Cryptocurrencies have taken the world by storm, and with it, blockchain technology has become increasingly popular. Blockchain technology has been credited with the potential to revolutionize industries by introducing transparency and decentralization. There are different types of blockchains, and it’s essential to understand the difference between those two relevant concepts: permissioned and permissionless blockchains.

What are Permissioned Blockchains?

Permissioned blockchains, also known as private blockchains, are a type of blockchain where access to the network and the ability to validate transactions is restricted to a select group of participants. In contrast to permissionless blockchains, permissioned blockchains are controlled by a central authority or group of authorities, often referred to as “consortiums.”

One of the defining characteristics of permissioned blockchains is that they require permission to participate. This means that users must be invited and granted access to the network by the controlling authority. Additionally, permissioned blockchains often require users to identify themselves and provide authentication before they can participate in the network.

Permissioned blockchains offer more privacy and confidentiality than permissionless blockchains. This is because permissioned blockchains restrict access to transactions and data to only those users who have been granted permission by the controlling authority. This is particularly important for businesses and other organizations that need to keep their sensitive data secure and confidential.

In permissioned blockchains, transaction validation is typically carried out by a smaller number of nodes compared to permissionless blockchains. This allows for faster transaction processing times and lower fees. However, it also means that permissioned blockchains are more vulnerable to attacks and disruptions by malicious actors, as there are fewer nodes to verify transactions and maintain the network’s integrity.

Permissioned blockchains are often used in industries such as finance, supply chain management, and healthcare, where there is a need for privacy and confidentiality. For example, a permissioned blockchain can be used by a group of banks to share data and records securely without exposing the information to the public.

How do Permissioned Blockchains Work?

Permissioned blockchains operate similarly to permissionless blockchains, but with some key differences. Here’s a closer look at how permissioned blockchains work:

Access Control

Permissioned blockchains require users to be granted access by the controlling authority before they can participate in the network. This allows the authority to control who can validate transactions and access data stored on the blockchain.

Validators

In permissioned blockchains, the number of validators is limited and often predetermined by the controlling authority. Validators are typically chosen based on their reputation and credibility, and they are responsible for verifying and validating transactions on the network.

Consensus Mechanisms

Permissioned blockchains typically use a consensus mechanism to validate transactions and maintain the integrity of the network. This can include mechanisms such as proof of authority (PoA), where validators are chosen based on their reputation and authority, or Byzantine fault tolerance (BFT), which allows the network to continue operating even if some nodes fail or behave maliciously.

Transactions

Transactions on a permissioned blockchain are processed similarly to those on a permissionless blockchain. However, in a permissioned blockchain, transactions may require additional authorization and authentication before they can be processed.

Smart Contracts

Like permissionless blockchains, permissioned blockchains can also support smart contracts. However, the smart contracts used in permissioned blockchains are typically more focused on business use cases, such as supply chain management and finance.

Overall, permissioned blockchains offer a more controlled and secure environment for conducting transactions and storing data. However, they also require a higher level of trust in the controlling authority, and there may be concerns about centralization and potential abuse of power.

Examples of Permissioned Blockchains

Permissioned blockchains are becoming increasingly popular, particularly in industries where privacy and confidentiality are a top priority. Here are some examples of permissioned blockchains:

Hyperledger Fabric

Hyperledger Fabric is a permissioned blockchain developed by the Linux Foundation. It is designed for use in enterprise environments, with a focus on confidentiality, scalability, and flexibility. Hyperledger Fabric uses a consensus mechanism called “pluggable consensus,” which allows users to choose from a range of consensus algorithms depending on their needs.

Corda

Corda is a permissioned blockchain developed by R3. It is designed specifically for use in the financial industry and is used by banks, insurance companies, and other financial institutions. Corda uses a consensus mechanism called “notary service,” which allows multiple parties to validate and verify transactions on the network.

Quorum

Quorum is a permissioned blockchain developed by JPMorgan Chase. It is designed for use in the financial industry and is used by a number of large banks. Quorum uses a consensus mechanism called “QuorumChain,” which is based on the Ethereum blockchain.

