Public blockchains are the backbone of cryptocurrencies and other decentralized systems. As their distinct feature, these open networks allow anyone to access them, ensuring that the powers of blockchain technology are democratized as best as possible.  

This write-up provides a comprehensive understanding of public blockchains, exploring how they work, their key features, advantages, wide-ranging applications and more.

Let’s begin with the basics…

 

Key Takeaways

  • Open Access and Transparency: Public blockchains are accessible to anyone with an internet connection, ensuring complete democratization of data.
  • Historical Context: Introduced by Bitcoin in 2009, followed by innovations like Ethereum, which went on to pioneer things such as smart contracts and dApps.
  • Examples: Prominent public blockchains include Bitcoin, Ethereum, Litecoin, Cardano, and Polkadot.
  • Applications: Used in financial services, supply chain management, healthcare, government, intellectual property, academic credentials, and real estate.

 

What Is a Public Blockchain?

A public blockchain is a special type of blockchain that uses an open ledger system where anyone can participate as a user, miner, or developer. Unlike private blockchains, which require permission to join, public blockchains are accessible to anyone with an internet connection.

Public blockchains operate on a peer-to-peer (P2P) network with no central authority controlling them. Transactions and data are managed by a distributed network of nodes, which collectively maintain the blockchain’s integrity. This decentralized dynamic underpins the security and trustworthiness of public blockchains, as it doesn’t allow any single points of access (for hackers and other illicit actors that is).

Brief Historical Context of Public Blockchains

The concept of public blockchains was first introduced by Satoshi Nakamoto, the pseudo-anonymous creator of Bitcoin, via the Bitcoin Whitepaper. 

Bitcoin’s launch in 2009 then marked the first practical implementation of a public blockchain, with Nakamoto’s vision of Bitcoin being a system where transactions could be securely verified by network participants, eliminating the need for intermediaries.

Following Bitcoin’s success, other innovators built upon Nakamoto’s vision. Most famously, Vitalik Buterin, a programmer and co-founder of Ethereum, recognized the potential for blockchain technology to go beyond simple financial transactions. 

So come 2015, Buterin then introduced Ethereum to the public. In its essence, Ethereum is a public blockchain that supports smart contracts and the creation of decentralized applications (dApps). Through its novel versatility and advanced scripting capabilities, Ethereum went on to significantly expand use cases for public blockchains, paving the way for a plethora of exciting decentrally-built digital platforms and infrastructures.

 

Examples of Public Blockchains

We’ve already discussed Bitcoin and Ethereum, but these aren’t the only public blockchains in existence:

  • Litecoin: Often referred to as the silver to Bitcoin’s gold, Litecoin offers faster transaction confirmation times and a different hashing algorithm (Scrypt). Litecoin was created by Charlie Lee in 2011 as a more scalable alternative to Bitcoin.
  • Cardano: Launched in 2017 by Charles Hoskinson, Cardano uses a unique Proof-of-Stake (PoS) consensus mechanism called Ouroboros. This emphasizes scalability, interoperability, and sustainability, making it a strong contender for various dApps.
  • Polkadot: Developed by Ethereum co-founder Gavin Wood, Polkadot aims to create a multi-chain framework that allows different blockchains to interoperate seamlessly. It uses a novel consensus mechanism called Nominated Proof of Stake (NPoS), and supports cross-chain transfers of any type of data or asset.

 

How Public Blockchains Work

Colorful depiction of a blockchain ecosystem with Bitcoin at the center, featuring connected nodes, digital assets, and people interacting.

Public blockchains work through a combination of decentralized nodes, consensus mechanisms, transaction validation, and cryptographic security. Let’s take a closer look at each of these concepts.

Decentralization and Peer-to-Peer Networks

Decentralized networks of nodes are essentially worldwide computers that are connected to a single blockchain network. 

In such a P2P network, each participant (node) has an equal role. They also communicate with one another directly, without the need for a central server. This decentralized structure ensures that no single entity controls the entire network, thereby enhancing its robustness and resistance to censorship, tampering, or network anomalies (such as several nodes going offline simultaneously).

Further, every node in the network holds a copy of the entire blockchain, which is constantly updated with new transactions. When a new transaction occurs, it is broadcast to all nodes, which then validate and record it. 

This process of validation and recording maintains the integrity of the blockchain, as every transaction is checked against the network’s consensus rules. For example, in Bitcoin, nodes check that the sender has sufficient funds and that the transaction is correctly signed.

Consensus Mechanisms

To ensure that all nodes in the network agree on the state of the blockchain, public blockchains use special protocols called consensus mechanisms. The most common consensus mechanisms in use are Proof of Work (PoW) and Proof of Stake (PoS).

Proof of Work: PoW is the original consensus mechanism used by Bitcoin. In PoW, miners (nodes) compete to solve complex mathematical puzzles. The first miner to solve the puzzle gets the right to add a new block of transactions to the blockchain, and is then rewarded with newly minted cryptocurrency (so BTC in the context of Bitcoin).

