Blockchain and distributed ledger technology (DLTs), among other emerging technologies, have accelerated due to the upheavals of the previous year. Even though DLTs have been present for more than ten years, businesses now face a newfound urgency to decide whether, when, and how to adopt blockchain applications due to the convergence of recent technological breakthroughs with economic and societal dynamics.

A development in record-keeping is distributed ledger technology, such as blockchain, in which interactions, authentications, and transactions are recorded throughout and confirmed by a network as opposed to a single central authority. Although the term “blockchain” is used more commonly than “DLT” (and is frequently used synonymously), there are other types of distributed consensus structures than blockchains.

The best way to think of DLT is as a general phrase that refers to several distributed design principles and the associated technology. Permissionless vs. permissioned blockchains are two such paradigms that are crucial for business decision-making, which I will contrast.

At its most basic level, the difference comes down to whether the network is intended to be open to participation by anybody — permissionless — or restricted to specific individuals only or permissioned. However, implementation decisions must consider several technologies and market aspects, as outlined below and in the table.

What is a blockchain with no permissions, and what are its main features?

Permissionless blockchains, also known as trustless or public blockchains, are open networks that anybody may join. They are distributed among unidentified parties. The consensus mechanism blockchains utilize to validate transactions and data is known as consensus.

The following are the main traits of permissionless blockchains:

Total disclosure of transactions;

Open source programming;

With some exclusions, anonymity;

Absence of a centralized authority;

Extensive usage of tokens and other digital assets as participation incentives.

What exactly is a permissioned blockchain, and what are some of its main features?

In contrast, closed networks known as permissioned blockchains (also known as private blockchains or permissioned sandboxes) allow previously designated parties to interact and participate in consensus and data validation. They are dispersed among recognized participants instead of unidentified participants, as in permissionless blockchains, making them partially decentralized. Although less prevalent than permissionless, tokens and digital assets are still possible.

The following are the main traits of permissioned blockchains:

• Regulated transparency dependent on the objectives of involved groups;
• Construction by private parties;
• Inadequate anonymity; and
• Absence of a single, overarching authority; private group makes choices instead.
• Permissionless blockchain: advantages and disadvantages
• Permissionless blockchains’ open, highly decentralized nature offers some benefits and drawbacks.

Pros

Greater decentralization than in permissioned blockchains, allowing access to a more extensive network of users

A high level of transparency that expedites settlement between unrelated parties

Due to widespread accessibility and participation from people of all backgrounds and nationalities, there is resistance to censorship.

Strong security: attackers cannot corrupt 51% of the network to interfere with consensus procedures and cannot target a single repository.

Cons

Due to the resource-intensive nature of network-wide transaction verification, there is low energy efficiency.

Due to the burden, this verification procedure places on computational resources, performance and scalability are reduced.

Information user control and less privacy

Permissioned blockchain: advantages and disadvantages

Permissioned blockchains have many benefits from being locked to outsiders but also drawbacks.

Pros

With progressive decentralization, multiple businesses can participate without the dangers of overly centralized models.

Strong privacy since access to transaction details requires authorization.

Because it enables a variety of configurations, modular components, and hybrid integrations, it may be customized for particular needs.

Performance and scalability are improved since transaction verification, and fewer nodes manage consensus.

Cons

Decreased participation compared to a permissionless blockchain, which raises the possibility of corruption and collusion

Because owners and operators can alter the consensus, immutability, and mining rules, the agreement is more readily overcome. Due to the small number of members and the network’s owners’ control over privacy rules, there is less openness to outside supervision.

While the table aims to divide DLT designs into two main categories, enterprises should be aware of various terminological nuances and their implications for adoption. The distinction between the consortium and private blockchain architectures, for instance, is made by some. Remote in this context refers to a single owner who extends invitations to others to join; consortia, also known as semiprivate architectures, are administered by several people as opposed to a single entity. 

In addition, organizations should include hybrid architectures in their long-term planning, zooming out from these distinctions. According to the hybrid theory, decentralized architectures will eventually need and profit from interoperability as they scale across public, consumer, private, government, and consortia.

A “blockchain of many blockchains” similar to the internet of many intranets will eventually be possible in a hybrid world where some networks are necessarily smaller, tightly permissioned, and optimized for discrete use cases. Others are open, transparent platforms that also integrate into vertical networks.

