Permissioned Blockchain vs. Permissionless Blockchain: Key Differences
In recent years, permissioned and permissionless blockchain networks have become a popular way of carrying out business operations and sending and receiving online payments. Both types of blockchain networks allow users to transfer digital assets securely, efficiently and without a third-party intermediary. As blockchain technology continues to evolve and become more widely adopted, understanding the differences between a permissioned and permissionless blockchain is critical.
In this article, we’ll take a closer look at the key features and differences between these two kinds of blockchain networks. By the end, you’ll have a strong understanding of the advantages and disadvantages of each, so that you can make the best decision for your business needs.
What Is a Blockchain?
Before we look at the differences between a permissioned and permissionless blockchain, let’s first take a look at what a blockchain is and how it works.
A blockchain is a distributed, decentralized ledger that records the transactions of digital assets between two or more users. It stores data in a shared, public database using cryptography, which makes it secure and tamper-proof. Each transaction is stored on a “block,” which is then added to the chain. Once added, a block cannot be removed or altered.
A blockchain works without a third-party intermediary, which means there are no middlemen or financial institutions involved in the process. It’s a highly efficient and secure way to carry out digital transactions.
What Is a Permissioned Blockchain?
A permissioned blockchain is a network where each participant is identified and access is permissioned. All transactions are certified by a consensus process, and participants must be authorized by a governing body or organization before they can access the network.
A permissioned blockchain has greater access control than a permissionless blockchain. This means that the activities within the network are more regulated, and only verified participants are allowed to join.
Advantages of a Permissioned Blockchain
There are many advantages to using a permissioned blockchain. The following are some of the most important:
• Greater privacy and security: Transactions on a permissioned blockchain are more secure, as only verified parties can access the network. This means that the risk of fraud is greatly reduced as each transaction is verified and validated.
• Higher speed: Permissioned blockchains are faster than permissionless ones, as they require fewer people to validate each transaction. This makes it ideal for businesses that need to carry out a large number of transactions quickly.
• Greater scalability: A permissioned blockchain can be easily scaled to meet the needs of a growing business. For example, a permissioned blockchain can be easily upgraded to support a larger number of users or a higher volume of transactions.
• Cost savings: Permissioned blockchains are more cost-efficient than permissionless ones, as they require fewer resources and fewer people to validate each transaction. This can lead to significant savings for businesses.
Disadvantages of a Permissioned Blockchain
While there are many advantages to a permissioned blockchain, there are also some drawbacks. The following are some of the potential drawbacks of a permissioned blockchain:
• Limited trust: As only verified participants can access the network, the level of trust among users is limited. This can be an issue for businesses that need to build trust with their customers or between their customers and their suppliers.
• Centralization: Permissioned blockchains are centralized, meaning that one governing body or organization has control over the network and users can’t add or remove blocks of data without permission. This can be a problem for businesses or organizations that value decentralization.
• Loss of anonymity: As permissioned blockchains are focused on verifying participants and users, they don’t offer the same level of anonymity as a permissionless blockchain. This is an issue for businesses that need to maintain user privacy.
What Is a Permissionless Blockchain?
A permissionless blockchain is a peer-to-peer network that anyone can join without needing to be authorized by a governing body or organization. All transactions within a permissionless blockchain must be verified and validated by consensus.
This type of blockchain works on a decentralised basis, where each participant has equal access to the network and can add or remove blocks of data without permission.
Advantages of a Permissionless Blockchain
There are several advantages to using a permissionless blockchain, including:
• Increased trust: Permissionless blockchains are more open and transparent, which means trust between users is increased. This is beneficial for businesses that need to build trust with their customers or between their customers and their suppliers.
• Decentralization: As all participants have equal access to the network, a permissionless blockchain is decentralized and trust is spread out among users. This is beneficial for businesses that value freedom and independence.
• Anonymity: As users can join a permissionless blockchain anonymously, users have more control over their data and can remain anonymous if needed. This is beneficial for businesses that need to protect user privacy.
• Cost savings: Permissionless blockchains are more cost-effective than permissioned blockchains, as they require fewer resources and fewer participants to validate each transaction.
Disadvantages of a Permissionless Blockchain
Although a permissionless blockchain offers many advantages, there are also a few potential drawbacks, including:
• Security: Permissionless blockchains are less secure than permissioned blockchains, as all participants must agree to add a block of data – which can lead to fraudulent or malicious activity.
• Lack of privacy: As anyone can join a permissionless blockchain without being verified, users’ data is more vulnerable to being stolen or misused. This is an issue for businesses that need to protect data privacy.
• Lower speed: Permissionless blockchains are slower than permissioned blockchains, as there are more participants involved in validating each transaction. This can be an issue for businesses that need to carry out a large number of transactions quickly.
• Scalability: As permissionless blockchains require everyone to agree on changes, it can be hard to scale them to meet the needs of a growing business.
As the adoption of blockchain technology increases, it’s important for companies to understand the differences between a permissioned and permissionless blockchain. Although both offer advantages, each has its own unique set of features and drawbacks.
A permissioned blockchain is more secure, faster and more cost-effective, while a permissionless blockchain offers greater trust, decentralization and anonymity. Ultimately, it’s important to understand what the different features of each type of blockchain can mean for your business, so that you can make the best decision for your needs.
