Introduction
Have you ever considered what type of blockchain you are using? Beyond Proof of Work (PoW) and Proof of Stake (PoS), how else can blockchains be classified? In fact, blockchains can be divided into permissioned and permissionless types. Understanding these two categories can help you gain deeper insights into the characteristics of blockchains and their liquidity.
What Are Permissioned and Permissionless Blockchains?
Blockchains do not exist in a singular form. One of the most effective ways to distinguish between types of blockchains is to determine whether the chain is permissioned or permissionless. You may be more familiar with permissionless blockchains, which allow anyone to participate and operate within them; users can directly utilize the network and take part in the validation process. Examples of permissionless blockchains include Bitcoin, BNB Chain, and Ethereum.
In contrast, permissioned blockchains require users to obtain permission to join. Permissioned blockchains are typically used in private scenarios, such as within an organization or enterprise. For instance, a company might use the Hyperledger Fabric blockchain framework to create a permissioned blockchain tailored for its supply chain system. To join this network, users must receive explicit permission from an administrator.
Historical Background
Blockchain technology can be traced back to the time when Satoshi Nakamoto published the Bitcoin whitepaper. The blockchain technology described in that whitepaper belongs to the category of permissionless blockchains, where users independently reach consensus on the chain. Due to the profound impact of the Bitcoin model on subsequent generations of blockchains, the trend of permissionless blockchains continues to thrive. The values and spirit conveyed by Bitcoin and its successor cryptocurrencies align perfectly with the principles of open permissionless blockchains.
At the same time, the characteristics of blockchain also make it attractive for private applications. The immutability, transparency (in certain aspects), and security of blockchain have prompted interest in establishing networks with restricted access.
To achieve this goal, blockchain developers created permissioned blockchain frameworks tailored for specific third parties. The aforementioned Hyperledger Fabric is one such permissioned blockchain framework, while others like Quorum, MultiChain, and Ethereum Geth also offer permissioned blockchain solutions for enterprises.
Advantages and Disadvantages
Decentralization Potential: While not all permissionless blockchains are fully decentralized, they generally possess a high potential for decentralization. Users can freely join the consensus mechanism or utilize the network.
Collective Consensus: Users can actively participate in and modify network settings. Validators and network users hold significant voting rights, and any changes that lead to disagreements may result in a fork of the blockchain.
Ease of Access: Permissionless blockchain networks have a low barrier to entry, allowing anyone to create a wallet and join.
Low Scalability: With a large user base and high traffic load, the scalability of permissionless blockchains is limited. Enhancing network performance must be achieved through collective consensus.
Malicious Attacks: Since anyone can join, permissionless blockchains are always at risk of malicious attacks.
Excessive Transparency: Many pieces of information on permissionless blockchains are publicly accessible, which may lead to privacy and security issues.
High Scalability: Permissioned blockchains are typically operated by an entity that has control over the validators, making network upgrades relatively straightforward.
Customizable: Permissioned blockchains can be tailored to meet specific needs, allowing for efficient implementation of particular functionalities and easy modification of settings.
Controlled Transparency: Operators can adjust the network's transparency based on actual use cases to meet requirements.
Invited Users Only: It is possible to precisely control which users can join a permissioned blockchain, ensuring the appropriateness of participants.
Centralization: Power may become concentrated in a central entity or a small number of validators chosen by the blockchain owner, leading to decisions that may not reflect the views of all stakeholders.
Vulnerability to Attacks: Since permissioned blockchains typically have fewer validators, their consensus mechanisms are more susceptible to attacks.
Censorship Risks: Operators may encounter censorship risks when updating the network, and if enough participants agree, information on the blockchain may be altered.
Should I Choose a Permissioned or Permissionless Blockchain?
The choice is relatively straightforward. If you want to create a network that is open to everyone, a permissionless blockchain is the more suitable option. However, creating a permissionless blockchain does not mean you must adhere to all standard principles and goals. In fact, your blockchain can exhibit both centralized and permissionless features, potentially enhancing privacy protection.
Conversely, if you plan to apply blockchain in a private context, such as within a corporation or government, a permissioned blockchain is usually more appropriate. Similarly, your permissioned blockchain does not have to fully conform to traditional permissioned chain characteristics, allowing for a degree of public transparency.
Conclusion
As an investor or trader in cryptocurrencies, you may primarily encounter permissionless blockchains, but understanding the differences between permissioned and permissionless blockchains is beneficial. People often have a singular view of distributed ledger technology (DLT), believing it should be transparent, public, and decentralized. However, these elements are mutable, and in reality, many private enterprises have adopted permissioned blockchains that do not conform to traditional norms.