in the network. For instance, how many coins you sent to another participant or who received the coins.
Monero, zCash, or PIVX are some of these privacy coins. They hide information from other users. They do it through specific algorithms, but you still can’t spend more than you ever received. The transactions can still be validated. So, everybody has access to the blockchains of privacy coins. So, they have public blockchains, but they hide sensitive information.
The problem of hiding sensitive information on the blockchain
If you hide transaction information with a privacy coin, there can be problems that occur and you don’t even notice. For instance, you could lose control over the coin supply. Let’s imagine there is a bug in the protocol that allows a miner to produce twice as many coins as programmed. Nobody would know that because the data is not fully transparent.
It’s possible that bugs like this are not found in years and everybody thought everything worked well but it didn’t. So, there are more challenges that occur when you get anonymity. With Bitcoin, this could never happen because everybody knows who owns how many coins. If somebody would generate 100 million Bitcoins, every other node would know that there is something wrong.
How to hide traces even with Bitcoin
People were searching for techniques to get more anonymity when they used Bitcoin. One of the most common ways to achieve more anonymity is through coin mixing. The concept behind it is simple.
A lot of people send one service their coins and these services have different options to mix the coins. For instance, you get the same value of the coins back on a different blockchain. Coin mixing makes it harder to trace you, but not impossible. If you want anonymity, use coins like Monero or zCash. The purpose of these coins is to make the transaction process anonymous.
What blockchains are fully public?
|Monero||Public (Privacy coin)|
|ZCash||Public (Privacy coin)|
|PIVX||Public (Privacy coin)|
Public vs private chains
Everybody has access to the information of public blockchains. With private blockchains, only a few selected people or organizations have access.
Bitcoin vs. privacy coins: What blockchain concept is better?
Neither of them is better. They have other perceptions of how money should function. Bitcoin provides transparency while privacy coins hide sensitive information.