How To Create a Private Blockchain

Blockchain technology has undergone a rapid evolution in its functionalities and applications since the advent of Bitcoin. The demand for blockchain technology has also grown in many new areas. This has led to the transition of the internet from web2 to web3. Companies are increasingly exploring blockchain’s many applications and how they can solve their business problems. Now, talking about the basics, blockchains are primarily divided into two categories- public and private blockchains. And lately, private blockchains are being increasingly used for dApp implementation. Here, you might wonder why you would not choose a public blockchain for the implementation of your dApp. While public blockchains offer many advantages over other types of blockchains, they have certain disadvantages, as they are more susceptible to malicious users because they are on a shared network. Private blockchains provide additional security and protection to the data stored on the blockchain, which helps meet regulatory requirements. This alone could be the main driving factor behind many choosing to develop private blockchains. Additionally, private blockchain implementations give businesses complete control over who has access to the chain, which functions they can perform, how dApps can be deployed and maintained, as well as where nodes are located geographically.

This article explains how to create a private blockchain with examples. But before we dive deeper, let us touch upon the basics of blockchain.

• What is blockchain?
• Why is blockchain important?
• The most important elements of the blockchain framework
• A block and its elements
• Private vs. public blockchain
• Why should you create a private blockchain?
• Creating a private blockchain: The core logic
• Steps to create a private blockchain using Ethereum

What is blockchain?

Blockchain is a peer-to-peer distributed ledger technology for maintaining transparent and immutable records of digital assets. It works without any intermediary and does not require any third party. This revolutionary and emerging technology is drawing a lot of attention because it can reduce fraud and risks in an efficient way. Now, the question is, how is blockchain, which is a distributed and decentralized P2P network, better than a centralized network? Decentralized networks offer many advantages over traditional centralized networks, such as increased reliability and privacy. These networks are also easier to scale and have no single points of failure. Blockchain’s distributed nature is due to its shared communication and distributed processing.

Blockchain’s P2P architecture offers many benefits; it is more secure than traditional client-server-based networks. Blockchains are protected against malicious activities because their distributed P2P networks are subject to a majority consensus requirement.

Key features of a blockchain

• Distributed ledger technology – The distributed ledger is available to all network members and contains an immutable record of transactions. This shared ledger eliminates the need to record transactions multiple times, which is typical for traditional business networks.
• Permanent records – After a transaction has been recorded to the shared ledger, no participant can alter or tamper it. A transaction record that contains an error must be rewritten to correct it. Both transactions will then be visible.
• Smart contracts – A set of rules, called a smart contract, is stored on the blockchain and executed automatically to speed up transactions. Smart contracts can be used to define the terms and conditions of transactions.

Why is blockchain important?

Information is the lifeblood of any business and is vital to its success. The more information you can get, your workflow will be faster and more accurate. Because it allows for immediate, shared and transparent information storage on an immutable ledger that is only accessible by authorized network members, blockchain is the most ideal technology for storing and retrieving such information. Blockchain networks can track orders and payments, production and much more. Because members share one view of the truth, you can see every detail of each transaction from its beginning to end. This gives you more confidence and opens up new opportunities to explore.

The most important elements of the blockchain framework

• Transaction: This is the base unit for any blockchain. Transactions can be described as a combination of inputs and outputs. We can calculate the balance of users’ wallets before and after transactions are made by understanding their inputs, outputs and miners’ fees.
• Wallet: Blockchain identity is how you identify yourself in the world. In this case, it’s the blockchain world. Blockchain identities include wallets, keys and addresses. The wallet address includes a unique identifier for the wallet. The private key is the secret number that allows you to withdraw crypto from your wallet. Further, the public key is the publicly shared key that can’t be used to spend cryptocurrency.
• Signature: Using what is called a digital signature, we validate transactions and assign ownership. Signatures authenticate each transaction on the network.
• Memory pool: Transactions must be stored in the memory pool before they can be added to the blockchain. The mempool or memory pool is where transactions wait before being uploaded to the blockchain. The blockchain can only process so much information at once. Also, the backlog of information goes here.
• Network: The blockchain network is a distributed peer-to-peer network that is able to operate without the involvement of third parties by using the network concept. Two concepts are applicable here. One is a peer-to-peer network, a computer network that allows users to share information. The other one is distributed network that allows information to be distributed across multiple users.
• Consensus: This is how the blockchain makes its decisions. The consensus is a concept, but it is actually implemented using many algorithms. There are many ways to achieve consensus. Proof of stake and Delegated Byzantine Fault Tolerance are examples of consensus algorithms.
• Hashing: A hash can be compared with a unique fingerprint that identifies a user. Hashing refers to the process that a Proof of Work miner constantly repeats in order to find an eligible signature. It is simply the process of repeatedly inserting random strings of digits into a hashing algorithm until you find the desired output.

