What are Permissioned Blockchains: Definition, Use Cases and Examples

What is a permissioned blockchain?

A permissioned blockchain is a type of distributed ledger that requires ‘permission’ to access and is not open to the public. This layer of access control and security allows only permissioned users to perform actions that have been set by the ledger administrators, while also having to identify themselves digitally or through certificates. Such a blockchain maintains records of everyone involved in the transactions that occur on it.

Key features of permissioned blockchains

  • No defined decentralisation
  • Has a centralised authority
  • Invitation to join necessary
  • Lack of anonymity
  • Scalability is manageable

How does the consensus algorithm in permissioned blockchains work?

Owing to the structure of permissioned blockchains, the consensus protocol, or the method to verify whether a transaction is accurate or not, is different from that of permissionless blockchains. Some of the most commonly used consensus algorithms in most organisations are Practical Byzantine Fault Tolerance (PBFT), federated and round-robin consensus. Let’s take a closer look at the 3 consensus algorithms:

Practical Byzantine Fault Tolerance (PBFT) consensus: In the PBFT consensus model, the network’s safety is guaranteed as long as a certain minimum percentage of nodes behave honestly and work properly. This type of consensus protocol is particularly used in digital asset backed platforms where the number of transactions is large but the capacity required is minimal.

Federated consensus: In the case of a federated consensus model, each node in the blockchain network has a trusted set of signers or validators who help them reach a consensus. Once a minimum number of signers validate the transaction a consensus is reached. Through this model transparency, and security is guaranteed which makes it an attractive protocol for cross-border remittance and real-time KYC.

Advantages of permissioned blockchains

  • Security

A big benefit of a permissioned blockchains is the level of security it guarantees. In these blockchains, the trade-off for security is that there is no radical decentralisation which ensures no one can participate on the blockchain without being authenticated and having the necessary permissions.

  • Flexibility of Decentralisation

Permissioned blockchains have the advantage of being incremental or fully centralised, giving organisations the flexibility and freedom to participate without bearing the risks associated with high levels of centralisation.

  • Performance

These blockchain networks work faster since they have limited accessibility. With fewer nodes in the network performance and scalability are improved.

Disadvantages of permissioned blockchains

  • Risk of Corruption

Since a permissioned blockchain only allows a specific set of authenticated users, security is said to be tight. However, with the chain allowing only a permissioned set of users there can also be a risk of overriding consensus by the private group and network operators. After all, the network can only be as safe as the integrity of its users.

  • Regulation and censorship

Being a permissioned network these blockchains fall under the purview of regulators. This means that permissioned blockchains can be regulated or censored and a transaction can be restricted from being executed.

  • Vulnerable to attacks

The consensus protocol in a permissioned blockchain has fewer validators which makes the network more prone to malicious attacks.

3 ways in which permissioned blockchains are different from permissionless blockchains networks

There are two primary types of blockchain: permissioness and permissioned blockchains. The two primarily differ on particular criteria, making each suitable for certain situations but unsuitable for another. Here are 3 main differences between permissioned and permissionless blockchains explained briefly:

  • Enterprise vs Public use

Permissionless blockchains are structured in a way to allow anyone to participate in its network as a node or miner on the chain. Bitcoin could be a perfect example of this network where anyone can join and amend blocks.

On the other hand, a permissioned blockchain imposes certain restrictions on access and has become popular among organisations and enterprises that require security, identification and defined roles in their blockchain network.

  • Decentralisation

Another key point of difference is the extent of decentralisation that each type of blockchain allows. In the case of permissionless blockchains, they’re built on the fundamental idea that anyone can join the network, making the network highly decentralised. On the other hand, permissioned blockchains, which are primarily used by enterprises and organisations call for certain levels of centralisation and can either be fully centralised or partially decentralised. 

  • Development

Permissionless blockchains are generally open source, allowing users to build, develop and upgrade them. In the case of permissioned blockchains, the power to develop the network is proprietary and is restricted to the developers or company that is using them.

What are permissioned blockchains used for?

Based on the architecture of permissioned blockchains, there are several industry use cases where they have been successfully applied. These are primarily in the context of ‘B2B’, ‘B2C’ and ‘government to organisations’ setups. The key feature of restricted access on permissioned blockchains has made it a popular option for supply chain management, claim handling, payment verification between parties, and identity verification as well.

Examples of permissioned blockchains

  • Hyperledger Fabric

This blockchain is a permissioned blockchain network that is also open source. It was created in 2015 by the Linux Foundation. Its characteristics make it suitable for a variety of applications like supply chain management, trade finance and clearing and settlement of financial assets.

  • Quorum

This blockchain platform is a permissioned network that was designed for commercial use cases with a primary focus on the financial services industry’s enterprises and organisations.

  • Corda

This particular permissioned and highly secure blockchain network is ideal for financial markets.

When are permissioned blockchains suitable to use?

When privacy is quintessential in business and government settings permissioned blockchain technology should be the ideal choice. Though permissionless blockchains are widely adopted and are the only type of blockchains you may have encountered as a crypto investor, understanding how permissioned blockchains have carved a niche for themselves is essential too. These networks may not follow the traditional characteristics of distributed ledger technology that is primarily public and decentralised, but several businesses now look to permissioned blockchains as the key network to build projects.

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