Blockchain technology has evolved from a niche technology into a global phenomenon over the past decade. Yet, most people still just think of "cryptocurrency" when they hear blockchain. But there's so much more to this groundbreaking tech!
Under the hood, blockchains come in different flavors - the two main ones being permissionless blockchains like Ethereum and permissioned blockchains used by businesses.
So, what's the big difference? In this blog post, we'll break it down for you in simple terms to finally demystify the confusing world of blockchain architectures!
This Article Contains:
We will cover everything you need to know about permissioned and permissionless blockchains. From their key characteristics to ideal use cases, you'll learn why each type is unique.
At Global Blockchain Solution, our goal is to make blockchain technology accessible and fun! We're passionate experts who want to share our knowledge with anyone curious about this amazing technology.
So, buckle up and get ready to dive into the exciting blockchain basics of permissioned vs permissionless. You'll walk away with a clear understanding of how these blockchains operate so you can decide which matches your awesome ideas!
Key Characteristics of Permissioned vs Permissionless Blockchains
Let's start by looking under the hood to understand what makes each type of blockchain unique.
Permissioned blockchain is a type of private blockchain network that places restrictions on access and participation. Some of the salient features of a permissioned blockchain include:
1. Closed and Controlled Access
Permissioned blockchains have an access control layer that restricts participation in the network. For example, an enterprise blockchain may only allow known partner organizations to join. Users must be granted permission to join, and there is typically a central authority that approves memberships. This allows for tighter control over who can view data or submit transactions compared to public networks like Bitcoin.
2. Partially Decentralized
While permissioned blockchains are distributed across multiple peers or nodes like other blockchains, the network participants are limited to approved entities rather than anonymous nodes. For instance, a group of financial institutions may operate nodes on a permissioned blockchain that handles interbank payments. This allows for more oversight in governance and operations compared to permissionless cryptocurrency networks.
3. Identity Verification
In permissioned blockchains, real-world identities can be associated with user addresses and transactions through identity verification processes. For example, Know Your Customer (KYC) procedures may be implemented for members. This accountability helps comply with regulations and audit requirements in sensitive contexts like enterprises and financial services. Permissionless blockchains are pseudonymous.
4. Customized Permissions
Administrators in permissioned blockchains can define granular access policies and permissions for different types of members and roles. For example, some partners may have read-only access while others can submit transactions. Permissionless public blockchains grant all participants the same permissions.
5. Flexible Consensus Models
Permissioned blockchains can utilize faster and more energy-efficient consensus models like PBFT and voting-based schemes rather than resource-intensive proof-of-work. For instance, a Hyperledger-based enterprise blockchain network may use a PBFT consensus algorithm.
Examples of permissioned blockchains include
An open-source enterprise blockchain framework led by the Linux Foundation. It utilizes permissioned access between known participating entities. Major members include IBM, Intel, J.P. Morgan, and Accenture.
A blockchain platform designed for financial services companies like banks. It enables private transactions between two participants that are verified by notary nodes. Backers include Goldman Sachs, BNY Mellon, UBS, and other major banks.
A permissioned version of Ethereum developed by J.P. Morgan for enterprise use cases like interbank payments. It has now been handed over to ConsenSys and offers higher speeds and privacy compared to public Ethereum.
Permissionless blockchains are public blockchain networks that impose no restrictions on access or participation.
1. Fully Open Access
In contrast to permissioned blockchains, anyone globally can join, submit transactions, and participate in consensus mechanisms like mining in permissionless blockchains without needing approval. For example, anyone with a computer can download Bitcoin software and start running a node or mining. This enables public auditability and uncensorable transactions.
2. Full Transparency
All transactions are publicly visible to every node in a default permissionless blockchain like Bitcoin. This provides accountability but lacks privacy. Some permissionless platforms like Monero enable private transactions. But most are fully transparent.
Users interact through cryptographic key pairs rather than real-world identities. This pseudo-anonymity preserves privacy but also enables criminal activity in some cases. Permissioned networks link real-world identities to blockchain activity.
4. Censorship Resistance
With no central authority and distributed consensus mechanisms like proof-of-work, no single entity can tamper with transaction histories or censor activity on a permissionless blockchain like Bitcoin. This prevents the revision of historical records.
5. Incentivized Participation
Tokens are used to incentivize nodes to verify transactions and secure the network through mining and staking. This democratizes and decentralizes the consensus process. For example, Ethereum miners earn ETH for processing transactions. Permissioned blockchains have fixed incentive structures.
