Internal blockchains: the need & benefits in 2021

internal blockchains the need and benefits:

Since a blockchain is meant to trust an external third party or to build trust between entities that don’t completely trust each other, an internal blockchain seems like a contradiction in terms.

However, many of the experiments, publications, and proofs of concepts that have been publicly done have focused on blockchain for internal use, i.e. a blockchain that can contain one or more nodes, but all under the control of the same organization, usually within a department.

While there have been recent discussions about public (unauthorized) and private (allowed) consortium blockchains, there hasn’t been much discussion about the benefits of internal blocking.

Some definitions:

By public (without authorization) I mean that anyone can validate transactions and add blocks and that anyone can read data, such as Bitcoin Blockchain or Ethereum.

By private (authorization) I mean that the rest of the network knows and “allows” the addition of such entities. They can fall into two broad categories, the first in which the participants are a group of entities, such as an industrial blockchain, and the second as an internal blockchain, in which the blockable add-ons are all under the control of an organization.


The main reasons for setting up internal blockchain experiments appear to be:

(1) Pressure and budget to do something with blockchains

(2) The relative ease of designing something internally compared to collaborating with external (often competitive) organizations

(3) Experience the latest technology by getting your hands dirty

Here are some thoughts on the pros and cons of an internal blockchain solution versus a traditional database. I appreciate the comments and explanations of technical readers like DBA, as I am not a technical expert!

Non-blockchain databases typically use the username and password-based authentication and user permissions to control who can write data and log files to capture new data.

Blockchains also use digital signatures when adding data, first at the transaction level and then at the block add a level (for private chains).

At the transaction level, for example in a bitcoin transaction, you digitally sign a payment to prove that you actually own the coins you are trying to spend. Many blockchains use to transfer digital assets using this mechanism, although blockchains that are not used for transaction data are not required to use them. The node software can theoretically accept any data from anyone and add it to a block without requiring a digital signature from the data source.

At the block extension level, for private chains, one authorization mechanism is that block extension can digitally sign blocks with a signature that proves who they are so that other validators will accept the block. Not that this is not the case with public networks, for example, Bitcoin. In Bitcoin, you can mine a block without explicitly declaring who you are, even if you are rewarded with IP information and bitcoin information.

Digital signatures can provide an additional layer of security and irrefutability as to who wrote the changes. A blockchain can therefore add value here.

Non-blockchain databases typically use the username and password-based authentication and user permissions to control who can modify data and modify logs to record change events.

Blockchains operating on multiple nodes will deny data changes as written, except with the consent of most or all nodes, or by abusing the “longest chain rule”, which aims to create a close blockchain at the same time.

This means you can reduce the risk of unauthorized administrators by altering historical data by running the blockchain on nodes in different data centers, each with different DBA teams. To change historical data (assuming the private blockchain is set up where the rules don’t allow a single node to add multiple blocks in a row), you need to work with multiple teams.

Blockchains are more secure than traditional databases in this respect. For unregulated entities that have no storage or business continuity requirements, a blockchain can be an elegant solution. With the requirement that financial institutions perform regular backups and last longer, I can imagine that it is relatively easy for a bank to distinguish between backups to determine if historical data

Private data

Are there Chinese walls to consider? In this case, a blockchain might not be a good solution because the goal is to repeat the data. Privacy issues can be overcome with encryption, where decryption keys are stored where needed, but there is a dynamic between data encryption and the need to validate it, especially for transactional data.

Third-party access

Sometimes I hear this justification for the internal blockchain: it’s easy to give access to a regulator or auditor – they can just connect to your blockchain and start from there. Yes, but is it really harder to give them read access to regular databases?

Another probably better argument is interoperability if you have an internal database built as a blockchain (ie block lines are added and there is server software that can communicate peer-to-peer with the outside world). So make it easier to get in touch with other parties if you want them to write to this database. Pay attention to the data and metadata you share with these third parties.


Net-net is useful for technologies that make the blockchain resilient to internal problems, even if there are no obvious reasons to use the blockchain. After all, it is by tampering with, experimenting, creating, and adapting that technology becomes good solutions. Since the private blockchain lacks the ins and outs of mining at this stage of technological development, a legitimate answer might be, “Why not?” Both, if someone asks, “Why a blockchain?”

Respond with good reasons why blockchains should be used   in traditional databases for internal use cases!

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