Types of Blockchain: Permissioned & Permissionless

Blockchain is a distributed ledger technology that consists of a 

Peer-to-peer network of nodes and a growing list of records, called blocks, that are securely linked together using cryptography

This modern database can be used for a variety of purposes, including finance, technology, trade, authentication, and much more.

Different types of blockchains are used for different purposes and by different types of organizations. This article primarily describes the significance, function, and difference between Permissioned and Permissionless blockchains, which can be used for a variety of operations.

What is Permissionless Blockchain?

A permissionless blockchain is also referred to as a "public blockchain." In this type of blockchain, there are no restrictions on participation. Anyone can participate in the consensus and validate the data (transactions) on the blockchain. It can be viewed as a completely decentralized blockchain platform that connects unknown parties.

There is no administration or control over public blockchains. Thus, there are no administrators who allow users to participate or grant them the authority and rights to make changes. Anyone in the network can become a node or validator by simply performing tasks based on the consensus chosen by the blockchain. 

Proof-of-Work (POW) and Proof-of-Stake (POS) consensus mechanisms are commonly used in these types of networks. With these mechanisms in place, honest nodes are generally incentivized with native tokens. Examples of permissionless networks are Bitcoin and Ethereum.

Features of Permissionless Blockchain

• Decentralized: Permissionless blockchain is fully decentralized. A single authority or cooperation alone cannot be changed the ledger protocols. A majority of its users must typically agree on such a consensus to make any kind of changes.

• Transparency: Because Permissionless blockchain has no restrictions for users to join through an open network, users have complete transparency of transactions. This means that users or public nodes can see all the transactions, making the network transparent.

• Open-source Development: The platform is a completely open-source development, which means that it is developed by a community and can be changed and used by anyone.

• Anonymity: Permissionless Blockchain offers anonymity to its users. Anyone who joins the network can remain anonymous because no KYC is required to join or navigate the network. However, this does not imply complete anonymity; most of the time, blockchains' identities are pseudonymous.

• Trustless: Because it is accessible to anyone, permissionless blockchain lacks a central authority such as a cooperation or a bank. Strangers validate and authenticate each other's transactions on the network.

• Token Incentives: It also makes extensive use of tokens and digital assets as an incentive to participate. 

Advantages of Permissionless Blockchain

• Permissionless blockchain is a larger decentralized platform that allows more participants through the network. It can safely handle any number of users in the network.

• It provides a high level of transparency while also enabling the consensus process. Users can completely trust the network by having a complete view of transaction history and there is no ban or restriction on users.

• It encourages more user participation by having no restrictions and offering considerable token incentives for participation in the consensus. Users can simply earn money by validating other transactions in the network.

• This type of blockchain is highly secure as it is nearly impossible to corrupt the network because for attacking a network almost 51% of the network needs to be compromised, and corrupting such a large amount of data is nearly impossible.

Disadvantages of Permissionless Blockchain

• Permissionless blockchain offers less privacy as they are fully transparent and open to all. Anyone can easily participate and track transactions taking place which affects user privacy. The anonymity makes it difficult to identify bad actors or fraudsters.

• These blockchains have low performance and scalability. They execute very less amount of transactions per second and the transaction fee or gas fee is also high, which makes them less scalable.  

• Most of the public blockchains are not energy efficient because network-wide verification consumes a lot of resources as more users put a strain on computing resources.

Applications of Permissionless Blockchains

Permissionless systems have enabled a wide range of applications that can be accessed and used by anyone with an internet connection. Permissionlessness is a key component of blockchain protocols, Web 3.0, and Decentralized Finance (DeFi). It has several other applications, like voting and fundraising on a large scale.

What is Permissioned Blockchain?

Permissioned blockchain is also known as "private blockchain" due to its privacy. Permissioned blockchain offers a restriction on participation. It is only accessible to a few people who have been granted permission by the administrator. Users are given various types of permissions that allow them to perform specific actions. Also, anyone who is not authorized by the administrator will not be able to openly access the ledger.

The permissioned network is distributed across known participants. Administrators have complete control over the blockchain; users can be added or removed, and data can be accessed using digital verification or certificates. It differs significantly from a standard public blockchain due to restrictions on access. It provides an additional layer of security for blockchain and is ideal for people who need role definitions for specific individuals in blockchain with limited access. 

Permissioned blockchains usually differ from permissionless blockchains by using different consensus algorithms. Organizations that use permissioned blockchains typically employ models such as Practical Byzantine Fault Tolerance (PBFT), Proof-of-Authority (PoA), and Federated consensus algorithms. Examples of permissioned blockchains are Ripple, Hyperledeger and Multichain.

Features of Permissioned Blockchain

• Varying Decentralization: Permissioned blockchain can be fully centralized or partially decentralized. Administrators usually decide on the network's level of decentralization as well as a consensus algorithm to be employed in the network for selecting validators.

• Development by private entities: Permissioned blockchains are typically private and controlled by the developers or businesses that use them. The developer may choose to make a few select records involved in a transaction available for everyone to read.

• Track of operations: Permissioned blockchain provides transparency based on the organization's goals. It is pretty clear who made the changes and who was authorized to do so. Every action taken by the user is recorded and tracked.

• Managing access: Permissioned Blockchain has greatly benefited private entities or businesses by allowing them to handle data more securely. It has complete control over who has access to it and who is authorized to make changes.

• Lack of Anonymity: Private entities ask users to complete a KYC when they join the network. Also, only a limited number of users are permitted to make changes to the data, each change is associated with the user. As a result, the administrator is always aware of the changes and who made them.

Advantages of Permissioned Blockchain

• By using a permissioned blockchain, businesses can also avoid the risks associated with centralized models. It is a decentralized model which businesses can easily employ for a more smooth workflow. 

• Privacy is the focal point of Permissioned Blockchain. An outsider cannot access or change transaction information unless been verified or granted permission.

• It is more practical as it is easily customizable for various configurations. Businesses can easily choose configurations and integrations according to their needs.

• It provides more scalability and performance because only a few nodes handle transactions. 

Disadvantages of Permissioned Blockchain

• It is not truly decentralized due to the restriction on the participation of the network. Validation is done by a limited number of persons who are selected by a single entity or group. 

• There is a greater possibility of data corruption because there are fewer participants in the network. A person or group with network control has the ability to alter data for their own benefit.

• There is less transparency because the number of participants is limited and is controlled by a private group. Network operators can easily change the consensus rules.

Applications of Permissioned Blockchains

Private blockchains are quickly emerging as a potential replacement for traditional databases. Businesses employ it to securely record transactions and share crucial information among themselves. They are generally used to manage supply chains, determine asset ownership, verify payments between parties, and much more.

What are the differences between Permissionless and Permissioned Blockchains?

Conclusion

Both permissioned and permissionless blockchains can be used for a variety of applications. It is uncertain to say that one model is superior to another. While permissioned blockchain is designed for private entities and businesses to manage their data and operations, permissionless blockchain is designed for more and more people to join, contribute, and add value, pushing the mainstream adoption of cryptocurrencies and Web 3.0.

The first permissionless blockchain Bitcoin was created to revolutionize digital payments, and then many permissionless blockchains followed in its footsteps, making crypto payments increasingly popular. The industry later recognized the potential of the blockchain technology that underpins cryptocurrencies. Then, permissioned blockchains were developed to make traditional blockchain technology more practical by making blockchains customizable based on the use cases preferred by organizations.