Examples of permissionless blockchain include
The first and largest permissionless blockchain allowing peer-to-peer cryptocurrency transactions without a central authority. Anyone can join the network, run a node, and submit transactions.
An open blockchain platform that enables decentralized applications and smart contracts. Like Bitcoin, it has a permissionless network allowing anyone to participate without approval.
An ultra-high-speed permissionless blockchain that achieves 65,000 TPS through innovative consensus mechanisms. It has seen rapid growth with $1.1 billion in total value secured on the network.
A Layer 2 scaling solution for Ethereum that offers faster and cheaper transactions via sidechains anchored to the main blockchain. It handles around 2.4 million transactions per day.
An interoperable permissionless network that allows specialized sidechains to connect to its relay chain. It can process up to 1,000 transactions per second and will reportedly achieve TPS as high as 1 million soon.
Pros and Cons of Permissioned Blockchains
Increased Privacy and Security
Permissioned blockchains provide more privacy because access is restricted. For example, a blockchain used by banks to share KYC data can limit access to approved financial institutions. This prevents customer data from being publicly visible like on permissionless blockchains. Access controls also improve security against hacking attacks.
The restricted access nature reduces public visibility into records and network activity compared to permissionless alternatives. This makes corruption harder to detect but easier to engage in.
Businesses can customize permissioned blockchains to meet specific needs. For instance, an enterprise supply chain blockchain can define asset tokenization standards, and smart contract logic for logistics, and integrate with existing ERP systems. Public permissionless blockchains have fixed standards.
Higher Corruption Risks
Authorized participants could exploit their privileged roles to alter transaction records or block activities. Accountability relies on the integrity of identified admins which isn't guaranteed.
Consensus mechanisms like PBFT offer higher transaction throughput compared to permissionless proof-of-work models. There are also fewer nodes on the network, allowing for faster settlement speeds. For example, the Ripple payment network handles 1,500 TPS compared to Bitcoin's 7 TPS.
Network operators can deny access or block transactions since they control permissions. There is no recourse for censorship like in public permissionless blockchains secured by censorship-resistant consensus rules.
Identity verification requirements aid KYC and AML compliance on permissioned blockchains. Transaction visibility can also be restricted to improve privacy. For instance, Corda enables private transactions between two banks that other members cannot see.
Fewer distributed nodes increase single points of failure. It only takes one compromised admin account to have full control over the network in some cases. Permissionless networks have stronger resilience.
Permissioned blockchains have known administrators who govern the network aligned with specific goals. This enables clearly defined decision-making processes and dispute resolution. Permissionless blockchains rely on rough consensus among participants.
Pros and Cons of Permissionless Blockchains
Permissionless systems like Bitcoin and Ethereum make censorship virtually impossible due to their decentralized open nature and consensus rules. Transactions cannot be blocked or reversed. This enables uncensorable applications.
Public blockchains can face congestion when transaction volumes spike, leading to network delays. Consensus mechanisms like proof-of-work also limit throughput. Private blockchains are more scalable.
All transactions are publicly verifiable which builds trust without counterparties needing to know each other. For example, anyone can audit Bitcoin wallet balances and transactions on the blockchain explorer. This transparency enables public accountability.
Because of additional authentication required for anonymous nodes, vast amounts of computing power and electricity are consumed. This causes environmental sustainability issues.
The highly distributed nature makes permissionless blockchains extremely resilient to attacks or failures. There are thousands of nodes so bad actors cannot coordinate to control 51% of the network and override consensus.
All data is visible publicly by default, including wallet balances and transaction details. Users must take measures to enhance privacy which reduces transparency and auditability.
Records are set in stone once transactions get enough blockchain confirmations. The only way to change historical entries is to completely take over the decentralized network, which is practically impossible. This ensures integrity.
Potential for Crime
Pseudo-anonymity and lack of KYC enable criminal usage in some cases. This includes ransomware, tax evasion, black market activities, and money laundering.
Anyone globally can use permissionless blockchains without approval. This enables applications like cryptocurrencies, decentralized finance, and uncensorable social platforms. There are no gatekeepers to usage.
Ideal Use Cases for Permissioned and Permissionless Blockchains
To understand which blockchain type is better suited for different goals, let's look at some ideal use cases for each.
