Permissionless And Permissioned Blockchains: Public Vs Private DLT Networks
Blockchain – and especially blockchain for enterprise – is taking the world by silent storm as companies, organizations and civil projects embrace the technology. Although a fairly straightforward concept to understand, the details of blockchain do take some learning. As many legacy concerns embrace blockchain, they often attempt to carry over database protocols into the new technology.
Apart from this, there are also legitimate permission-based blockchain apps that stem from needs other than hesitance and old-order authority. Ever since it was coined, the term “permissioned blockchain” has both seemingly answered many enterprise concerns around privacy of data while also becoming a source of potential confusion.
There are several key differences between the two types of construct, yet both are essentially a blockchain network type that delivers the same decentralized benefits to its users. Understanding permissioned and permissionless blockchains will allow companies and others to correctly apply the right approach to their affairs.
Blockchain is also called distributed or decentralized ledger technology. A key component of its build is the employment of cryptographic protocols that ensure its secure nature. The whole network is resistant to corruption and fraudulent behavior, boasts phenomenal security benefits and is also managed via network consensus. Instead of working through a central vault or policeman, users can exchange data on a P2P basis, while security is enhanced, not diminished.
As a complete construct, blockchain manifests a shift in human trust between parties, eliminating this through its cryptographic security protocols. All participants on the chain can access the same information, visible to all, producing the most transparent ledger imaginable.
That the technology has huge and massively beneficial to a host of industries is already beyond dispute, based on recorded use cases. Shipping and logistics overall, healthcare and governance, insurance, retail and fintech players are all aware of the potential benefits of blockchain.
Blockchain technology is currently undergoing a second-step development, with developers looking for next-level application, beyond the obvious enhancements the technology brings. Much will depend on the organic adoption of the technology, in order that diverse applications hitherto unimaginable begin to emerge.
Greater trust and efficiency between B2B parties, alongside crystal clear and immediately accessible data are two major business benefits blockchain offers. In the era of the emerging IoT, especially in light of the advances in the fields of AI and automation, blockchain seems poised to become the default technology employed across the globe.
Different Blockchain Types
One universal blockchain couldn’t hope to service every entities needs, not without corrupting the very efficiencies it offers. Hence the emergence of diverse blockchain projects, with public projects pitching public blockchain offers and businesses often building in-house projects of their on.
Bank of America has over 25 blockchain patents already, and many fintech and other companies are developing blockchain apps for their own or future needs. With the creation of so many blockchains, finer protocols may differ, but the essence of the architecture is identical across the board. Within this realm, the two distinct entities of permissioned (private) and permissionless (public) chains have identified.
Permissionless, Public Blockchains
A permissionless blockchain network is typified in Bitcoin and even Ethereum. These are both cryptocurrency projects, but are decidedly public and facilitate and depend upon user adoption. These networks equip each user with a personal address and the ability to transact on the network. Users can also opt into nodes where mining (verification) is enacted. This sees them thus adding to the ledger’s entries, while also gleaning modest incentives in so doing.
In the case of the digital currency ethereum, its blockchain network runs on a system of smart contracts, basically pre-built and automated ”contracts” that secure transactions. These contracts self-execute under certain very specific criteria that cannot be substituted. Ethereum is a good example of a permissionless blockchain, as any party can develop on the project and add to the decentralized ledger.
Bitcoin “mining,” on the other hand, asks users to solve complex mathematical equations that give rise to validated results on the chain. Again an eminently public blockchain, any party is free to engage and perform on the network. Users on Bitcoin are also rewarded with BTC for validating transactions.
In addition, permissionless blockchain models are fundamentally decentralized. In other words, the category of central authority or ultimate gatekeeper is eliminated. No one can tweak protocols, aid or deny access, nor fiddle with any embedded information on the chain. Another interesting aspect of these chains – and one seen in the numerous “forks” of chains over the years – is the presence of consensus protocols. Basically what this means is that, provided 50 percent + 1 of users consent, any protocol or aspect of the chain can be altered.
Digital asset creation would be unthinkable without permissionless blockchains like Ethereum and Bitcoin. Without the inbuilt incentive that pays users to validate transactions, the coins would struggle to find themselves where they now sit – first and second digital assets in a growing asset class. They have generated a financial system on their blockchains, one that is spreading to the world. Not all public chains are cryptocurrencies, although value is intrinsic, even to utility tokens.
The final most noteworthy aspect of public blockchains is their anonymity. An aspect that has legislators up in arms a while back, the cloak of anonymity is pronounced with digital tokens. Typically, no user has to divulge extensive personal details to partake in the blockchain network. Even though Bitcoin, for example, can be argued to not truly be anonymous, as users keys theoretically provide potential identification, anonymity is typically pronounced on public blockchains.
Permissioned, Private Blockchains
Unlike public blockchains, permissioned blockchains are closed ecosystems. No random user may join in the network without being granted access. No one unless a participant by nomination can transact or validate transactions on these chains. Permissioned blockchains are the potential darling of banks and others, granting the benefits of blockchain as they do, yet remaining governed by central authority.
Although anathema to blockchain purists, as they see in this emergence the possibility of blockchain becoming just another co-opted technology, run by big business, private chains are often first choice for highly centralized organizations. A private blockchain allows the user to leverage the efficiencies and cost-savings of decentralized technology, yet maintain ultimate authority and privacy within the organization.
Hybrids also exist, and an example of an at least semi-permissioned blockchain is Ripple, out of Ripple Labs. Private blockchains are typically run as per a usual hierarchy, with specific company members governing admission and behavior on the chain, according to old order rank. As per the traditional office, only people duly approved entities are able to run nodes on a closed network, thus validating transactions and building the chain’s blocks.
Other attributes of permissioned blockchains are that, as with Ripple, a variable extent of decentralization is possible with permissioned blockchains. They are also free to choose the consensus algorithm applicable to the network, although at some point everyone comes up against authority and rank that enables. Because of the top-down legacy model, private chains are often a sad balance between the benefits and savings and the maintenance of control. The scenario typically presents as very much the same old company hierarchy, where most of the benefits are in effect lost, notably the cost-savings.
Although private blockchains are by nature unaccountable to outside entities beyond usual business fiduciary duties, transparency takes the form of whatever is necessary to enable the business’ aims. Certain data will be visible to all, as entry-level data typically is in any company, but authority is granted to perform more sensitive tasks like validating transactions.
Anonymity on a private blockchain is a moot point, unlike on public blockchains. It is again an aspect of the technology that is negligible in a private network where most players are fellow employees.
Private chains are currently mostly about data handling, and unlike with public chains, there is no real prospect of generating an internal currency. Also, no one therefore has to monitor spending or trading activities, or at least validate them. Users validate data entries and employ the chain’s structure to enable their own business. Consensus-based protocols are also negligible on private chains, as the company hierarchy is simply transferred to the blockchain build.
It cannot be denied that private chains suit their creators’ aims better than any public chain could hope to. Protocols can be less strict and far more lax on private chains, with a far greater ability to focus on the core aims of any company, whilst employing blockchain technology and gleaning the benefits in so doing.