In the past few years, there is a massive increase in the popularity of blockchain technology. Numerous blockchain projects are being implemented by both public and private entities. As blockchain is an emerging technology that is still believed to be in its nascent stages, there is a bit of confusion prevalent in the blockchain market regarding one of the biggest divisions in blockchain technology: permissioned and permissionless blockchains.
The main motive of this article is to eliminate confusion between these two paradigms and help readers choose the right approach for their blockchain projects.
Permissioned and Permissionless Blockchains
The basic distinction of these is clear from the terms itself. A permissioned blockchain needs prior approval before using whereas a permissionless blockchain lets anyone participate in the system. Though the two systems might sound similar, they cannot be used for the same things. People might not be keen on using a permissioned cryptocurrency as one of the major drawbacks of crypto is that no one has control over how it works. For example, a company like Maersk, that uses blockchain technology to track its shipping logistics, will not want to store its confidential information onto a permissionless blockchain.
Similarities of Permissioned and Permissionless Blockchains
Some of the common characteristics of these blockchains are:
- Both are distributed ledgers. This means that there will be multiple versions of the same data that are stored in different places and connected through some network.
- Both these blockchains are theoretically immutable meaning that the data they store cannot be modified or altered without having sufficient power over the network. Even if someone manages to take control, the blocks that are linked by cryptographic hashes will change if any data is altered.
- Both make use of consensus mechanisms. This implies that they have a way for multiple versions of the ledger to reach an agreement on what they must all look like.
What are Permissioned Blockchains?
These blockchains, also known as private blockchains, can be thought of as closed ecosystems that can only be accessed by those who are allowed access. Anyone who is interested in validating transactions or viewing data on the network needs to get approval from a central authority. This is useful for companies, banks, and institutions that are comfortable to comply with the regulations and are very concerned about having complete control of their data. Ripple is a perfect example of a permissioned blockchain.
Understanding Permissionless Blockchains
Popular blockchains such as Bitcoin, Ethereum, Litecoin, Dash, and Monero fall under this category. Also known as public blockchains, these allow anyone to transact and join as a validator. The data on these blockchains is publicly available, and complete copies of the ledgers are stored across the globe. This is what makes it hard to censor or hack these systems. This blockchain does not have anyone who controls it, and one can remain relatively anonymous as there is no need for identifying themselves to get an address and perform transactions.
Characteristics of Permissioned Blockchains
We will now list down the key characteristics of permissioned blockchains.
1. Transparency and Anonymity
These blockchains need not be transparent, but they can choose to be so, depending on the inner organization of businesses. In terms of privacy, these are not needed on a central level and can be determined on a user-case basis. These blockchains store an extensive amount of data relating to the operations and transactions carried out by users.
2. Varying Decentralization
Members of this blockchain are free to negotiate and come to a decision about the level of decentralization the network can have. Private blockchains can be fully centralized or partially decentralized. These are free to choose the consensus algorithms they wish to employ.
Here, governance is decided by the members of the business network. There are various dynamics to determine how decisions are made on a central level. But here, there is no need for consensus-based mechanisms where the entire network must agree to a change.
Characteristics of Permissionless Blockchains
The characteristics associated with the permissionless blockchain model are:
1. Digital Assets
In a permissionless network, there is a user-incentivizing token that can increase or decrease in value based on the relevancy and state of the blockchain they belong to. Depending on the purpose, these blockchains either employ monetary or utility tokens.
According to default design, these are bound to be transparent. Users of the network must be incentivized to trust the network. A transparent network must give users access to all information apart from just the private keys, and this can include addresses, freedom to see transactions processed by the network, and the way in which transactions are processed into blocks.
These are decentralized as there is no central entity that shuts down the network, changes its protocols, or edits the ledger. These are based on consensus protocols. This means that network changes of any type can be achieved only if 51% of the users agree to it.
Advantages of Permissioned Blockchains
Some of the notable advantages are:
- These offer more efficient performance when compared to public blockchain networks.
- These have clearly defined governance structures.
- High customizability.
- Access controls.
- Better Scalability.
Disadvantages of Permissioned Blockchains
Some of the prominent disadvantages are:
- Security is entirely reliant on the integrity of its members.
- These are more prone to censorship and regulation.
- Less Transparent.
- Vulnerable to hacks and manipulation.
- Less anonymous.
Advantages and Disadvantages of Permissionless Blockchains
These are the most reliable in terms of security as the chances for collusion by bad actors with malicious intentions is minimum. These potential events are softened by the high number of nodes present in the network. Anyone will be able to access the ledger and check the correctness of transactions or see if the data entered is consistent. As these are widely-open, anyone can use it without creating any additional infrastructure. These are some of the notable advantages of permissionless blockchains.
The major drawback is that they are quite slow. They can validate only a limited number of transactions per second. These entail a high amount of energy consumption. One of the biggest threats of these blockchains is the 51% attack risk. A small number of nodes have the ability to make the network more vulnerable to hacking risks and collusions.
Both permissioned and permissionless blockchains are branches of the same technology that have been developed for different needs. Both have their own advantages and can help benefit different technologies depending on the use cases.
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