From increased storage to immutability and top-notch security, there are multiple reasons for tapping into blockchain technology. However, these networks come in different versions. So, what factors would you consider when deciding between permissioned and permissionless blockchains? How to differentiate permissioned vs permissionless blockchains? Here’s an article to help you figure things out.

Overview

Permissioned Vs Permissionless Blockchain

Blockchain technology has opened many opportunities, such as enhanced transparency and confidentiality for individual or organizational information and transactions. A blockchain is an autonomous peer-to-peer network that uses Distributed Ledger Technology (DLT) to record transactions and store data. 

Typically, DLT connects multiple devices in a network, uses their resources to create massive storage, and generates consensus algorithms to validate the transactions between these devices. Despite this general blockchain structure, blockchain networks have different infrastructures designed for varying apps, resulting in multiple blockchain types. 

The most popular blockchain types are permissioned and permissionless blockchains. Permissioned blockchains are networks that aren’t accessible to the public. To gain access to these chains, users need authorization and authentication. On the other hand, a permissionless blockchain allows anyone with internet access to create an account and use its services

Understanding the key difference between permissioned and permissionless chains is essential in selecting a network that meets your needs. When you can distinguish a permissioned blockchain from a permissionless one, you are better equipped to understand which will deliver better security, accessibility, and throughput for the industry you have in mind. It can also help to plan for cost implications and the scalability of your network resources.

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Permissioned Blockchains Explained

Illustration Of Permissioned Blockchains

A permissioned chain is a publicly inaccessible blockchain ledger. By default, this network is designed to grant access to a select number of users who must submit digitized certificates to gain access.

Such blockchains have an access control layer and ledger administrators regulating permissions on the ledger. Users typically have defined login credentials and roles. They also have restrictions on the type of information they can access and how they can manipulate it. 

At their core, permissioned blockchains are crafted to deliver the benefits of DLTs while maintaining a high level of centralization. Their infrastructure also makes them more secure from external threats and security breaches. 

Characteristics of Permissioned Blockchains

When defining a permissioned blockchain, you will identify several characteristics. Here are the most well-defined traits of this type of network. 

Access Control Layer

The access control layer is the leading characteristic that defines a permissioned chain. These chains are designed with an extra security layer that strictly assigns different permissions to different users. Because of it, only authorized users can enter a permissioned network.

Even with entry permission, the layer limits users based on their roles. If the user’s role only allows them to access certain information on the chains, that is all they can see. All the other content on the chain will be inaccessible unless it receives authorization from the ledger administrator.

Less Transparency 

A permissioned chain aims for privacy. This makes such networks less transparent. Permissioned chain owners can restrict the information that their users can read or manipulate. Similarly, permissioned chains limit access to transaction records and the identities of the individuals who ran the transactions to users with special permissions. 

Consensus mechanisms

The other key characteristic is that permissioned chains have different consensus algorithms. Specifically, these networks use Practical Byzantine Fault Tolerance (PBFT), Federated Byzantine Consensus (FBC), or round-robin consensus mechanisms to verify the network’s information and transactions. Let’s break down each of these.

  • Practical Byzantine Fault Tolerance: This consensus mechanism assumes that not all nodes in a network are trustworthy. Therefore, it sets a certain percentage of nodes that must be trustworthy for verification to occur. When the ratio is met, validation occurs.
  • Federated Byzantine Consensus: FBC assigned validators to each node. Every node trusts its validators to execute the best judgment. A validator typically receives transactions, sorts them out, and analyzes their legitimacy. Once a minimum per-defined number of validators reach a consensus, the transaction is verified. 
  • Round-robin: With Round-robin consensus, random nodes are selected to validate transactions. All selected nodes must present the same validation outcome for a transaction to be valid. After this, the nodes take a cooling-off period before eligibility for the new cycle.

Advantages and Disadvantages of Permissioned Blockchains

Permissioned blockchains have multiple advantages, but they also have their drawbacks. Let’s discuss the pros and cons of these highly-regulated blockchains.

Pros

  • Efficient performance: Permissioned chains require fewer nodes on their network because of the nature of their consensus validation. So this reduces the computations required per transaction, making them more efficient..
  • Proper governance structure: Because of their central authority, permissioned chains have a clear governance structure. The network’s administrators develop a hierarchical system that makes updating and implementing changes and effect rules on the chain easier.
  • Cost-Effective: Permissioned blockchains are highly cost-effective. They require few nodes, reducing operational costs. They also have a limited number of users, scaling down the infrastructure requirements and reducing costs.