1. Supply Chain Management
Permissioned blockchains are ideal for supply chain tracking between companies because they allow information sharing with access controls. Admins can grant suppliers read access to certain data while retailers can view production histories. This enhances transparency and accountability across the chain without exposing sensitive data. Walmart uses Hyperledger Fabric to track food from farm to shelf – and can trace food items in its U.S. stores in 2.2 seconds!
2. Financial Services
Banks and financial institutions can settle trades, payments, and transactions efficiently on a private blockchain network. It facilitates clearing and settlement with fewer intermediaries. And shared immutable records reduce auditing costs and risks.
Healthcare providers can share access to patient medical records on a private blockchain network that ensures HIPAA compliance and privacy. Permission controls prevent unauthorized access while physicians can securely access patient information from across different EMR systems. Better data interoperability and validity improve care.
4. Enterprise Databases
Large companies can usea permissioned blockchains internally to store and validate critical data without relying on vulnerable centralized databases. Immutability safeguards data integrity while network distribution protects from attacks. It also facilitates data sharing between departments and locations.
Permissionless blockchains are essential for censorship-resistant digital currencies like Bitcoin and Ethereum. They allow peer-to-peer transfer of value globally without centralized intermediaries. Their transparency enables auditability and accountability while permissionless access promotes financial inclusion.
2. Public Record Keeping
Governments can leverage permissionless blockchains to securely record public information like land titles, corporate registrations, and identity documents while preventing tampering. Their transparency allows citizens to verify records while immutability protects them from revision.
3. Charity Fundraising
Nonprofits benefit from permissionless blockchain's accessibility for fundraising from donors worldwide without barriers. The immutable ledger also provides transparent tracking of donations which builds trust. The Pineapple Fund publicly gave away millions in Bitcoin for various causes.
4. Cloud Computing
The decentralized infrastructure of permissionless blockchains enables decentralized cloud computing services like iExec which splits intensive computational workloads across participants. It allows anyone to monetize spare computing resources similar to AirBnB for PCs.
Permissioned vs. Permissionless Blockchain
Unsure which blockchain type fits your needs? 🚀
Let our experts provide tailored guidance on permissioned vs permissionless selection.
There is no one-size-fits-all blockchain solution. The needs of the application should drive the choice between permissioned vs permissionless blockchains. In some cases, a hybrid model may be optimal. By understanding the core characteristics and trade-offs of each architecture, you can determine the best fit for your specific use case needs.
Blockchain technology has incredible potential to transform processes across industries and improve coordination, trust, and cooperation. Both permissioned and permissionless blockchain models will continue playing crucial roles in turning that potential into reality. As space matures, we will likely see even more specialized hybrid architectures emerge as well.
The future looks bright for permissioned and permissionless blockchains alike. We hope this guide has provided a comprehensive overview of both models to assist you in navigating this exciting new paradigm of decentralized technological innovation.
Uncertain about which blockchain to use? Feel free to pick our brains on a 15-minute call. Contact us now.
Frequently Asked Questions
To help summarize some key points, here are answers to some common questions about permissioned and permissionless blockchains:
1. What's the main difference between permissioned vs permissionless blockchains?
The main difference is that permissioned blockchains have an access control layer that restricts participation to authorized users. Permissionless blockchains are fully open for anyone to join and participate.
2. Which type of blockchain is more decentralized?
Permissionless blockchains are more decentralized overall since they have no central authority and allow open participation. Permissioned blockchains have partial decentralization across the approved participants.
3. Which consensus models do they use?
Permissioned blockchains typically use faster consensus models like PBFT or voting-based schemes. Permissionless blockchains usually use proof-of-work, proof-of-stake, or other open participation models.
4. Can permissioned blockchains be made public?
Yes, network operators could choose to open up a permissioned blockchain to public participation. However, it would still differ from a natively permissionless blockchain in its origins and initial design.
5. Are permissionless blockchains fully anonymous?
No, permissionless blockchains provide pseudo-anonymity since users transact with alphanumeric addresses rather than real identities. But identities could be uncovered via analysis.
6. Which is more scalable?
Permissioned blockchains offer higher scalability and throughput due to their smaller network scale and flexible consensus models. Permissionless chains face challenges scaling while preserving decentralization.
7. What are the examples of permissioned vs permissionless blockchain?
Examples of permissionless blockchains are Bitcoin, Ethereum, Monero, and Litecoin. Examples of permissioned blockchains are Hyperledger Fabric and R3 Corda.