Also Read: Difference between Public Blockchain and Permissioned Blockchain

Use cases for permissioned and permissionless blockchain

Although permissionless and permissioned blockchain architectures support comparable value propositions, they differ in critical ways that make them better suited for some applications than others. Applications that require highly decentralized blockchains or have a significant financial component typically use permissionless blockchains, such as:

• Trading in digital assets;
• Donations and crowdsourcing; and
• Blockchain storage, for example, is distributed file storage.

New applications that rely on security and anonymity have been made possible by permissioned blockchains, including:

• Tracking of supply chain provenance;
• settlement of claims; and
• Verification of identity.

The goal is to create a vision and prioritize small, incremental tasks to help the idea be built, tested, validated, and evolved. The use-case requirements must align with the broader market dynamics and the variety of DLT configuration options if adoption is successful. This strategy also requires businesses to have a longer-term strategic perspective to prevent piecemeal deployments, particularly when building on top of legacy systems.

Let’s use a hypothetical situation and the critical questions it raises as an example.

The case for DLT is assessed by a sizable healthcare firm with numerous subsidiaries and ecosystem partners. Decentralizing health records offers the business, its staff, patients, partners, and medical research several benefits. Disseminating this knowledge can do the following:

• Reduce the likelihood of fraud, human mistake, and single point of vulnerability;
• Enhance the accuracy, accessibility, privacy, and auditability of records; and
• Streamline information sharing between care providers, adherence to regulations, insurance claims processing, latency, cost savings, and even medical research efficiencies.

The organization is also aware of various risks related to blockchain technology, which is still in its infancy, as well as risks associated with regulatory requirements that are unclear, cultural and political objections regarding the use of sensitive information, business models, and stakeholder adoption. The organization is not yet prepared to select an architecture, despite having a thorough understanding of future applications.

Decide whether permissioned or permissionless is best for your project.

Here is how this healthcare facility could get ready to make these challenging decisions.

Establish the strategic goal first. In this instance, how do distributed health records fit into the organization’s overall strategy and position in the ecosystem? Instead of giving in to the need, to begin with, a blockchain “plan,” consider how the company may function as a platform to add value to and extract value from the larger ecosystem.

Second, prioritize activities and use cases within their context rather than in isolation. What are three initial areas to pilot given our present business, partner ecosystem, regulatory, cultural, and technology environments, and the trajectory of each? What are the economic and health benefits, considering all parties involved and their connections? Which metrics—accessibility, quickness, having a “single source” of truth, wait times, and patient outcomes—would define success? These will change, but upstream transparency will simplify tool setup and selection decisions down the road.

The organization should wait until these areas are well-defined for the short term and aligned for a long time before considering DLT infrastructures.

Typical standards include:

Scalability and effectiveness: Flexibility, consensus validation, security, and failure risks about the frequency and design of transactions and interactions with the ledger.

Consumption of power: Consensus costs in terms of computation and the environment and how interactions and transactions are validated

Governance and roles: This encompasses how organizations and stakeholders divide up authority, make choices, establish permissions, work together on code, etc.

Discretion and anonymity: It has been established across stakeholders, is in line with regulatory frameworks, and informs the authorization structure.

Technological environment: This covers existing systems and the needs for the cloud, edge, power usage, etc.

Viability of smart contracting: Accountability and blame for system compromise among business and regulatory parties

Tokens: These, which might or might not be relevant, can provide substantial participation incentives and behavioral economics for distributed applications.

TaleAccessing technical, design, and legal resources may impact other investments, such as the degree of complexity managed internally versus externally. Culture. Blockchain adoption is only as viable as people’s trust and willingness to adapt, including leaders, developers, and customers.

For the most flexibility, use DLT functionality. Organizations must comprehend the differences between permissioned and permissionless blockchain in the broader context of hybrid architectures, just as it is crucial to understand a DLT’s different à-la-carte component functionalities, such as:

• Dispersion of transactions;
• Consensus;
• Environments for developing smart contracts;
• Rules of linkage and validity;
• Immutability;
• Private keys and identification verification;
• Regulatory and supervisory nodes;
• Internal resources; and
• Integration procedures.

Within each of them, there is a multitude of strategies that are continually changing. Organizations should consider DLT as a menu from which to select and customize different combinations, in different flavors, for different business challenges while accounting for varied legacy environments, as opposed to conforming use cases and criteria to the technology.

The use of distributed ledger technology is not a magic bullet or fix for every IT efficiency issue. Beware of blockchain hype and experimentation done merely for the sake of exploration. Instead, companies should regard DLT as a set of technology principles and modules that can be carefully chosen and used.