Cons

  • Centralization: This is the greatest challenge experienced by every permissioned blockchain. Although these chains offer the benefits of a decentralized ledger technology, they are only partially decentralized. Only a few individuals have access to all the essential features. These individuals or groups can decide to run the chain as they deem fit, negating blockchain technology’s decentralized aspects.
  • Susceptibility to censorship: Since a permissioned network is privately regulated, there is much human influence on the chain’s performance. Permissioned blockchains increase the likelihood of administrators withholding necessary information from users or micromanaging transactions in their favor.
  • Compromised security: Although these blockchains are often safe from external attacks, their integrity relies heavily on the integrity of their administrators. It is straightforward for administrators or private entities on these private networks to compromise security or manipulate the data in the blockchain. Therefore, this drastically compromises the protection of the chain.

Use Cases of Permissioned Blockchains

There are numerous use cases for permissioned chains. These chains are highly efficient in sectors with substantial data volumes and sensitive information that must be restricted to public access. Below are some of the industries where permissioned chains would thrive most. 

  • Supply chains: For storing data on circulating and stored goods or available services
  • Banking and financial transactions: To store customer transaction data and verify transactions.
  • Manufacturing: For documenting manufacturing processes, ingredients, and workflows.
  • Healthcare and Life Sciences: To store patient medical records and health research data.
  • Consumer packaged goods: For maintaining inventory

Permissionless Blockchains Explained

Permissionless Blockchains Illustration

Permissionless blockchains are publicly accessible digital ledgers that allow users access to information and on-chain transactions without permission. Similar to permissioned chains, permissionless networks also operate on distributed ledger technology. However, the permissionless model is less restrictive, and their framework is designed to allow anyone to participate in validation and transactions.

In a permissionless blockchain, users typically create a personal address which can be usernames or account profiles attached to email addresses. They then use these accounts or profiles to interact with the network as a blockchain. There are several popular permissionless chains, including Bitcoin, Ethereum, Polygon, Solana, and Avalanche. On these networks, practically everyone can join, send or receive transactions, store information, run a node, contribute to the chain, or participate in consensus mechanisms. 

Characteristics of Permissionless Blockchains

Permissionless chains have some interesting characteristics. Here is the list of highlighted characteristics that we explored:

Open source: This means that the chain’s nodes and features are documented or recorded as publicly accessible information. They also allow developers to study their characteristics and develop compatible open-source software like crypto wallets, NFTs, and other DeFi resources, such as digital asset exchanges. 

Anonymity: Permissionless blockchains only demand a little user data because they have no identity verification or access control layers. It enables users to transact while remaining anonymous. Occasionally, these chains enforce verification procedures like Know Your Customer (KYC) and Anti Money Laundering (AML). However, these processes only limit the ability to transact on the network. They do not affect the blockchain’s anonymity.

Immutability: Data stored on permissionless chains is immutable, which means it cannot be altered or deleted. Also, these blockchains are tamper-proof, providing long-term capacity to retrieve and verify the information or any associated activity.

Advantages and Disadvantages of Permissionless Blockchains

Pros

  • Decentralization: This is one of the most outstanding benefits of permissionless chains. These networks are completely free from human manipulation. All activities are managed through smart contracts. Smart contracts are digitally encoded agreements that define the process and outcomes of transacting on a network. This complete decentralization of permissionless chains makes them highly trustworthy.
  • Censorship Resistance: Because of their decentralized nature, permissionless chains are censorship-free. These chains are tamper-proof; all their nodes see each other’s transactions and avail their information to public users, ensuring nothing is concealed or manipulated. 
  • Ease of use: Permissionless chains are impressively user-friendly. They do not have rigorous authorization and authentication procedures. These chains are accessible from anywhere worldwide through the internet, providing sufficient documentation and resources to help the user navigate them.

Cons

  • Scalability: The fact that permissionless chains can provide access to nearly everyone means they need higher computing resources to sustain their networks. Thus, permissionless chains need more nodes; each node has a high power consumption for verifying transactions. The result is a network that is increasingly difficult to scale up.
  • Security: Allowing all traffic into a blockchain without authorization compromises the chain’s security. This is fairly common in permissionless blockchains, where hackers can easily access information and breach security protocols.