This process is computationally intensive and requires significant energy, however it ensures that adding new blocks is a costly and difficult process, thus securing the network against cyber-attacks.

NOTE: You may have heard of the Bitcoin Halving, which is an event that occurs around every four years when the reward for mining is cut in half. Halvings reduce the rate at which new BTC coins are created, thus lowering the available amount of new BTC supply. Bitcoin last halved on April 19, 2024, resulting in a block reward of 3.125 BTC commencing for the following four years.

Proof of Stake (PoS): PoS – used by Ethereum, Bitcoin Cash and Litecoin – is an alternative to PoW that aims to be more energy-efficient. In PoS, validators are chosen to create new blocks based on the number of their own coins that they commit to “staking” as collateral. The higher the stake, the higher the chances of being selected to validate transactions and add new blocks. 

This method reduces the computational power required to complete blockchain transactions, and incentivizes participants to act honestly, as they risk losing their staked coins if they attempt to cheat the system.

Block Creation and Addition

Once a transaction is validated, it is grouped with other transactions into a block.

In PoW systems, miners compete to solve the cryptographic puzzle and add the block to the blockchain. In PoS systems, validators are selected to add the block based on their stake. Once a block is added, it becomes a permanent part of the blockchain, immutable and transparent.

Cryptographic Security

Public blockchains use various cryptographic techniques to ensure the security and integrity of data. Here, each block contains a cryptographic hash of the previous block, linking them together in a chain. This hash function makes it virtually impossible to alter any data within the blockchain without changing all subsequent blocks, which would require consensus from the majority of the network.

Incentives and Rewards

Public blockchains incentivize participants to maintain the network through rewards.

In PoW systems like Bitcoin, miners receive block rewards and transaction fees. In PoS systems like Ethereum, validators earn rewards based on the amount they have staked.

 

Characteristics of Public Blockchains

Openness

As previously mentioned, the defining characteristic of public blockchains is their openness. 

Unlike private blockchains, which restrict access to a select group of participants, public blockchains are open to anyone. This means that anyone with an internet connection can join the network, participate in transactions, and view the entire blockchain ledger. 

This openness ensures that the system is transparent and that no central authority can control or manipulate the data.

Accessibility

Another feature of public blockchains related to openness is accessibility. 

Anyone with an internet connection can join the network, participate in the consensus process, and validate transactions. There are no gatekeepers or required permissions in public blockchains, making these networks accessible to all.

Anonymity

Public blockchains offer a certain level of anonymity to their users, as while all transactions are recorded on the blockchain and are visible to anyone, the identities of the participants are not directly linked to their blockchain addresses. Instead, users are identified by their public keys, which do not reveal any personal information. 

That being said, transactions can sometimes be traced back to individuals through various means, meaning it is not absolutely anonymous.

 

Advantages and Disadvantages of Public Blockchains

Advantages of Public Blockchains

  • Enhanced Security and Trust: In general, public blockchains are highly secure. For example, Bitcoin has never been hacked since its inception in 2009.
  • Financial Inclusion: Public blockchains provide financial services to individuals without access to traditional banking. This is vital in regions with limited banking infrastructure.
  • Lower Transaction Costs: Transactions on public blockchains can be significantly cheaper than traditional cross-border payments. For example, Bitcoin can process international transfers with lower fees compared to conventional remittance services.
  • Global Reach and Accessibility: Public blockchains facilitate global transactions without geographical restrictions. This is particularly beneficial for international trade, as it reduces the delays associated with conventional banking systems.
  • Decentralized Applications (dApps): Platforms like Ethereum enable the creation of decentralized applications that operate without central control. These dApps have transformed sectors like finance, supply chain, social media and gaming forever, through introducing new, decentralized business and engagement models.
  • Resilience Against Censorship: The decentralized nature of public blockchains makes them highly resistant to censorship, meaning transactions and data remain accessible and unaltered, even in restrictive environments.
  • Empowering Individuals: Public blockchains allow users to manage their own digital assets without intermediaries. This autonomy can be important for individuals facing distrust or exclusion from traditional financial institutions.

Disadvantages of Public Blockchains

  • Scalability Issues: Unfortunately, public blockchains often struggle with scalability issues, which can lead to network congestion during peak times. For instance, Ethereum’s limited transaction processing capacity often results in slower transactions and higher gas fees during peak hours.
  • High Energy Consumption: PoW consensus mechanisms, like those used by Bitcoin, consume vast amounts of energy. This has raised a significant amount of environmental concern, specifically considering that Bitcoin mining used 154.9 billion kilowatt-hours (kWh) of electricity last year, which is more than the combined electricity usage of 167 countries.
  • Potential for Illicit Activities: The pseudonymous nature of public blockchains can attract illegal activities, such as money laundering. Despite improving blockchain analytics, balancing privacy and regulation is a continuous challenge.

 

Public Blockchains Vs Private Blockchains

A comparative illustration showing the differences between public and private blockchains, represented with various blockchain-related icons.

