Private and public blockchains are often the subject of debate as to which one is more suitable, but often the most important question is left out, namely, what is the use case? Both private and public blockchains will secure their niche in the industry, however their design and applications are fundamentally different, because their use case is fundamentally different.

Use cases for public blockchains focus around peer to peer applications where many, unrelated participants, with no inherent trust, wish to transact in a secure environment. Private blockchains excel at enabling enterprises to transact directly with known counterparties at high scale, and with configurable privacy mechanisms.

With a public blockchain, participants are inherently distrusted, and a large amount of overhead is required to verify each and every transaction to a very high confidence level before it is accepted by the network. For a private blockchain network, participants are already known and inherently trusted by the network and therefore the amount of overhead required to verify transactions, and reach consensus on the network is substantially reduced.

In a private blockchain network, participants are inherently trusted, but still cannot tamper with the network because of the golden source of truth that blockchain provides. The concession made in a private network is simply that we are instantly detecting attempts to tamper with the network, rather than absolutely preventing any possibility of an invalid transaction being introduced to the network.

This is analogous to a simple lending scenario. Bob wishes to borrow $100 from Alice. In a public blockchain environment, Bob and Alice have never met and do not trust each other, and therefore go through a lengthy due diligence process before drawing up an agreement. Alice then takes the agreement to her lawyer to verify before she accepts the transaction. In this scenario, any fraudulent attempt by Bob would be detected before the transaction ever occurred.

In a private blockchain environment, Bob and Alice already trust each other and already have a legal agreement in place allowing them to transact freely and with significantly reduced overhead. In the unlikely event that Bob were to renege on the agreement, he would be banned from the network, and legal proceedings would begin allowing Alice to recover her funds.

Because of the large overhead required to reach consensus on a public blockchain, applications built on public blockchain infrastructure will not be able to scale significantly, or meet the needs of the majority of enterprise requirements.