We all know what blockchains are—permissionless and decentralized networks that enable the existence of cryptocurrencies. But what on earth is a permissioned blockchain? Isn’t that a contradiction in terms? And doesn’t the requirement of permissions defeat the entire purpose of decentralization?
To understand what permissioned blockchains are, we need to understand how blockchains are built and how their design enables decentralization.
- A permissioned blockchain is a network that’s not publicly accessible—that is, it can only be used and accessed by those who have certain explicit permissions.
- Permissioned blockchains allow for a certain level of organizational control and centralization to keep access contained.
- Access to sensitive information is only given to some people for essential purposes, and only they can modify such information on the blockchain.
How a Typical Blockchain Works
A typical blockchain network looks like this:
- It keeps a record of all transactions that happen on its network.
- It can be accessed by all participants of the network—it is completely transparent.
- No identities are revealed through the record—which means that although participants can track wallet addresses on the blockchain, those addresses can’t be traced back to their original owners.
- Miners keep the network decentralized by verifying transactions to attain a common block reward.
Although this is probably a very simplified version of how blockchains work, the functionalities of a typical blockchain go much further. Such blockchains are called “public blockchains” because most of the information available on the network is transparent to the public.
However, not all blockchains are the same. Some need special permissions to read, access, or write new information. While others only have enough access to allow participants to connect and conduct work.
A permissioned blockchain, just like other modified blockchains, is a network that can perform the same functions as a typical blockchain, but with slight changes.
What’s a Permissioned Blockchain?
A permissioned blockchain is a network that’s not publicly accessible—it can only be used and accessed by those who have certain explicit permissions. While permissioned blockchains and typical ones function similarly to each other, users in the former can only perform specific permitted actions.
How Access is Determined: All users on a permissioned blockchain are required to identify themselves through digital certificates and other means before they can operate on the network. Records of permissioned users are kept within the blockchain, and the network determines who’s allowed to access what information based on the certificates.
Permissionless vs. Permissioned Blockchains
Permissionless blockchains are typically used by developers of cryptocurrencies and decentralized technologies like DeFi and dApps. These stakeholders depend highly on individual participation and mining to run the network, and hence, need limited transparency and anonymity to function.
Permissioned blockchains are used by businesses and enterprises that shift to a blockchain environment to cut costs. Since they can’t be completely decentralized, permissioned blockchains allow them to define specific roles for specific users, limiting everyone’s access to particular domains.
This allows businesses to control activity on the network without compromising the integrity of the blockchain.
Decentralization and transparency
Permissionless blockchains allow the network to be highly decentralized. The participation of a large number of users in an individual capacity makes the network completely free of centralization.
On the other hand, permissioned blockchains allow for a certain level of organizational control and centralization to keep access contained. Although such blockchains have decentralization in various aspects, they also require various amounts of regulation to protect the interests of the enterprise.
Transactions and identities
Permissionless blockchains reveal wallet addresses to public participants. However, these addresses can’t be used to trace the real users behind the blockchain. This makes it difficult for a third party to track the movement of funds and keeps the currency encrypted.
Permissioned blockchains prioritize the conduct of business and the security of their information, along with the roles assigned to various members of the organization. This means that decentralization takes a backseat when it comes to these networks.
Access to sensitive information is only given to people who need to have access to it, and only they can modify such information on the blockchain.
Permissionless vs. Permissioned Blockchains: Key differences
|Permissionless Blockchains||Permissioned Blockchains|
|Used by public entities like cryptocurrencies and decentralized apps||Typically used by enterprises and businesses|
|Rely on mining and anonymity to keep the network secure||Rely on digital certificates and permissions to keep identities secure and define roles for participants|
|Have full decentralization||Have limited decentralization|
|Open Source||Controlled and proprietary, depending on business to business|
|Less transparent because of anonymity||More transparent because of role definition|
Blockchain technology, as a concept, is being rapidly adopted around the world. Permissioned blockchains have provided a huge impetus to this adoption, bringing enterprises and businesses into the list of major stakeholders in the gradual shift towards decentralization.
Betting on this shift is incredibly easy for an investor in India. You can start right now by buying cryptocurrencies on CoinSwitch!
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
Table of content
Subscribe to Our Newsletter with exclusive content.