A block and its elements

It is essential that you understand the concept of blocks in order to build your own private blockchain. Blocks are the fundamental unit of a blockchain. The term “block” can also be used to describe how a blockchain stores information.

• Genesis block –  The genesis block is referred to as the “first block” on a blockchain.
• Previous blocks hash – If a block is not a genesis block, it will have the hash value for the previous block.
• Time – This is the time stamp of when the block was added to the blockchain.
• Markle root – This is calculated from the pair value for each transaction in the block until all the hash numbers are merged into one to create a Markle root.
• Nonce – This is an arbitrary number that can be combined with the block’s data to create the block’s hash.
• Block data + Nonce= Block hash. This is crucial in mining, where miners attempt to figure out the nonce of a block by using computing to determine the block’s hash.

Private vs. public blockchain

We must first understand the working principle of public blockchains in order to understand what a private blockchain is and how it functions.

What is a public blockchain?

Public blockchains are permissionless, which means anyone can use them. Anyone can join the network and take part in its core activities. Every user has equal rights to see and verify the current activities of the blockchain. This is what gives a public blockchain its self-governing nature. Litecoin, Ethereum, and Bitcoin are just a few examples of public blockchains. Any user can sign up to become a node on these networks. These nodes verify transactions and maintain a copy of the distributed ledger.

What is a private blockchain?

These are similar to public blockchains, but they are managed centrally. This authority determines who can participate in the network, verify transactions, and maintain the shared ledger. These networks are not fully decentralized, as the public has limited access to them. While some entities see the merits of blockchain technology, others could live without its transparency and public nature. This is why private blockchains with a secure and closed database make more sense to organizations.

Important features of a private blockchain

• Only a few individuals or entities can see the network’s nodes.
• The mining opportunity is not open to the public. Some cryptocurrencies can even be pre-mined.
• Only a few people have the right to review and audit.
• P2P transactions are possible because it is decentralized.
• They are mostly immutable.

Private vs. public blockchains: A comparative analysis

 

Feature	Public blockchain	Private blockchain
Access	Anyone	Single organization
Authority	Decentralized	Partially decentralized
Transaction speed	Slow	Fast
Consensus	Permissionless	Permissioned
Transaction cost	High	Low
Data handling	Read-write access for everyone	Read-write access for a single organization
Immutability	Full	Partial
Efficiency	Low	High

Why should you create a private blockchain?

There are many benefits to creating a private blockchain:

Energy efficient

Mining bitcoins requires tremendous processing power, while private blockchains offer pre-mined coins. So, it is more energy efficient than the public blockchain.

Less volatile

Cryptocurrencies of public blockchains are risky as it is impossible to predict when the price will go up or down. Owners regulate private blockchains on a daily basis, which makes them less volatile.

Accessible

Many private blockchains permit users to work side-by-side with banks and financial institutions. This makes technology more accessible and easier to use.

No illegal activity

One of the most important features of private blockchains is that they restrict criminal activities that are not uncommon for cryptocurrencies like Bitcoin. Private blockchains are extremely selective. This means that only an authorized person can access the platform. This limits illegal activities.

Empowering enterprises

The private network is usually used to empower enterprises. It focuses more on the organization’s overall success than on individual employees. It is evident that such an approach increases revenues and improves the overall growth of a business. It can also be used to develop enterprise blockchain platforms.

Stronger security

Private blockchains are permissioned, which means participants need permission to join and perform on such networks. It reduces the possibility of exposing private data to the general public.

Less operating costs

Private blockchains make it possible to work directly with other businesses without any intermediaries, which reduces costs significantly.

Transparency and anonymity

Anyone can view everything on the private blockchain, including individuals and businesses. If your business model allows, you can also make certain users anonymous, such as patients.

Performance with data integrity

Blockchain transactions can take up to 30 minutes, sometimes even several hours, depending on how many transactions are being done and how much each user is willing to pay. In the case of private blockchains:

• You can set the rules regarding transaction fees if any.
• You can get faster transactions with fewer participants and lower fees.
• Flexible data integrity

A public blockchain does not allow anyone to change data unless they control 51% of the nodes, which is virtually impossible. However, private blockchains can be customized by adding logic to their behavior or giving the tools to all participants to agree to a change. This allows you to modify data and customize the logic of a blockchain.

Creating a private blockchain: The core logic

If you don’t want to use a public blockchain network for your development needs and would rather create a private blockchain network before building a solution on it, the logic below will help you do that in a frictionless manner.

