Blockchain for years lay quietly in the shadows under the limelight of Bitcoin. However, as soon as the potential of the distributed ledger technology was recognized, the research and development to adopt blockchain begun. In the original use case, blockchain is defined as an immutable distributed ledger technology which ensures that the information is available to all and not controlled by a central authority. This type of blockchain were labelled as ‘permissionless blockchains’ as the information was distributed, and nobody needed approval or consent of an authority to access information. As the technology was gaining traction, more and more use cases began to emerge across industries.
Even though blockchain was proving to be revolutionary, sectors like supply chain, which wished to leverage from the technology were not able to do. Why? Because the information which is supposed to remain between two parties was being transmitted to all. For e.g. a supplier offers x% discount to a buyer who has been associated with him for decades. The information when pushed to permissionless blockchain would be available to all and every buyer would demand the same discount. This would hamper the business of the supplier, he would not prefer to adopt blockchain for his business.
Blockchain as a technology had the capability to resolve major issues in many industries and was offering many benefits, still it was not being adopted for a simple reason that the right to information was available to all. The solution to this problem came with ‘permissioned blockchain’.
In Permissioned blockchains such as Hyperledger Fabric and Multichain participation is close-ended. While clients are allowed to submit transactions, adding transaction or advancing the blockchain is restricted to a fixed set of people whose identity is known to all in the system.
Let’s take a closer look at the differences between the two, and hopefully make your decision process a little easier. You can also have a look at the video below to have a better understanding about permissioned and permissionless blockchain.
Public Blockchain is a type of blockchain that is entirely decentralized. As the name suggests, anyone can join the Permissionless blockchain without any condition or permission. All members have the right to perform all the actions including adding & validating transactions, smart contracts, and much more. Bitcoin, Ethereum, and Dash, are some of the examples of permissionless blockchains. Anyone has the right to determine the size and shape of the blockchain.
- Anyone can get access, read and transact in the network.
- The transactions in a permissionless blockchain are anonymous but visible to all.
Permissioned Blockchain, also known as Consortium Blockchain or Federated Blockchain, is a sort of private blockchain which allows participants to restrict the participation of other members. So, the autonomy is transferred from one in charge to more than one in charge. Only those predefined members have the right to manage certain actions at different levels. This means some participants have the right to make transactions while some have the authority to validate them. For example, Corda, and EWF are permissioned types of blockchain. Here are some valuable points that can help you understand Permissioned Blockchain effectively.
- It serves as a hybrid between both public and private blockchain.
- Preselected members of the blockchain control the actions.
The similarities between permissioned and permissionless blockchain
Many flavors of blockchain have evolved over the years and the terminology is often misconstrued. This is easy to do because permissioned and permissionless blockchain have many similarities:
- Both are distributed peer-to-peer networks, where each participant maintains a replica of a shared append-only ledger of digitally signed transactions.
- Both maintain the replicas in sync through a protocol referred to as consensus.
- Both provide certain guarantees on the immutability of the ledger, even when some participants are faulty or malicious.
The differences between permissioned and permissionless blockchain
The sole distinction between permissioned and permissionless blockchain is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger. A permissionless blockchain network is completely open and anyone can join and participate in the network. The network typically has an incentivizing mechanism to encourage more participants to join the network. Bitcoin is one of the largest permissionless blockchain networks in production today.
One of the drawbacks of a permissionless blockchain is the substantial amount of computational power that is necessary to maintain a distributed ledger at a large scale. More specifically, to achieve consensus, each node in a network must solve a complex, resource-intensive cryptographic problem called a proof of work to ensure all are in sync.
Another disadvantage is the openness of public blockchain, which implies little to no privacy for transactions and only supports a weak notion of security. Both of these are important considerations for enterprise use cases of blockchain.
Which Type of Blockchain to Choose?
The important thing to understand here is that there are no strict borders and different blockchains are positioned differently on the scale of validators anonymity and trust. Permissionless blockchain needs good scalability and strong resilience against malicious members along with an incentive model. The tradeoff happens in slow speed and there is a need of tokens to incentivize miners securing the network. The network is there as secure as the computational power behind it.
To address issues like energy consumption Proof of Stake has been adopted by large-scale permissionless blockchain like Ethereum. Proof of Stake enhances the speed and efficiency of the blockchain. Also, this increases the resilience against specific attack however, issues like “nothing at stake” and “rich get even richer” are not addressed.
If high confidentiality, transaction throughput, and immediate finality are required, then private permissioned blockchains are probably the best platform. The native token is not necessary as identities of participants are known and approved by notaries.
As all the participants are known, permissioned blockchains don’t essentially have to work on computing power-based mining to reach a consensus. They either use consensus algorithms like Paxos or RAFT also, there are other algorithms like PBFT that can be used in place of Proof of Work mining.
Different business cases have different requirements, and no solution would fit all the cases. Understanding properties of different platforms are vital to make the decision regarding blockchain platform and even evaluate if using blockchain to implement a business case make sense.
If you’re still unsure about which blockchain type fits your business model best, or if blockchain is even the right technology for your business, feel free to discuss it with us. Send us an email or get in touch with us through social media.
Do connect with us next week when we unravel the mysteries of Hyperledger Fabric and how it is going to the change face of industries.