What is a Private Blockchain?

By Julia Cook
Published Jun 17, 2022 and updated Mar 20th, 2023

A private blockchain is a contained blockchain that can only be accessed by select nodes that are invited to join the network.

A private blockchain is centralized, meaning that it has limited access, with only a few specifically permitted nodes have access to the data stored on it. This includes both transacting and verifying. Furthermore, although it also runs on a consensus algorithm, part of this protocol means that a consensus must be reached in order for a new node to be added to the network.

Additionally, only a regulatory authority such as the authority node in the blockchain may give the new nodes participation rights, meaning that they may otherwise only serve as processing and storage nodes otherwise.

This is why they are also known as ‘permissioned blockchains.’ Due to the restricted nature and limited size of the blockchain network, many argue that this means that it is not truly a blockchain, but rather an advanced digital ledger system. Additionally, since private blockchains are relatively small, they are much higher security risks than other types of blockchains are.

Private blockchains are useful for financial institutions, distribution networks and other companies and institutions that require reliable and secure data storage ledgers. However, since these institutions require discretion and privacy, they cannot implement a public blockchain, as that would make personal and valuable data accessible to bad actors known as ‘adversaries’ or even just make available information that could jeopardize a person or business entity.

Furthermore, smaller blockchain networks also allow for faster data confirmations and transactions. To further speed up these processes, many private blockchains also utilize a gossip protocol, which is a typed of single node-to-node data dissemination technique. This is often combined with a byzantine fault tolerance protocol to defend against any corruptions, double-entries, omissions, or attacks by adversaries.