Public vs. Private Distributed Ledger Technology (DLT) for B2B
Distributed ledger technology (DLT) is a game-changing innovation that is transforming transactions, securities, provenance, tracking, transparency, and the list goes on. As businesses move to take advantage of the benefits DLT offers, the question becomes which type of DLT is right for your business needs—public or private? There are many similarities between public and private distributed ledgers, and there are some substantial differences.
To help you understand the complexities and nuances of private and public distributed ledger technology, we sat down with William Fox, CEO of Data Gumbo, the leading state-of-the-art industrial distributed ledger technology.
How would you describe the main difference between a public DLT versus a private DLT?
While I have heard arguments made that public DLTs are decentralized and private DLTs are more centralized, I find the rationale lacking. Both public and private DLTs are decentralized.
To be “centralized,” the technology would have to have a single central server that the data is running on, and that goes against the fabric of DLTs. Both private and public ledgers produce multiple copies of the same ledger across the network and provide each participant their own copy. What we see in the functioning B2B DLT networks is some level of centralization around the platform that connects participants and creates new transactions, with total decentralization of the copies of the ledgers each participant holds.
It is widely communicated that public DLTs are impossible to tamper with, have a high level of security, and it has been that private DLTs are more susceptible to tampering. Do you agree with this assessment?
There have been several reports in the news lately, and recently by the DoD, stating that public DLTs are laden with security holes. I will not get into the specifics. However, what I can say is there are some public DLTs better suited than others, and private DLTs are much more secure.
Only private DLTs support the level of security that corporations require for their sensitive, proprietary data, and great measures have been taken to ensure the security of that information.
Distributed ledger technology is all about transparency and trust. We can see the transparency in a public DLT because everyone has access to view the data. Does a private DLT offer the same level of transparency?
We like to say that when companies enter into a smart contract on a shared ledger, they are embracing "radical transparency." However, this transparency is only for the transactions they are actually party to, not the transactions of the entire network. Participants need to have permission to gain access to a specific ledger on a private DLT network, usually by participating in one or more smart contracts that run on that ledger. Participants then have complete transparency about the transactions on the ledger to which they are a party, but zero access to transactions to which they aren't.
Public DLTs use independent peer-to-peer computer networks to verify a transaction before it is recorded on the ledger. Since private DLTs are not on an open network, how does it verify a transaction to be recorded?
While public ledgers rely on a network of node operators to select and verify transactions using schemes such as "proof of work," "proof of stake," or "proof of authority" to determine which nodes can verify transactions, private DLTs rely on other means. In a private, permissioned DLT solution, all participants are known rather than anonymous, and the proof of a participant's identity is crucial to determining who can initiate a transaction with data relevant to a specific smart contract. For instance, you would expect your trucking company to submit trucking tickets, but not your electricity provider. Secondly, B2B smart contracts rely on exchanging sufficient data to be able to pass a corporate audit, which then must be written to the ledger in support of each transaction. We like to think of this as "proof of evidence." B2B smart contracts function as real-time onsite audits of every transaction they generate so that the parties can trust the final calculated transaction cost.
What is the difference in scalability for a private DLT versus a public DLT?
In terms of scalability, a public DLT cannot begin to compare to that of a private DLT. The sheer volume of records and participants of a public DLT severely limits its ability to expand with the increase in the additional computing capacity needed to scale. Also, the higher number of participants, the slower the process is of getting a transaction vetted and published to the DLT.
A private DLT has a fewer number of participants, freeing up the amount of computing space required for a single transaction, and in turn, has the ability to exponentially expand the number of transactions and various transactional scenarios the system can log and track.
Are there specific business use cases for an organization to move forward with a private DLT versus a public DLT?
A private DLT is better suited for tracking and streamlining internal data that is not suitable for public consumption due to laws such as HIPPA.
A public DLT is great for when a company is looking to convey trust, transparency, and traceability in their data and transactions to the general public and consumers. An example would be if a diamond seller aimed to promote and prove they only work with responsibly sourced gems.
When it comes down to choosing a private DLT or a public DLT for business, private distributed ledger technology offers an organization more security and scalability for their everyday business needs. A public DLT, when paired with a private DLT, offers an organization a more comprehensive platform that meets the privacy and security standards required for business operations while providing trusted transparency to key stakeholders, including public analysts, investors, governments, and other interested parties.
The potential for private and public DLTs in business is substantial.