Ripple

Ripple is a permissioned blockchain designed for use in the financial industry. It is used for cross-border payments and remittances and is used by a number of banks and financial institutions. Ripple uses a consensus mechanism called “Ripple Protocol Consensus Algorithm (RPCA),” which allows for fast and secure transactions.

Hyperledger Besu

Hyperledger Besu is a permissioned blockchain developed by ConsenSys. It is designed for use in enterprise environments and is particularly focused on the needs of the finance industry. Hyperledger Besu uses a consensus mechanism called “Istanbul BFT,” which is based on the Ethereum blockchain.

Enterprise Ethereum

Enterprise Ethereum is a permissioned version of the Ethereum blockchain. It is designed for use in enterprise environments, with a focus on scalability, security, and privacy. Enterprise Ethereum uses a consensus mechanism called “Proof of Authority (PoA),” which allows for fast and secure transactions.

JP Morgan’s Blockchain

JP Morgan’s Blockchain is a permissioned blockchain developed by JP Morgan. It is designed for use in the finance industry and is used for a range of applications, including supply chain management and trade finance. JP Morgan’s Blockchain uses the consensus mechanism called “QuorumChain,” which we previously explained.

IBM Blockchain

IBM Blockchain is a permissioned blockchain developed by IBM. It is designed for use in enterprise environments, with a focus on scalability, security, and interoperability. IBM Blockchain uses a consensus mechanism called “Hyperledger Fabric,” which allows for flexible and customizable consensus algorithms depending on the needs of the user.

These are just a few examples of the many permissioned blockchains that are currently in use. As the popularity of blockchain technology continues to grow, we can expect to see more and more permissioned blockchains being developed for use in a wide range of industries.

What are Permissionless Blockchains?

Permissionless blockchains are a type of blockchain that allows anyone to participate in the network without needing permission from a controlling authority.

Permissionless blockchains are decentralized, meaning that there is no single controlling authority. Instead, the network is maintained by a community of users who work together to validate transactions and keep the network secure. They are also open to anyone who wants to participate. There are no barriers to entry, and anyone can join the network and validate transactions.

In permissionless blockchains, anyone can be a validator. Validators are responsible for verifying and validating transactions on the network, and they are rewarded with cryptocurrency for their work. Those blockchains use consensus mechanisms to validate transactions and maintain the integrity of the network. This can include mechanisms such as proof of work (PoW), where validators compete to solve complex mathematical problems to validate transactions and earn rewards, or proof of stake (PoS), where validators are chosen based on the amount of cryptocurrency they hold.

This type of blockchain also focuses on transparency, meaning that all transactions are recorded on a public ledger that anyone can access. This makes it easy to track transactions and ensures that the network is operating fairly and securely.

Permissionless blockchains offer a high level of decentralization and transparency, but they can also be more vulnerable to attacks and security breaches. However, the open access and community-driven nature of permissionless blockchains make them an attractive option for many users who value decentralization and transparency.

How do Permissionless Blockchains Work?

Permissionless blockchains are open and decentralized networks where anyone can participate.

Validation

In permissionless blockchains, validators compete to validate transactions on the network. This can involve solving complex mathematical problems or staking cryptocurrency to become a validator.

Consensus

Once a transaction is validated, it must be approved by the network’s consensus mechanism. This can involve the entire network of validators agreeing on the validity of the transaction, or it can involve a smaller group of validators approving the transaction.

Block Creation

Once a transaction is approved, it is added to a block, along with other validated transactions. These blocks are then added to the blockchain in a chronological order, forming a permanent and unalterable record of all transactions on the network.

Incentives

Validators are incentivized to participate in permissionless blockchains through rewards in the form of cryptocurrency. This encourages validators to act honestly and maintain the security and integrity of the network.

Decentralization

Because permissionless blockchains are decentralized, there is no single controlling authority. Instead, the network is maintained by a community of users who work together to validate transactions and keep the network secure.

