Summary

Anyone can use a permissionless blockchain. If you meet the specific requirements, you can even participate in their consensus mechanism. Bitcoin, Ethereum, and BNB Chain are all permissionless blockchains, which are typically characterized by transparency and decentralization.

Permissioned blockchains require an invitation to join. They are often used in private enterprises and are tailored for specific use cases. Power is held by a small number of validators who make most of the network’s decisions. Transparency may be compromised, but network update speeds and scalability are often significantly improved.

Introduction

Have you ever wondered what type of blockchain you are using? Beyond Proof of Work (PoW) and Proof of Stake (PoS), how else can blockchains be categorized? In fact, blockchains can be divided into permissioned and permissionless types. Understanding these two types can help you gain deeper insights into the characteristics of blockchains and their high liquidity.

What Are Permissioned and Permissionless Blockchains?

There is more than one type of blockchain. One of the most effective ways to distinguish between blockchain types is to determine whether a chain is permissioned or permissionless. You may already be familiar with permissionless blockchains, where anyone can participate in their use and operation, directly access the network, and join the validation process. Bitcoin, BNB Chain, and Ethereum are all permissionless blockchains.

On permissioned blockchains, users must obtain permission to join. Permissioned blockchains are often used in private settings, such as within an organization or enterprise. For example, a company might use the Hyperledger Fabric blockchain framework to create a permissioned blockchain for its supply chain system. If you want to join such a network, you need explicit approval from an administrator.

Brief History and Background

Blockchain technology dates back to the Bitcoin whitepaper by Satoshi Nakamoto. The blockchain technology described in the whitepaper was permissionless, where unaffiliated users reached consensus on the chain. Since Bitcoin’s model influenced generations of blockchains, the trend of permissionless blockchains continues. The values and ethos conveyed by Bitcoin and subsequent cryptocurrencies align perfectly with public, permissionless blockchains.

The characteristics of blockchains are also attractive for private applications. The immutability, transparency (in some aspects), and security of blockchains have led to the desire to create networks with stricter access controls.

To achieve this, blockchain developers created permissioned blockchain frameworks, and some have even customized blockchains for third parties. As mentioned earlier, Hyperledger Fabric is a permissioned blockchain framework. Quorum, MultiChain, and Ethereum Geth also provide permissioned blockchain frameworks for enterprises.

Pros and Cons

Advantages of Permissionless Blockchains

Potential for decentralization. Not all permissionless blockchains are decentralized, but they typically have a high potential for decentralization. Users can freely join the consensus mechanism or use the permissionless blockchain network within their capabilities.

Collective consensus. Users can actively participate and change network settings. Validators and network users have significant voting power, and disagreements over changes can lead to blockchain forks.

Easy accessibility. Permissionless blockchain networks are easy to access, with relatively low barriers to entry. Anyone can create a wallet and join.

Disadvantages of Permissionless Blockchains

Low scalability. Permissionless blockchains must handle large user bases and high traffic loads. Upgrading the network to improve scalability requires collective consensus to be effective.

Vulnerability to malicious attacks. Since anyone can join a permissionless blockchain, such networks are always at risk of malicious attacks.

Excessive transparency. Information on permissionless blockchains is often publicly accessible, leading to potential privacy and security issues.

Advantages of Permissioned Blockchains

High scalability. Permissioned blockchains are often operated by an entity that has some control over the validators, making network upgrades relatively easy.

Customizability. Permissioned blockchains can be created for specific goals, enabling efficient implementation of particular functions. Settings can also be easily modified if needed.

Moderated transparency. Operators of permissioned blockchains can adjust the network’s transparency based on the use case.

Invitation-only access. You can precisely control who joins the permissioned blockchain.

Disadvantages of Permissioned Blockchains

Centralization. Power may be held by a central entity or a small group of validators chosen by the blockchain owner, meaning decisions may not consider all stakeholders.

Vulnerability to attacks. Permissioned blockchains often have fewer validators, making their consensus mechanisms more susceptible to attacks.

Censorship risks. Collusion or updates by permissioned blockchain operators can lead to censorship risks. If enough participants agree, information on the blockchain can be altered.

Should I Choose a Permissioned or Permissionless Blockchain?

The answer is simple. If you want to create a network open to everyone, you should choose a permissionless blockchain. However, creating a permissionless blockchain doesn’t mean you have to follow standard principles and goals. In fact, your blockchain can be both centralized and permissionless. If you wish, you can also increase the privacy of a permissionless blockchain.

If you want to apply blockchain in a private setting, such as within a company or government, a permissioned blockchain is often more suitable. Similarly, the permissioned blockchain you create doesn’t have to conform to traditional features—it can be fully transparent and open.

Conclusion

As a cryptocurrency investor or trader, you may only interact with permissionless blockchains, but understanding the difference between permissionless and permissioned blockchains is beneficial. It’s easy to have a singular view of distributed ledger technology (DLT), assuming it should always be transparent, open, and decentralized like cryptocurrency models. However, these elements can be changed—in fact, many private enterprises have adopted permissioned blockchains that don’t conform to traditional norms.