Permissionless blockchains are open to anyone to use. You can even participate in their consensus mechanisms, given that you meet specific requirements. Bitcoin, Ethereum, and BNB Chain are all examples of permissionless blockchains, which are typically transparent and decentralized.
Permissioned blockchains, on the other hand, require invitations to join. They’re typically used in private business settings and tailored for certain use cases. Power is restricted to a small group of validators who make most of the network decisions. Transparency can be limited, but network upgrade time and scalability are often greatly improved.
Have you ever considered the type of blockchain you're using beyond proof-of-work (PoW) versus proof-of-stake (PoS)? Each blockchain can actually be considered either permissioned or permissionless. Understanding these two categories can help you learn more about a blockchain's characteristics and how fluid they are.
What Are Permissioned and Permissionless Blockchains?
There is more than one type of blockchain. One of the most significant distinctions is whether a blockchain is permissioned or permissionless. You're most probably already familiar with the permissionless variety, where anyone can have a hand in using and running it. Network usage and joining the validation process are also open to anyone. Bitcoin, BNB Chain, and Ethereum are all examples of permissionless blockchains.
A permissioned blockchain requires participants to be granted permission to participate. These blockchains are typically used in private settings, such as within an organization or business. For example, a company may use the Hyperledger Fabric blockchain framework to create a permissioned blockchain for its supply chain system. Should you want to take part in the network, you’d need an admin to specifically grant you access.
Brief History and Background
Blockchain technology can be traced back to Satoshi Nakamoto's Bitcoin whitepaper. The technology presented in the whitepaper is a permissionless blockchain where unaligned users generate consensus. This permissionless trend has continued as Bitcoin's model has influenced multiple blockchain generations. The values and ethos of Bitcoin and its descendants are suited to public permissionless blockchains.
Blockchain’s characteristics have also proven attractive to private applications. Its immutability, transparency (in some aspects), and security have created a desire for blockchains that offer a more permissioned experience.
To fulfill this desire, blockchain developers have created permissioned frameworks or custom blockchains for third-party use. As previously mentioned, Hyperledger Fabric is one such framework. Quorum, MultiChain, and Ethereum Geth also provide private structures for enterprise needs.
The characteristics below don't always apply to every permissioned or permissionless blockchain. However, in general, you'll find most of them fit the archetypes presented.
Pros and Cons
Permissionless blockchains: Benefits
Decentralization potential. Not every permissionless blockchain is decentralized, but they typically have the potential to be highly decentralized. Anyone can participate in the consensus mechanism or use a permissionless network should they wish and have the resources to do so.
Group consensus. Users can actively participate in and decide on network changes. Validators and network users can also “vote with their feet”, and unpopular changes can lead to forked versions of a network.
Ease of access. Anyone can create a wallet and join a permissionless network as these networks are easily accessible and have relatively low barriers to entry.
Permissionless blockchain: Drawbacks
Scalability challenges. Permissionless blockchains must handle large user bases and high traffic volume. Network upgrades to improve scalability must pass group consensus to be implemented effectively.
Bad actors. Because anyone can join permissionless blockchains, there is always the risk of bad actors on such networks.
Excessive transparency. Most information on permissionless blockchains is free for anyone to view, leading to potential privacy and security concerns.
Permissioned blockchains: Benefits
Scalability. A permissioned blockchain is typically run by an entity with some degree of control over validators. Upgrades can therefore be implemented fairly easily.
Easy customization. A permissioned blockchain can be built for a specific purpose, making it efficient at a particular function. Should needs change, the blockchain can be easily customized.
Controlled degree of transparency. A permissioned blockchain operator can determine a suitable level of transparency for the network, depending on its use case.
Invitation-only entry. You can control exactly who can and can’t participate in the blockchain.
Permissioned blockchains: Drawbacks
Centralization. Power is likely controlled by a central entity or small group of validators chosen by the blockchain’s owner. This means that network decisions probably won’t include all stakeholders.
Vulnerability to attacks. Permissioned blockchains typically have fewer validators, making their consensus mechanism less resistant to attacks.
Censorship risk. Network collusion or updates introduced by the blockchain operator presents the risk of censorship. Should enough actors agree to do so, information on the blockchain could be altered.
Should I Use a Permissioned or Permissionless Blockchain?
The answer to this question is fairly simple. If you’re looking to create a service open to all, you need a permissionless blockchain. However, having a permissionless blockchain doesn’t mean you must follow the standard set of principles and goals. In fact, your chain could be centralized and permissionless at the same time. You could also include more elements of privacy should you wish.
If you’re looking to use a blockchain in a private environment, such as a business or government setting, a permissioned blockchain would be more suitable. Again, your blockchain doesn’t have to follow the usual characteristics associated with permissioned blockchains; it could be completely transparent and open for public view.
Even though you'll likely only encounter permissionless blockchains as a crypto investor or trader, understanding how they are different from permissioned blockchains is useful. It's easy to have a singular view of distributed ledger technology (DLT) that fits the transparent, public, and decentralized crypto model. However, these parameters can change — in fact, many private enterprises use permissioned blockchains that don't fit the conventional traits of such blockchains.