Permissionless blockchains rely on the collective effort of the community to maintain the security and integrity of the network. Validators are incentivized to act honestly and validate transactions correctly, while the open and decentralized nature of the network ensures that there is no single point of failure or control. This makes permissionless blockchains highly resilient and resistant to attacks and censorship.

Examples of Permissionless Blockchains

There are many different permissionless blockchains in use today, and most names might sound familiar to seasoned crypto enthusiasts.

Bitcoin

Bitcoin is the first and most well-known permissionless blockchain. It uses proof of work as its consensus mechanism and is designed to be a decentralized and censorship-resistant payment system.

Ethereum

Ethereum is a permissionless blockchain that is designed to support smart contracts and decentralized applications (dapps). It uses proof of stake as its consensus mechanism and has become a popular platform for developers to build decentralized applications.

Litecoin

Litecoin is a fork of Bitcoin and uses a similar proof of work consensus mechanism. It is designed to be a faster and more efficient version of Bitcoin.

Dogecoin

Dogecoin is a permissionless blockchain that was created as a joke but has since gained a large following. It uses a proof-of-work consensus mechanism and is designed to be a fast and easy-to-use cryptocurrency.

Cardano

Cardano is a permissionless blockchain that is designed to be highly scalable and secure. It uses a proof of stake consensus mechanism and has become a popular platform for building decentralized finance (DeFi) applications.

Polkadot

Polkadot is a permissionless blockchain that is designed to be highly interoperable. It uses a proof of stake consensus mechanism and is designed to allow different blockchains to communicate and work together.

Use Cases for Permissioned and Permissionless Blockchains

Permissioned Blockchains

Supply Chain Management

Permissioned blockchains are well-suited for supply chain management because they can provide a secure and efficient way to track goods and products as they move through the supply chain. The members of the consortium can control the access to the network and ensure that only authorized parties can view or update the data.

Financial Transactions

Permissioned blockchains can be used for financial transactions, such as cross-border payments, because they can provide a more efficient and cost-effective way to process transactions. The members of the consortium can ensure that the network is secure and the transactions are processed quickly and accurately.

Identity Management

Permissioned blockchains can also be used for identity management because they can provide a secure and reliable way to manage and verify identities. The members of the consortium can ensure that only authorized parties can view or update the data and that the data is accurate and up-to-date.

Permissionless Blockchains

Cryptocurrencies

Permissionless blockchains, such as Bitcoin and Ethereum, are primarily used for cryptocurrencies. They provide a decentralized and transparent way to store and transfer value without the need for intermediaries or central authorities.

Decentralized Applications

Permissionless blockchains can also be used for decentralized applications (dApps) that run on the blockchain. These dApps can provide a more transparent and secure way to manage data and perform transactions without the need for intermediaries.

Gaming

Permissionless blockchains can also be used for gaming applications that run on the blockchain. These games can provide a more transparent and fair way to play and win without the need for intermediaries or centralized game servers.

The choice between permissioned and permissionless blockchains depends on the specific needs and requirements of the application. For applications that require a high level of privacy and control, such as supply chain management or financial transactions, a permissioned blockchain may be more suitable. For applications that require transparency and decentralization, such as cryptocurrencies or decentralized applications, a permissionless blockchain may be more suitable.

It’s also important to consider the trade-offs between security, efficiency, and decentralization when choosing between permissioned and permissionless blockchains. Permissioned blockchains are generally considered to be more secure and efficient, but less decentralized, while permissionless blockchains are generally considered to be more decentralized, but less secure and efficient.

Conclusion

Permissioned and permissionless blockchains are two different types of blockchain architectures that have distinct characteristics and use cases. Permissioned blockchains are typically used in applications that require privacy and control, such as supply chain management and financial transactions, while permissionless blockchains are used in applications that require transparency and decentralization, such as cryptocurrencies and decentralized applications.

It is important for anyone interested in the cryptocurrency space to understand the differences between permissioned and permissionless blockchains, as they represent two fundamental approaches to blockchain technology. Understanding these differences can help individuals and organizations choose the right blockchain architecture for their specific needs and requirements.