Step 1: Select the protocol

To create a private blockchain, first, you need to select a blockchain framework. You may go with any of the following –

• Use an EVM-based protocol for Ethereum compatibility
• Use the substrate framework for easier, faster, cheaper, and safer blockchain development, aided by its broad tech support,
• To experience a scalable ecosystem, you can create a private blockchain on Cosmos or Provenance.
• Lastly, you can simply fork an existing protocol.

Step 2: Build the core logic

Once the protocol is selected, next you need to build the core logic to create a private blockchain, which includes the following:

• Modifying the existing logic
• Deciding on the consensus algorithm
• Setting the transaction fee
• Upgrading the header information
• Modifying block height as per need
• Building pallets
• Deciding on the most appropriate permission module
• Considering the right file storage option for your chain.

Step 3: Development of the logic

Once your blockchain’s core logic is ascertained, the development operations or DevOps phase starts. This phase involves –

• Hosting a test network
• Finalizing file storage for your chain
• Creating a genesis key store
• Deciding on the number of nodes at the time of launch and their geographical regions.
• API integration for the free exchange of information with outside sources

Step 4: Testing

Once the DevOps phase is over, you are all set to launch your test network.

If you have created a faucet for your blockchain, it’s time to check its functioning on the test network. You can also use the testnet to test your wallet, block explorer and SDKs. You need to use a dedicated benchmarking and monitoring tool for this.

The rigorous testing process involves –

• Testing if all established integrations are working seamlessly.
• Performing a scalability check of the blockchain network
• Testing if the blockchain is functioning properly
• Locating security vulnerabilities in the blockchain and fixing them
• Looking for connectivity issues in the network and addressing them
• Checking the possibility of migration across the network
• Evaluating the chain on the basis of its performance.

Step 5: Launch the main network

Once the testing phase is over, and every issue detected has been resolved, you are all set to launch the main network.

Step 6: Network integration

Finally, integrate your faucet, wallet, block explorer, benchmarking and monitoring tool and SDKs with the mainnet, and your private blockchain network is ready.

Steps to create a private blockchain using Ethereum

Here we present an example of private blockchain development using Ethereum.

The Ethereum blockchain network consists of many EVM (Ethereum Virtual Machine) or nodes that are connected to each other to form a mesh. Each node has a copy of the entire blockchain and can complete mining the next block. Each block adds a new block to the blockchain. This update is sent out to all nodes in the network.

Your computer must download the complete Ethereum blockchain and then update it. To become an Ethereum node, you will need to install the Ethereum blockchain on your computer. This is possible with the help of  Ethereum tools. You can then download and connect to the Ethereum network using these tools and then interact with it. Geth is one such tool that we will consider here.

About Geth

Geth is Ethreum’s Go implementation. It is a command line interface (CLI) that connects to the Ethereum network. It acts as a link between your computer and its hardware and all the other Ethereum nodes and network computers. Your Geth program will detect if another node has mined a block and pass it on to your GPU or CPU to update your blockchain. Geth allows you to:

• Mine ether ( ether is the cryptocurrency that fuels the Ethereum network)
• Transfer funds between addresses
• Create smart contracts and send transactions
• Explore block history and more.

Installing Geth

On Mac OS

1. Installing Geth is easy by using the Geth Homebrew tap. First, check that Homebrew has been installed. The next command should return a version number. You should always use the most recent version of Geth because each release contains bug fixes, improvements over previous versions, and more. Because they are fully tested, stable releases are preferred by most users.

   
brew -v

The command will return a version number if Homebrew is already installed. If not, install Homebrew from here.

2. After Homebrew is installed, these commands will add the Geth tap to install Geth.

brew tap ethereum/ethereum
brew install ethereum

3. The previous command installs the most recent stable release. Developers who wish to update the Geth repository’s master branch can do so by adding the –devel parameter to the install command.

brew install ethereum --devel

4. These commands install core Geth software as well as the following developer tools:

devp2p (clef), bootnode, evm, rlpdump, puppeth, and abigen. Each tool’s binaries are saved in /usr/local/bin/ . The complete list of command-line options can be viewed by running –

geth --help

If you want to update an existing Geth install to the most recent version, you need to stop the node and run these commands:

brew update brew upgrade brew reinstall ethereum

5. Geth will use the data from the previous version to start the node again and sync any blocks that were not available while it was offline.

Post-installation

Once you have downloaded Geth, it is possible to connect to the main or public Ethereum blockchain network and create a full custom Ethereum network. However, without ether, you cannot really do much on the main blockchain. So, what if there is no ether?