Key Differences

Public blockchains and private blockchains serve different purposes and have distinct characteristics:

  • Accessibility: Public blockchains are open to anyone, while private blockchains restrict access to a select group of participants.
  • Control: Public blockchains are decentralized, with no central authority, whereas private blockchains are controlled by a single organization or consortium.
  • Transparency: Transactions on public blockchains are visible to everyone. In contrast, private blockchains limit visibility to authorized participants.
  • Consensus Mechanisms: Public blockchains use consensus mechanisms like PoW and PoS to validate transactions, while private blockchains can use faster and less resource-intensive methods such as proof-of-authority or proof-of-importance, since trust is already established among participants.

With these differences in mind, public blockchains are ideal for applications that require transparency, decentralization, and security. That is why they are commonly used for cryptocurrencies, decentralized finance (DeFi), and supply chain management. 

Private blockchains, on the other hand, are suitable for business environments where data privacy and control are crucial. They are often used in industries like banking, healthcare, and enterprise resource planning (ERP).

 

Real-World Applications of Public Blockchains

Financial Services

Decentralized Finance (DeFi)

DeFi platforms leverage public blockchains to offer financial services such as lending, borrowing, and trading through smart contracts. For example, Uniswap, built on Ethereum, allows users to trade cryptocurrencies directly from their wallets, ensuring complete control over their assets.

Cross-Border Payments

Public blockchains facilitate faster and cheaper cross-border payments compared to traditional banking systems. For example, Ripple’s XRP Ledger, though more centralized, demonstrates the potential for public blockchain technology to streamline international transactions.

Supply Chain Management

Transparency and Traceability

Public blockchains enhance supply chain transparency by providing an immutable record of a product’s journey from origin to destination. For instance, Walmart uses IBM’s Food Trust, a blockchain-based solution, to track the provenance of food products.

Authenticity Verification

Luxury brands like Louis Vuitton and De Beers use public blockchains to verify the authenticity of their products. For example, De Beers’ ‘Tracr’ platform tracks diamonds from the mine to the retailer, ensuring that they are conflict-free and authentic. 

Healthcare

Secure Medical Records

Public blockchains can securely store and share medical records, ensuring data integrity and patient privacy. Medicalchain is an example of a public blockchain-based solution for managing electronic health records.

Drug Traceability

Pharmaceutical companies use public blockchains to track the production and distribution of drugs. For example, MediLedger, a blockchain consortium, aims to enhance the pharmaceutical supply chain’s transparency and security through the use of blockchain tech.

Government

Transparent Voting Systems

Public blockchains can revolutionize voting mechanisms by providing a transparent and tamper-proof way to conduct elections. For example, Voatz, a blockchain-based mobile voting platform, has been used in pilot programs in the United States to enable secure absentee voting.

Land Registry

Several countries are exploring the use of public blockchains for land registry systems. The Republic of Georgia, for instance, uses a blockchain-based system to record property transactions. 

Intellectual Property

Digital Rights Management

Public blockchains can manage and protect intellectual property rights. Platforms like MediaChain (recently acquired by Spotify) use blockchain technology to create a decentralized database of media ownership, ensuring that artists receive proper credit and compensation for their work.

Academic Credentials

Educational institutions are adopting public blockchains to issue and verify academic credentials. For example, MIT’s Digital Diploma project issues diplomas on the blockchain, allowing employers and other institutions to easily and securely verify credentials.

Real Estate

Property Transactions

Public blockchains can streamline real estate transactions by reducing the need for intermediaries. Propy, a blockchain-based real estate platform, already facilitates buying and selling properties using smart contracts.

Tokenization of Assets

Real estate assets can be tokenized on public blockchains, allowing for fractional ownership and easier transfer of property shares. Alexis Brand, CEO of Etherland, while talking to Forbes said: “Blockchain-based virtual real estate streamlines real-world processes, reducing costs, enhancing security, and creating new opportunities for the industry.”

 

Security in Public Blockchains

Let’s take a look at the specific security features and measures used by public blockchains.

Cryptographic Techniques

Hash Functions

Public blockchains use cryptographic hash functions to secure data. A hash function takes an input and produces a fixed-size string of characters, which appears random. Each block in the blockchain contains a hash of the previous block, therefore creating a chain. 

Hash functions make block tampering easily detectable, as it would result in the entire hash being changed. For example, Bitcoin uses the SHA-256 hash function, which is computationally infeasible to reverse-engineer.

 

Public Blockchains – FAQs

Yes, Ethereum is a public blockchain. It allows anyone to participate in the network, create smart contracts, and build decentralized applications (dApps).

The main benefit of a public blockchain is its transparency. All transactions are recorded on a public ledger that anyone can access and modify (depending on certain conditions), which ensures accountability and trust.

Public blockchains face challenges like scalability, energy consumption, and environmental concerns. However, ongoing developments and innovations are addressing these challenges.

Yes, anyone with an internet connection can participate in a public blockchain. There are no restrictions on who can join the network, make transactions, or verify the blockchain's data.

Cryptography ensures the security and integrity of data on public blockchains. It protects transactions, verifies identities, and ensures that data cannot be altered once it is recorded on the blockchain.