Use Cases of Permissionless Blockchains

Permissionless blockchains work well for industries that require high levels of decentralization. Below are some of the sectors where permissionless blockchains would thrive.

  • Donations and crowdfunding: To allow as many people to access the contribution feature and monitor the funds.
  • Trading of digital assets: For permitting as many users to acquire and trade digital assets.
  • Blockchain storage: As a storage layer for publicly accessible information.
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Permissioned vs Permissionless Blockchains: Comparison

Permissioned and permissionless blockchains are comparable in multiple aspects. The table below summarizes the key comparison points between these two networks.

CharacteristicsPermissionedPermissionless
Accessibility and privacyAuthorized accessibility and higher securityUnauthorized accessibility and lower security
Scalability and EfficiencyHigher scalability and higher efficiencyLower scalability and Lower efficiency
Transaction speedHigherLower
Decentralization and trustlessnessLower decentralization and higher distrustHigher decentralization and more trustworthy.
TransparencyLowerHigher

Key Differences of Permissioned and Permissionless Blockchains

There are distinct differences between permissioned and permissionless chains. Below is a list of the most common differences between these two chains.

  • Accessibility and privacy: Permissioned chains limit access to authorized users while maintaining high privacy standards. On the other hand, permissionless blockchains grant accessibility to all interested users, making them publicly accessible chains.
  • Scalability and Efficiency: Running permissioned chains requires fewer nodes, translating to lower costs and ease of network growth. However, permissionless blockchains are resource and power intensive because of the number of users they support. This makes scaling them more complex.
  • Transaction speeds: Transaction speeds are higher on private blockchains. They have fewer users and faster consensus mechanisms. On the other hand, public blockchains have lower speeds because of their traffic and the number of computations needed for validating transactions.
  • Decentralization and trustlessness: Permissioned networks are more centralized and distrusted since a few individuals manage them. However, permissionless networks are fully decentralized, making them more trustworthy.
  • Full transparency: Because of the limited decentralization, permissioned chains have less transparency compared with permissionless chains where all information is publicly accessible

Similarities of Permissioned and Permissionless Blockchains

Despite the apparent differences, permissioned and permissionless blockchains also have a few similarities. Here is a list of the most common similarities between the two blockchain types.

  • Decentralization: Permissioned chains, like permissionless ones, run on DLT even though they have a centralization aspect. Running on DLT gives both chains the capabilities of decentralized networks.
  • Transaction speed per second (TPS): A permissionless network may be slower at processing transactions than a permissioned one, but both chains have impressive speeds. Solana, one of the fastest permissionless chains, can run 65,000 TPS.
  • Scalability: Since permissionless chains started using proof-of-stake consensus algorithms, they have drastically lowered the computational power needed to run transactions. This has made them almost as scalable as permissioned chains. Also, the existence of layer 2 networks that run on top layer 1 blockchain platforms helps boost their scalability.

How to Choose the Right Blockchain 

There are several factors to consider when choosing between permissioned and permissionless chains. Here are the top three considerations to make before settling on either blockchain.

  • Use Case: What do you want to use the blockchain for? Permissioned chains are the best option for industries that handle many private data and processes. In contrast, permissionless blockchains are more convenient for shared resources and publicly accessible information.
  • The number of users: Before deciding which blockchain to use, it’s crucial to consider the number of users accessing it. If you have a limited user base, permissioned blockchains will work. But if you want one that supports more people, permissionless chains are better.
  • Accessibility and Efficiency: When deciding between permissioned and permissionless chains, it’s also essential to consider the network’s efficiency and ease of access. Permissioned chains have more complex accessibility features but are highly efficient, while permissionless ones are easy to explore but less effective

Conclusion

Your blockchain needs are the key to selecting a blockchain type. When you require a blockchain with high-security standards, authorization protocols, high efficiency, a lower cost, and privacy, a permissioned blockchain will serve you perfectly.

However, suppose you require blockchain with minimal interference from private entities or a chain that supports a more extensive user base and has higher accessibility. In that case, you will benefit from a permissioned blockchain. But keep in mind that every blockchain type needs to be fixed. They all have shortcomings, so focus more on what they offer.

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