Permissioned vs Permissionless Blockchain Networks, Blockchain technology is a digital infrastructure that is successfully being implemented by both private and public entities. Although everyone knows the core tenets of blockchain networks due to bitcoin many are in the dark as to how private blockchains like Permissioned networks work.
We will compare two distinctive types of blockchains permissionless and Permissioned networks. The key difference can be spotted in the names themselves but it will take a lot more to explain how divergent these two networks truly are. What you also might not know is how the top cryptocurrencies work.
Permissionless Vs Permissioned Blockchain Networks
We all know that bitcoin is the first blockchain network. When Satoshi Nakamoto invented it he decided that digital ledgers should be public, decentralized, anonymous and transparent. Even though these features are perfect for a cache network used by the masses solutions developed for enterprise level use cases must work completely differently. That’s why when industry giants like Amazon, Microsoft, and IBM began experimenting with blockchain technology. They decided to branch out from designs like bitcoin. As a result we categorize blockchains based on their format and openness.
So right from the start you might already have a good guess at what kind of network is permissioned and which one is permissionless. A public and open network like bitcoin that doesn’t enforce any permissions is of course permissionless. On the other hand a private and closed network that enforces privileges and permissions like the Linux foundation’s Hyperledger is Permissioned. Let’s first take a look at permissionless blockchain.
Permissioned vs Permissionless Blockchain Networks: A permissionless blockchain is a type of decentralized and trustless network that is open to the public and allows everyone to participate. People of all backgrounds and parts of the world are free to join such a network and send and verify transactions. This type of blockchain has a few key fundamental features that are critically needed for the protocol to remain decentralized. The list includes anonymity, transparent, transactions, open source and no central authority. In contrast, a Permissioned blockchain is almost the complete opposite. These are closed networks created by designated parties who can only be joined by those who are granted the privilege.
While they do have some level of decentralization they’re not as decentralized as bitcoin Ethereum or Litecoin. For example these networks have a limited level of transparency are often developed by private companies offer zero anonymity and are often controlled by a central authority.
Why is there a need for a Permissioned Blockchain?
Permissioned vs Permissionless Blockchain Networks: So by now everyone probably has the same question why is there a need for permissioned blockchains and why do enterprises refuse to design public networks. Well it all boils down to practicality, intention and security. So let’s explain everything through a simple example. Let’s say that the federal reserve is ready to launch a central bank digital currency. A currency like the digital dollar needs to be based on blockchain technology but for it to work it can’t be designed like ordinary cryptocurrencies why?
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Because a high level of transparency does not work out in the real world especially banking. Allowing every person both foreign and domestic to monitor transactions made by administrations, politicians, banks and major corporations does not bode well for either institutional or retail users. So what does the federal reserve do they create a private blockchain network and form a consortium comprising America’s leading banks. The federal reserve acts as a currency issuer and distributor in this format and also controls the network and creates important decisions like deciding whether to add or remove a bank from the consortium. Meanwhile the banks themselves act as nodes that process and verify transactions. All transactions within this small circle can be seen by other banks that are part of the same network.
However users outside of the network do not have access to this kind of information since the blockchain is closed off the end result is that the federal reserve succeeds in implementing a digital financial network that is immutable. scalable and partially decentralized. While at the same time preventing outsiders from accessing sensitive financial information this leads to easier transaction tracking, instant settlements, more effective banking and easily verifiable financial activity. There’s actually more to the story so let’s compare the pros and cons of each type of network
Pros and Cons
Permissioned vs Permissionless Blockchain Networks: The main advantage of a Permissioned network is scalability. Since the network is less decentralized and is run by fewer nodes the transaction throughput power is immediately higher with these characteristics alone. Apart from performance these networks are also more customizable have better access controls and a clearly defined hierarchy. However the obvious cons is that there is no anonymity or transparency. Such networks are also susceptible to regulation and censorship. Additionally they rely on a single centralized authority that manages the network as we mentioned before permissionless blockchains like bitcoin have quite a few advantages.
They’re public anonymous transparent fully decentralized and function without any intermediaries. They are accessible by everyone and their code can be read, copied or, forked off to another project. Nevertheless they have their own set of unique drawbacks. For example permissionless blockchains are slow as they tend to process between 5 to 25 transactions per second. They also consume enormous amounts of energy and are prone to security risks when working with a low number of nodes.
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Both types of networks obviously cater to different groups of users and use cases. So we can’t really claim that one of them reigns supreme. What is important to understand is the fact that with all their flaws and imperfections cryptocurrencies cannot compete with Permissioned blockchains in industries that demand scalability. What do you think will sheer technological improvement be enough to help permissionless networks deal with scalability or does their inherent design prevent them from ever solving this problem leave your thoughts in the comments below.