Blockchain technology has garnered significant attention since its introduction alongside Bitcoin. In many ways, blockchain technology has since transcended cryptocurrencies. Today, blockchain is being used for far more than cryptocurrency applications, with many groups seeking to use blockchain for other types of peer-to-peer value transfers, like decentralized file storage and even social media.
Against this background, two fundamentally different blockchain models have emerged: permissioned and permissionless blockchains. This article takes a deep dive into the two paradigms.
Types of Blockchains
A blockchain is a distributed ledger that is based on cryptographic protocols that allow data transmission and storage on a peer-to-peer basis. This distributed ledger is maintained through network consensus protocol and offer notable security features. Blockchain is designed to eliminate the need for a third-party intermediary with respect to the transfer of value, assets, or data between two parties.
Although in its nascent stages, blockchain offers significant promise. But given the diverse needs of businesses and individual users, numerous blockchain models have emerged. These blockchain networks fall under two broad categories.
As the name suggests, a permissionless blockchain is a type of blockchain network that allows anyone to become a part of the network and to contribute to its upkeep. In other words, a permissionless blockchain is a decentralized ledger that is open to the public. The vast majority of cryptocurrencies, including Bitcoin, are powered by permissionless blockchain networks. Here are the key characteristics of permissionless blockchains.
Permissionless blockchains are transparent, allowing users to access all information except private keys. Users have access to view all transactions in the network. Because blockchain networks must incentivize users to trust the network, transparency is necessary.
Most permissionless blockchains do not ask users to provide any personal information when creating an address.
Permissionless networks tend to be fully decentralized. This means that no single entity can change the network protocols, shut down the network, or edit the ledger in a permissionless blockchain. This blockchain model is based on a “majority” consensus protocol, meaning that a change to the blockchain requires a “consensus” among more than 50% of the users.
Most permissionless blockchains allow for the use of so-called utility or monetary tokens, depending on the purpose that they serve. These tokens or digital assets are intended to incentivize users to become a part of the network. The value of the tokens can increase or decrease in value depending on the relevancy and state of the blockchain in the market.
Permissioned blockchains, also known as private blockchains, work differently. In a permissioned blockchain network, one needs permission to become part of the network. The owner of the network dictates who can or cannot join the network. The characteristics associated with permissioned or private blockchain networks are set out below.
Defined Governance Structures
Unlike permissionless blockchain networks, permissioned blockchains are not governed on consensus-based protocols. Decisions are made on a central, pre-defined level by members of the network.
Varying Degree of Decentralization
Permissioned blockchains can have varying degrees of decentralization. Permissioned blockchains can be partially decentralized or fully centralized. Usually, members of the blockchain decide the level of decentralization that the network should have as well as the consensus algorithms it should deploy.
Unlike their permissionless counterparts, permissioned blockchains do not have to provide transparency. They can be transparent if they choose to, but most are not intended to be.
Permissioned Vs. Permissionless Blockchains: Advantages and Disadvantages
The key difference between permissioned and permissionless blockchains lies in the nodes that participate in the blockchain network. With a permissionless blockchain, any user can add nodes to the network. But only pre-authorized users can add nodes to a permissioned blockchain network.
Permissionless blockchains are generally more secure, as the possibility of collusion by bad actors within the network is reduced. Permissionless blockchains, however, are relatively slow. They can only authenticate a limited number of transactions in a given time. Permissioned blockchain networks, on the other hand, tend to be more efficient.
Permissioned blockchains, however, may offer lessened security. The security of permissioned blockchain networks relies on the integrity of its members. Much like more traditional record keeping, permissioned blockchains are also susceptible to manipulation.
In conclusion, permissionless blockchains are fully decentralized and open to all, while permissioned models are more centralized and more restrictive. The high level of decentralization on permissionless blockchains comes at the cost of speed and scalability. Permissioned models tend to be faster and more scalable.