Permissioned vs. permissionless blockchains explained

Not every blockchain is built the same. In fact, depending on how they are used, some blockchains are very different to others in how they operate and who can use them. There are two main types — permissioned and permissionless — which allow both decentralized and more traditional centralized entities to take advantage of blockchain technology.

In this AAG Academy guide, we’ll explain the difference between the two, cover their pros and cons, and look at how permissioned and permissionless blockchains are most commonly used.

What are the characteristics of a permissioned blockchain?

The key characteristic of a permissioned blockchain is that it can only be accessed by those with authorization. Permissioned blockchains are closed to the general public and contain an additional level of security that ensures unauthorized users are locked out. They can also offer different privilege levels, so even those who do have access cannot perform certain actions.

For instance, authorized users may be able to view the ledger, but only a handful may be able to make changes to it. You can think of it like a computer issued to an employee by a corporation. It may be possible to use the applications installed on it, but most employees do not have the necessary privileges to install new applications or remove its existing software.

Permissioned blockchains are therefore used by organizations that need full control over who has access. They allow for users to be added and removed as necessary, and use digital verification or certificates to keep everyone else out. This allows traditional corporations to take advantage of blockchain technology without exposing all of their confidential data.

What are the characteristics of a permissionless blockchain?

Although use of permissioned blockchains is rising, permissionless blockchains are still much more popular. These are the kinds of blockchains that we’re all familiar with, and they are essentially the complete opposite. Permissionless blockchains are open to anyone who wants to use them and participate in maintaining them, and there are no restrictions or controls.

This also means that permissionless blockchains are completely transparent. Anyone can see their ledgers and examine their data, such as cryptocurrency transactions or smart contracts. What’s more, they provide a level of anonymity — though not complete anonymity — because there is no need for every user to be identified and approved.

Pros and cons of permissioned blockchains

One of the biggest advantages of permissioned blockchains, as we touched on above, is that they are not open to anyone. Users must be approved and verified before they can gain access to the blockchain. This makes them ideal for centralized organizations and more traditional corporations who want to use blockchain technology without compromising privacy and security.

In much the same way an administrator can control access to an organization’s internal network, the same can be done with a permissioned blockchain. What’s more, different permissions can be provided to different users, giving some a greater level of freedom or ability than others. For example, all may be able to view the ledger, but only a small few can change it.

One of the biggest disadvantages of permissioned blockchains is that they have a significantly smaller number of users. This makes it much easier for those who do have access to the blockchain to override consensus and corrupt or take control of the network if they wanted to. Furthermore, these blockchains cannot offer anonymity because every user must be identified.

Pros and cons of permissionless blockchains

Some of the biggest benefits of permissionless blockchains include decentralization and transparency. These allow projects and organizations to operate without a single entity in control, and anyone can see exactly how they work and the data that they contain. This is what makes permissionless blockchains ideal for cryptocurrencies.

Permissionless blockchains also have a significantly larger number of users, which not only improves network performance and reliability, but also makes it incredibly difficult for bad actors to cause disruption or take control. To corrupt any blockchain network, attackers need consensus, or at least 51% of the control. That gets more and more difficult as a network grows.

One of the big downsides to permissionless blockchains is that they are limited in their privacy. While users have a level of anonymity, advancing blockchain forensic techniques are making it easier to link wallet addresses to real people. And once you know someone’s wallet address, you can find every transaction that they have ever been a part of.

Larger permissionless blockchains also have a problem with scalability. As the number of users grows, it becomes harder and harder for the network itself to keep up with demand, which usually leads to a decrease in performance and an increase in network fees. Those using the proof-of-work (PoW) consensus mechanism are also incredibly power hungry.

Permissioned vs. permissionless blockchain use cases

Because permissioned and permissionless blockchains are built differently, they tend to have very different use cases. Permissioned blockchains are usually employed by more traditional, centralized organizations that have to maintain the privacy of their data. IBM and Oracle now offer their own blockchain technologies to serve these needs.

Common use cases include managing supply chains and distribution networks, creating contracts, verifying payments between parties, and identifying users.

Permissionless blockchains are most commonly used within the cryptocurrency and decentralized finance industries, which rely on decentralization and do not require the same level of privacy. They have also been used for trading digital assets, including NFTs, and for things like crowdfunding and donation platforms.

Permissionless cryptocurrency and DeFi protocols

Almost all of the cryptocurrency and decentralized finance (DeFi) protocols in use today are powered by permissionless blockchains. This includes the likes of Bitcoin, Ethereum, and Tether, as well as Aave, Compound, Uniswap, and PancakeSwap. This means that anyone with a compatible device and an internet connection can access and use them.

In fact, this is one of the easiest ways to tell if the blockchain you want to use is permissioned or permissionless. If you can access it without having to prove who you are or provide any kind of identifying information, then it is permissionless. However, if you do have to go through identity and “know your customer” (KYC) checks, it is likely permissioned.

References

• Permissioned blockchain vs permissionless blockchain key differences
• Permissioned and permissionless blockchains a comprehensive guide
• Quorum blockchain service
• Permissioned blockchain
• What is permissionless crypto permissionlessness blockchain