Although you don’t have ether, Geth allows you to create a private blockchain network on Ethereum. This is a kind of dev/staging network of the main Ethereum network. From a functional standpoint, this private network is identical to the main Ethereum network. It is possible to create smart contracts, make payments, and even distribute apps without using real ether.

So, let us now create a private blockchain network.

Creating the Genesis block

As you likely know, a blockchain is a digital ledger that records transactions chronologically and publicly. These transactions are stored in blocks, and distributed networks compete to find the next block. Once a block is found, it is added to the blockchain, and the information is relayed to other nodes. Each node updates its blockchain to the most recent copy.

To create a private blockchain, first, you need to create a genesis block. To do this, you need to create a custom genesis file and ask Geth to use that genesis file in order to create a private blockchain.

Here’s what a Genesis file looks like:

{"config": {"chainId": 987,"homesteadBlock": 0,"eip155Block": 0,"eip158Block": 0},"difficulty": "0x400","gasLimit": "0x8000000", //set this really high for testing"alloc": {}

}}

The significance of attributes in the file are as follows:

• config- The configuration block sets the parameters for our custom chain. It also contains certain attributes that can be used to create a private blockchain.
• chainId- This identifies the custom blockchain, and the main Ethereum chain has its unique ID. However, we will assign it a unique value to our private chain.
• homesteadBlock- Homestead is the second major version of the Ethereum platform. It is also the first production release. This version includes many protocol changes. Since we are already on the homestead version, this attribute is 0.
• eip155Block/eip158Block – The Homestead version was released with a few backward-incompatible protocol changes and therefore requires a hard fork. These are the protocol changes/ improvements that were proposed via an Ethereum Improvement Proposals process (EIPs). The private blockchain won’t be hard-forking for these changes, so leave it as 0.
• Difficulty –  This value controls the time it takes to generate a single block of the blockchain. This value will be kept low on our test network to avoid waiting. The generation of a valid block, which is necessary to execute a transaction, requires higher difficulty.
• gasLimit – This value indicates the current limit for ‘Gas’ per block at the chain-wide level. Gas is Ethereum’s fuel, which is used during transactions. This value will be marked high enough to ensure that it is not limited to tests.
• Alloc – Here, you can create your wallet and prefill it with fake Ethereum. In this post, we are not using it, as we will mine our ether locally.

Next, create a CustomGenesis.json file. To create this, use a text editor and save it to a folder in your system. The json file will look like this –

{
"config": {
"chainId": 15,
"homesteadBlock": 0,
"eip155Block": 0,
"eip158Block": 0
},
"nonce": "0x0000000000000042",
"timestamp": "0x00",
"parentHash": "0x0000000000000000000000000000000000000000000000000000000000000000",
"extraData": "0x00",
"gasLimit": "0x08000000",
"difficulty": "0x400",
"mixhash": "0x0000000000000000000000000000000000000000000000000000000000000000",
"coinbase": "0x3333333333333333333333333333333333333333",
"alloc": {}
}

Next, open a terminal. If you have already installed Geth, then simply run the following command –

geth — identity “yourIdentity” — init /path_to_folder/CustomGenesis.json — datadir /path_to_your_data_directory/ACP

The above code snippet tells Geth that the CustomGenesis.json file created by you is to be the first block in your custom blockchain. Next, we specify the data directory in which our private chain data should be stored. Geth will create the directory for you. If you already have one, choose a separate location. After running this snippet in your terminal window, you should see Geth connect with the genesis file and provide the confirmation on the same.

Creating a private network to share the blockchain

At this point, we have created the beginning of our private blockchain. Next, we will start our private network to mine new blocks for our private blockchain. The following can be run on your terminal to accomplish this.

geth --datadir /path_to_your_data_directory/ACPrivateChain --networkid 9876

The snippet instructs you to create your private network. You can also use the directory that we have just specified to access the private blockchain details. Here we have used an additional parameter, networkid. This is the identity of your Ethereum network. We have used 9876, but you can replace it with any random number that you choose to create your network.

Once you run the above command on your terminal, your private network will go live.

Conclusion

Private blockchains are in demand as they can be used across several business sectors like retail, insurance, healthcare, financial services and more. They provide robust, scalable and extremely secure database services to organizations. With greater visibility towards their supply chain, private blockchains provide businesses with a clear view of defects and help reduce waste. More importantly, these details are restricted to the organization. Additionally, they are easier to manage as they have a smaller network with fewer participants, which suffers less downtime. Managing compliance is also easy in a private blockchain ecosystem. Overall, private blockchains are efficiently working to help enterprises succeed and scale.

Are you planning to build a private blockchain? LeewayHertz offers end-to-end private blockchain development services. Consult our team of experts to ensure the successful delivery of your project.