Introduction
The beauty of any invention is its adoption across various spheres of life, while the initial intent of blockchain technology, as envisioned in the Bitcoin whitepaper, was to create an open, peer-to-peer payment network, its applications have expanded far beyond this scope.
The open and decentralized nature of blockchain makes it ideal for publicly governed organizations, cryptocurrencies, and ownership verification for artworks, etc. However, there are use cases—such as government databases, university records, or banking systems—where sensitive information necessitates restricted access. This is where permissioned and permissionless blockchains come into play.
How do Blockchains Work?
Blockchains are decentralized, distributed ledgers designed to record transactions securely and transparently. Each blockchain consists of a series of data blocks connected sequentially, forming a chain. These blocks contain transaction data, a timestamp, and a cryptographic hash of the previous block.
To maintain consensus across the network - where network participants agree on the integrity of transactions and the ledger's state without needing a central authority. Blockchains use mechanisms, such as Proof of Work (PoW), Proof of Stake (PoS), or Byzantine Fault Tolerance (BFT), Proof of Authority. e.t.c.
These mechanisms involve all or some blockchain users, depending on the consensus mechanism and the degree of openness based on the type of blockchain—permissioned or permissionless.
What is a Permissionless Blockchain?
A permissionless blockchain is an open and decentralized network where anyone can participate without requiring prior authorization. These blockchains are designed to promote transparent and trustless interactions as there are no restrictions on users, miners, or validators.
Permissionless blockchains operate under consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS) to ensure security and integrity across the network. These mechanisms employ economic rewards to encourage honest behavior and discourage users from executing malicious activities that could tamper with the blockchain.
These networks are commonly used for cryptocurrency, decentralized finance (DeFi), and decentralized applications.
Notable Use Cases
Bitcoin
Bitcoin operates on a peer-to-peer network where no single entity controls the system. Transactions are validated and secured by participants (nodes) globally via Proof of Work consensus. Bitcoin is known for its use as a decentralized digital currency widely used for online payments, remittances, and as a store of value.
Ethereum
Ethereum is a decentralized, open-source blockchain designed to enable programmable transactions through smart contracts, it hosts thousands of dApps, supporting use cases such as gaming, social networks, and decentralized exchanges (DEXs).
Advantages of Permissionless Blockchains
Decentralization
Permissionless blockchains are fully decentralized, with no single entity controlling the network. This ensures greater resilience to censorship and single points of failure.
Transparency
All transactions and data are recorded on a public ledger, and accessible to anyone. Users don’t need to trust intermediaries or other participants, Instead, trust is placed in the cryptographic protocols and consensus mechanisms securing the network.
Security
With a large number of nodes participating in the network, permissionless blockchains are inherently more secure against tampering and fraud.
Disadvantages of Permissionless Blockchains
Scalability Issues
Achieving consensus across a large, decentralized network can be slow and resource-intensive, leading to lower transaction throughput compared to permissioned blockchains.
Energy Consumption
Consensus mechanisms like Proof of Work (PoW) consume significant energy, raising concerns about environmental impact.
Privacy Concerns
While transactions are pseudonymous, the public nature of the ledger can expose patterns or identities with sufficient analysis, compromising privacy.
Regulatory Challenges
Governments may find it difficult to regulate or enforce compliance on open networks, potentially leading to legal or financial risks for participants.
What is a Permissioned Blockchain?
A permissioned blockchain is a private or semi-private blockchain network where user access is restricted to specific participants. Unlike permissionless blockchains, which are open to anyone, permissioned blockchains require users to obtain authorization before they can join the network or perform certain actions, such as validating transactions or creating smart contracts. Most permissioned blockchains use the Byzantine Fault Tolerance (BFT) mechanism.
These blockchains are governed by a central entity or a consortium of stakeholders who define the rules for participation and maintain control over the system. Access controls are enforced through cryptographic permissions, and participants are often identified, making the network less anonymous.
Permissioned blockchains are widely used in industries such as finance, supply chain, and healthcare, where privacy, scalability, and regulatory compliance are critical.
Notable Use Cases
Aventus
Aventus is a private blockchain on Substrate, offering scalable, secure, and cost-effective solutions for businesses. Its blockchain-based solution improved cargo operations at Heathrow Airport, London by increasing digitization and improving transparency of the supply chain with blockchain technology.
Hyperledger Fabric
Hyperledger Fabric is an enterprise-grade, open-source distributed ledger framework launched by the Linux Foundation, a highly modular, decentralized ledger technology (DLT) platform that was designed for industrial enterprise use. Walmart, a corporation that owns a chain of retail stores in the United States of America, used Hyperledger Fabric to create a food traceability system that can trace the origin of food products from its numerous list of suppliers.
Advantages of Permissioned Blockchains
Controlled Access
Only authorized participants can join the network, this makes permissioned blockchains ideal for use cases requiring compliance with regulations, such as in finance or healthcare.
Enhanced Performance
With fewer nodes participating in the consensus process, transaction speeds and scalability are significantly improved compared to permissionless blockchains.
Customizable Governance
Organizations or consortiums can tailor the blockchain's rules, permissions, and consensus mechanisms to suit their operational needs.
Data Confidentiality
Sensitive data can be shared with specific participants without exposing it to the entire network, maintaining confidentiality.
Disadvantages of Permissioned Blockchains
Centralization
By restricting access and control to specific entities, permissioned blockchains sacrifice decentralization, making them more vulnerable to collusion or single points of failure.
Reduced Transparency
Since access is restricted, the level of transparency is lower compared to public blockchains, which may lead to trust issues among external stakeholders.
Limited Trustless Interactions
Unlike permissionless blockchains, trust in the controlling entity or consortium is still required, undermining one of blockchain's core principles.
Barrier to Entry
The need for authorization can limit innovation and reduce inclusivity, as not everyone can participate or contribute to the network.
Difference Between Permissioned and Permissionless Blockchain?
Here is a table comparing Permissioned and Permissionless blockchains:
Conclusion
Blockchain technology has evolved to accommodate a wide range of use cases, leading to its redefinition beyond its origins as an open and decentralized ledger.
Permissioned blockchains maintain the core principles of blockchain but restrict privacy and access to authorized participants. Examples include Aventus and Hyperledger Fabric, which are employed by private entities for applications such as supply chain management and the management of financial records.
On the other hand, permissionless blockchains such as Bitcoin and Ethereum represent the more familiar, open systems that allow global access and participation without restrictions.
