Should Your Company Use Public or Private Blockchain Networks?

Private “permissioned” blockchain networks remain the best use case of the technology for most industries in the short term, according to research released this month by management consulting firm McKinsey & Company. A report on the research urges most enterprise users to focus on potential cost savings over transformation as the technology continues to mature.

“Blockchain does not have to be a disintermediator to generate value, a fact that encourages permissioned commercial applications,” wrote Brant Carson, a partner in McKinsey’s Sydney office, noting that the technology’s short-term benefits are “predominately in reducing cost before creating transformative business models.”

In the long run, however, the balance may shift toward public blockchains and more transformative models. Businesses that are market leaders in sectors with comparatively less regulatory oversight may be better served by moving forward now, the report states.

private blockchain models MAY hold the greatest potential in the short term.

“With the right strategic approach, companies can start extracting value in the short term,” the McKinsey research states. “Dominant players who can establish their blockchains as the market solutions should make big bets now.”

Private vs. Public

In the simplest terms, permissioned blockchains limit access or decision-making to specific individuals or entities, an idea with obvious attraction to businesses or consortia within an industry or sector. By contrast, permissionless blockchains, including bitcoin (BTC) and networks such as Ethereum, are open to anyone. Complicating matters, permissioned networks can exist on public blockchains, with only authorized users allowed to record or verify information.

Despite their restrictive nature, a number of complex governance models can be deployed within permissioned networks to aid decision-making by consortia, including assigning different roles to users and using algorithms suggested by a historical puzzle involving Byzantine generals. Without such mechanisms, purists argue, a network is merely a distributed ledger, not a blockchain.

Private models may hold the greatest potential in the short term, McKinsey’s research suggests. “Private, permissioned blockchain allows businesses both large and small to start extracting commercial value from blockchain implementations,” according to Carson. “Dominant players can maintain their positions as central authorities or join forces with other industry players to capture and share value. Participants can get the value of securely sharing data while automating control of what is shared, with whom, and when…

“For all companies, permissioned blockchains enable distinctive value propositions to be developed in commercial confidence, with small-scale experimentation before being scaled up.”