Understanding the Divergences in Permissioned and Permissionless Blockchains

In recent times, blockchain technology has surged in prominence, with various projects being launched by both private companies and public sectors.

Yet, as a burgeoning technology, there's substantial confusion in the market about what sets permissioned networks apart from permissionless ones.

This article aims to demystify blockchain technology and clear up the misconceptions between these two paradigms, ultimately guiding readers in selecting the ideal approach for their blockchain initiatives.

Quick Facts

Blockchain Technology

Blockchain technology became a market phenomenon following Bitcoin's debut, forming the backbone that brings promise and intrigue to digital currencies.

To put it more clearly, a blockchain is essentially a distributed ledger that employs cryptographic protocols, resists tampering, ensures robust security, functions through network agreement, and facilitates peer-to-peer data transfer and storage.

In simpler terms, blockchain technology enables the exchange of data, assets, or value between parties without the need for an intermediary.

As such, it establishes a trust paradigm previously nonexistent for transactions, as all network participants can access uniform information via the ledger, allowing for straightforward verification and authentication of past exchanges.

From a technical angle, the potential intrinsic in the technology may seem abstract, as overly technical explanations often miss capturing its transformative capabilities.

Ongoing research continues to explore this potential, with industry consensus acknowledging blockchain's substantial impact across various sectors.

• banking
• logistics
• finance
• health
• managerial decision making
• supply chain management
• food safety
• insurance
• sales
• stock markets
• gambling
• governance
• and many more.

In B2B settings, blockchain networks amplify trust levels between parties and grant immediate access to verified, crucial data, thanks to their ability to chronologically record all transactions.

Looking to the future, blockchain technology is poised to revolutionize B2B and consumer transactions and processes, particularly with the advent of other technologies like automation, AI, IoT, and machine learning.

Read: What is Blockchain Governance?

Blockchain Types

No single universal blockchain network can cater to all industries due to the diverse requirements of disparate businesses and users.

This reality has spurred the formation of numerous blockchain networks, each with customized protocols while retaining common foundational principles.

Though the market hosts a myriad of blockchain networks today, there are essentially two primary types: public (permissionless) and private (permissioned) blockchains.

Open or Public Blockchains: A New Era

Public blockchain networks power the majority of the market’s cryptocurrencies, enabling every user to create a personal address, engage with the network, and add transactions to the ledger.

Moreover, users have the option to either operate a node or engage in mining protocols to assist in transaction verification.

In the case of Bitcoin Mining involves solving complex mathematical problems to validate transactions recorded on the network, and everyone has the freedom to download the bitcoin blockchain. begin mining operations In return, miners receive fees and block rewards.

Additionally, certain digital currencies like Ethereum support smart contracts, which are self-executing transactions triggered upon meeting specific conditions. Ethereum Since Ethereum is also based on a public blockchain, anyone can develop and implement smart contracts, unrestricted by developers.

Beyond the open participation model, public blockchains exhibit additional characteristics, including:

Decentralization: public networks are inherently decentralized, meaning no central entity may alter the ledger, halt network activity, or modify protocols. Typically, public networks operate on consensus protocols, implying that changes require majority user agreement.

• Digital Assets: another feature is the network's embedded financial ecosystem. Public networks often include a user-incentivizing token, its value contingent on the relevancy and state of its respective blockchain. Public blockchains currently utilize either currency tokens or utility tokens based on their purpose.
• Anonymity: due to blockchain operational principles, anonymity remains a pertinent factor in the industry. Public networks generally forgo requiring user personal information for address creation or transaction submission. However, personal data might be necessary for legal considerations; Bitcoin doesn’t guarantee complete anonymity since user identity may indirectly correlate with their associated addresses.
• Transparency: blockchain networks are designed to be inherently transparent, compelling user trust through open access to all but sensitive key information—encompassing addresses, transaction processing, and the full transaction history available to the network.
• Permissioned blockchains function as closed environments wherein user access is regulated, history is not publicly available, and independent transaction issuance is restricted, catering to centralized organizations seeking network leverage for their own business operations.

Closed or Private Blockchains: A Tailored Approach

Business consortiums may also employ private blockchains to ensure secure transactions and information sharing among themselves.

In such setups, private blockchains are governed by specific entities within organizations or consortiums, necessitating participation confirmation for network creation.

XRP is one example of a semi-permissioned blockchain , run by Ripple Labs.

Read: Our Guide to Ripple

Only authorized individuals or computers have the capability of running network nodes, validating transaction blocks, issuing transactions, executing smart contracts, or viewing the transaction history.

Key features of permissioned blockchains involve:

Varying Levels of Decentralization: network members may negotiate a suitable degree of decentralization. It's acceptable for private blockchains to be fully centralized or somewhat decentralized, necessitating central control due to business management requirements. Additionally, they can choose from various consensus algorithms, but governance models hold greater precedence, as power distribution among members isn't even. This practice results in tiered membership levels, enabling individuals to perform tasks pertinent to their roles.

• Transparency & Anonymity: private blockchains aren't inherently transparent, yet they can opt to be based on internal business structures. At a central level, privacy is non-essential and is determined on a case-by-case basis. Most private blockchains log extensive information on user transactions and operations without requiring internal economies, hence omitting token tracking needs.
• Governance: within permissioned blockchains, governance structures are dictated by the business network's members—diverse dynamics influence central-level decision-making, removing the need for consensus-based systems demanding universal network agreement.
• Considering what's been discussed, public blockchains offer open user accessibility and rigid protocols.

Conclusion

Conversely, private blockchains are tailored for business contexts, allowing centralized authorities or consortiums to dictate network creation, protocols, and user capabilities.

Daniel Dob is an author and digital currency journalist with over seven years of writing expertise covering themes like cryptocurrencies, business, fintech, internet marketing, and finance. When not writing, he enjoys reading, traveling, or deepening his engagement with personal hobbies. Reach out at [email protected]

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