Consortium Blockchain Vs Private Blockchain: A Comparative Analysis

When it’s about consortium blockchain vs private blockchain, people still get confused between the two. Despite this, in the field of blockchain technology, they widely use both technologies. 

While private blockchain is a separate and isolated blockchain network compared to public blockchain, consortium blockchain is a hybrid of both public and private blockchain.

Continue reading the blog for a detailed comparison of consortium and private blockchains.

Key Takeaways

• Definition of consortium and private blockchains
• Functionality of consortium and private blockchains
• Comparison of consortium blockchain vs private blockchain
• Basic guidelines for choosing one blockchain technology for you

What Is Consortium Blockchain?

Consortium blockchain is partially private, making it a mix of both the private and public blockchain models. While a private blockchain is controlled by one organization, a consortium blockchain is managed by a group of organizations.

The Linux Foundation introduced Hyperledger, an open-source consortium blockchain, in 2016. Its purpose was to furnish a collection of frameworks and tools and develop blockchain applications. 

Before that, 9 prominent financial institutions, including Goldman Sachs, Credit Suisse, and JP Morgan, established the R3 blockchain consortium in 2014.

Imagine a situation where different banks come together to use a blockchain. Each bank is a node. Together, they make decisions about the blockchain’s rules, transactions, and security. This collaborative approach allows for more transparency than a fully private blockchain, even without sacrificing control or security.

As per Deloitte research findings, 74% of organizations are engaged in a blockchain consortium with competitors or express interest in joining one.

For example, consider that several banks use consortium blockchain to facilitate and secure cross-border payments. In this case, each bank in the group has equal control over the network. This ensures that no one bank can unilaterally change the blockchain.

These banks can provide faster, more secure, and efficient payment services. They do this by combining resources and expertise. Their services are better than traditional banking systems.

In addition, it benefits both the banks and their customers. It enhances trust and transparency among the banks. And it also leads to better services for consumers worldwide.

How Does Consortium Blockchain Work?

Consortium blockchain works like other blockchains but with key differences. It uses a distributed ledger system. Each participant maintains their own copy of the ledger and verifies all transactions.

Here is a step-by-step explanation of how a consortium blockchain typically works:

Step 1 – Formation of the Consortium 

The initial step is the formation of a consortium by multiple organizations. These organizations define the blockchain’s governance structure, operations, and objectives.

Step 2 – Selection of Nodes 

Each organization within the consortium selects one or more nodes to participate in the blockchain. These nodes are responsible for validating transactions, maintaining the ledger, and performing other essential functions.

Step 3 – Definition of Rules and Protocols 

The consortium collectively decides on the blockchain’s rules, protocols, and consensus mechanism. This process ensures that the blockchain operation aligns with the goals and requirements of all participating organizations.

Step 4 – Deployment of the Blockchain 

The blockchain network is deployed once the rules and infrastructure are set up. This deployment includes setting up the physical and software infrastructure required to run and maintain the blockchain.

Step 5 – Operation and Governance 

The consortium blockchain has an agreed-upon governance structure. It requires consensus or majority approval from members for changes, adding new members, and other big actions.

Step 6 – Transaction Validation and Consensus 

To ensure the blockchain’s security and integrity, the chosen nodes on the consortium blockchain validate transactions using the agreed-upon consensus mechanism.

Step 7 – Data Privacy and Security Measures 

While the consortium blockchain allows for shared control and transparency among its members, it also implements strict data privacy and security measures.

Step 8 – Ongoing Management and Scalability: 

The consortium continually manages the blockchain, addressing technical, operational, and governance issues. Scalability options are evaluated and implemented as needed to accommodate growth and changes in the consortium’s objectives.

What Is Private Blockchain?

A private blockchain is often referred to as a permissioned blockchain. It is a network that operates under the control of a single organization. This entity can decide who can become a node, participate in the network, and view the blockchain.

Unlike its public and consortium counterparts, a private blockchain restricts access to an invited group.  

