Permissioned versus Permissionless Blockchains

August 8, 2018

    

 

       “The banks and the corporations say, “Oh, bitcoin’s awesome. We want that. Only without the open,        decentralized, peer-to-peer, borderless, permissionless part. Could we instead have a closed,

      controlled, tame, identity-laden permission version of that please?”

 

      Excerpt from an interview with Andreas Antonopoulos (Bitcoin is the Sewer Rat of Currencies Feb

      17th, 2016)

 

 

What’s the difference between a permissioned and permissionless blockchain?

 

At the most basic level, a blockchain is simply a database which utilizes cryptography and multiple sources of validation to verify that which it records. For simplicity, we may define blockchain as a system in which a record of transactions is maintained across several or more computers that are linked in a peer-to-peer network. Distributed ledgers (blockchains) come in two flavors, permissioned and permissionless.

 

A permissioned blockchain restricts the parties who may participate in reaching consensus or validation of the chain. Therefore, in a permissioned (private) blockchain only a restricted and preselected group of users have the right to validate the block transactions. Many private blockchains for corporations and financial institutions follow this model.

 

Permissioned blockchains have the core advantage of restricting access to that which they record. Banks and corporations, for example, may wish to have dependable records of expenditures, but may not wish to share those records with their competitors or the general public. A second advantage of permissioned blockchains is that they may be secured without expensive and energy intensive Proof of Work (trustless)mining as Proof of Stake capital may simply be assigned to those known actors who are approved (trusted) to validate the network's transactions. Proof of Stake consensus models scale more readily as they don’t require ever increasing computational cycles (hashpower) facilitating more transactions per second and reach consensus faster than current mining based models.

 

In contrast, a permissionless or trustless blockchain (distributed ledger) allows anyone with the hardware to participate in the validation of the network. Essentially, anyone is free to become a node (a record keeper) and anyone (theoretically) can become a miner to service the network (process transactions) in search of a reward (cryptocurrency payment). Basically, anyone can read the chain and, or contribute to its security. Permissionless blockchains depend on Proof of Work mining to secure the network.

 

As a vast oversimplification, PoW is founded on a cryptographically demanding task which results in a cost in both time and resources (energy). PoW security scales efficiently as the greater the number of miners (hashpower) the greater the security of the network. Miners are incentivized to be honest actors as it is the very network they mine which rewards them with cryptocurrency payments. As anyone can participate in validating the blockchain, permissionless blockchains are censorship resistant as validator nodes are decentralized and therefore beyond the control of any single entity. The greater the number of nodes the greater the resilience of the blockchain. Bitcoin (BTC) is the most obvious example of a permissionless blockchain.

 

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