Do you know who should use private blockchain? Well, private blockchain is ideal for storing an individual’s financial information, sensitive business data, and personal health records. 

For instance, consider a global corporation. It is implementing a private blockchain to streamline its complex supply chain. In this scenario, the corporation controls the blockchain. It grants access only to selected entities in its supply chain network. These include suppliers, distributors, and logistics partners.

Each participant can do transactions and access data. They can access what they need for their role in the supply chain. This can enhance efficiency, security, and transparency throughout the entire process.

This exclusive control ensures that sensitive information remains within the organizational boundaries. So it can reduce the risk of data breaches and unauthorized access.

Private blockchains are also good for industries with strict regulations. They offer a secure platform to automate and improve operations without exposing data to the public.

How Does Private Blockchain Work?

Private blockchain operates on a similar principle as other blockchain networks. It uses distributed ledger technology to store and verify transactions. However, some key differences set private blockchains apart from their counterparts.

Here is a step-by-step guide to how a private blockchain operates:

Step 1 – Establishing Authority 

The first step is establishing the central authority or organization that will have control over the blockchain. This entity is responsible for all major decisions regarding the blockchain’s operation.

Step 2 – Selection of Participants 

Once authority is established, the controlling organization selects participants. They usually are stakeholders or entities. They have specific interests or roles in the organization’s ecosystem.

Step 3 – Setting Up Permissions 

The controlling organization then sets up various permissions for participants. These permissions dictate what each participant can do on the blockchain. They say who can validate, view, and submit transactions.

Step 4 – Deployment of Infrastructure 

After permissions are set, the necessary infrastructure for the blockchain is deployed. This includes installing the software on servers and setting up the network that will support the blockchain.

Step 5 – Transaction Execution 

Participants execute transactions within the permissions granted to them. These transactions can involve data exchanges, contracts, or other info. The information needs to be securely logged on the blockchain.

Step 6 – Validation Process 

The designated validators (as defined by the permissions) validate the transactions. The validation process ensures that each transaction adheres to the blockchain’s rules and is genuine.

Step 7 – Adding to the Ledger 

Once a transaction is validated, it is added to the blockchain ledger. This ledger is kept on all participant nodes in the network. It ensures data is consistent and secure.

Step 8 – Monitoring and Management 

The central authority monitors and manages the blockchain, ensuring its smooth operation. This includes adding or removing participants. It also includes updating permissions and upgrading the blockchain.

Step 9 – Ensuring Privacy and Security 

Finally, private blockchains implement advanced security measures to protect the data and maintain privacy. This might involve encryption. It also requires secure channels for data transmission and strict access controls.

Consortium Blockchain vs Private Blockchain: Comparative Analysis

Now before we dive into detail comparison, have a look at the table. It will help you have a basic idea  of the two types of blockchains.

Basis	Consortium Blockchain	Private Blockchain
Control	Shared control among multiple organizations or nodes	Single organization or entity controls the network
Access Permissions	Permissions are defined by consortium members	Permissions are determined solely by the owning entity
Use Cases	Suited for industries requiring multi-party transactions	Commonly used in internal processes or closed ecosystems
Governance Structure	Governed by consensus among consortium members, which is partially centralized	Governed by the owning entity which is completely centralized.
Membership	Membership is selective and typically vetted	Membership is restricted and controlled
Scalability	Tends to have higher scalability due to multiple nodes	Limited scalability depending on the owning entity’s infrastructure
Security	Relies on consensus mechanisms and consortium trust	Relies heavily on the owning entity’s measures
Flexibility	Offers flexibility in terms of governance and consensus	Governance and consensus mechanisms are less flexible
Transparency	Transparency is maintained among consortium members	Transparency is limited to the owning entity’s policies

Let’s have the details-

Control

Consortium and private blockchains both control who can access and join the network. However, whereas a single entity controls private blockchains, multiple organizations control consortium blockchains.

Let’s simplify it with an example. Consider a group of five hospitals. They are forming a consortium blockchain to share patient records and medical info safely. Here, the five hospitals have equal control over the blockchain. They decide who can join the network.

Access Permission

In a consortium blockchain, all participating organizations decide on access permissions. They are also known as consortium members.

In a private blockchain, the controlling organization has complete authority. They can set permissions for each participant.

Going back to the hospital example, all five hospitals would have to agree on access permissions for medical records in a consortium blockchain. 

Conversely, on a private blockchain, the controlling hospital has full control over who can view and edit medical records.

Use Cases

Day by day the use cases of blockchain are being endless. Of course, each type has some separate fields.

Consortium blockchain is well suited for industries that require collaboration among multiple organizations. And private blockchains are useful in situations where one entity wants to control data and transactions. The below infographic will help you in gaining a more precise understanding of their use cases.

Governance Structure

Consortium blockchain operates on a democratic governance structure. All participating organizations have an equal say. You can say it is a partially centralized system.

In contrast, private blockchain is more centralized. A single entity is responsible for decision-making.

For example, a consortium blockchain could involve many stakeholders. They work in supply chain management, such as manufacturers, suppliers, and distributors. Each entity would have an equal say in the decision-making process. However, a single organization would have more control over a private blockchain.

Membership

In contrast to private blockchains, consortium blockchains feature a membership structure that is more transparent. Because of this, consortium blockchains are more flexible and can accommodate new members as needed. 

Private blockchains, on the other hand, have a fixed set of entities.

Scalability

Scalability challenges differ between consortium and private blockchains. 

Consortium blockchain tends to be more scalable. The reason is that it has multiple nodes and participants. 

But, private blockchain can face scalability issues. This is due to limited control and the involvement of a single entity.

Also, as consortiums grow, the consensus mechanisms must get more complex. This is to ensure efficient operations. In that case, it can also affect scalability.

Security

Private blockchains offer more security compared to consortium blockchains. This is because private blockchains have a controlled environment. They have very limited access.

But, a consortium blockchain involves many organizations. They have different levels of security. This makes it harder to maintain security.

However, in comparison to public blockchain, they offer higher security measures due to the limited number of participants and access permissions. 

Flexibility

Consortium blockchain gives organizations flexibility in governance and consensus. It lets everyone have a say. 

In contrast, the strict governance of private blockchains may stifle flexibility and innovation.

Transparency

Consortium blockchain offers more transparency compared to a private blockchain. In a consortium blockchain, all members have equal access to data and transactions. This setup promotes transparency. However, in the case of a private blockchain, it is limited.

What Are the Similarities Between Consortium Blockchain and Private Blockchain?

Despite the differences between consortium and private blockchains, they share several key similarities. These are foundational to their operation and purpose. Consortium and private blockchains both-

• Use distributed ledger technology to record and store data securely.
• Offer control over access permissions and governance structure.
• Provide a higher level of security compared to traditional centralized systems.
• Offer immutability, meaning data cannot be altered or deleted once recorded on the blockchain.
• Can integrate with existing systems and processes to improve efficiency and transparency faster.

Which Blockchain Technology Should You Choose?

Choosing between a consortium blockchain and a private blockchain depends on your organization’s needs and goals.

Collaboration and shared governance among many organizations are key to your operations. In this case, a consortium blockchain is likely the better choice. It promotes honesty and mutual control. It is ideal for industries like banking and supply chains. 

But, if your priority is to keep tight control over the network and its data due to sensitive information or regulations, a private blockchain may suit you better. This is especially relevant for government agencies and big companies. They oversee sensitive data and critical operations. 

Also, consider the technical and operational requirements of both blockchain types. Assess if your organization has the resources and expertise to run a blockchain network. 

And don’t forget to check if the benefits of using blockchain fit your goals.

Final Thoughts 

Now, you have a detailed understanding of both consortium and private blockchains. In short, while consortium blockchain is more decentralized, transparent, flexible, and scalable, private blockchain offers more control, and security.

However, the choice depends on the needs of an organization. So, before picking one, compare your needs carefully.