Understanding Permissioned vs. Permissionless Blockchains
March 2024 * This blog post is based off a paper I wrote for a crypto class...
In the world of blockchain, not all systems are created equal. When we talk about blockchains, we often focus on decentralization, security, and transparency, but a big distinction lies in who can participate in these networks. This is where the concepts of permissioned and permissionless blockchains come into play.
What’s the Difference?
At a high level, permissioned blockchains are like exclusive clubs, where only selected members get to participate, whereas permissionless blockchains are like public parks, where anyone is free to join and interact with the system.
Permissionless Blockchains: The Public Park
Imagine a massive public park where everyone is welcome to visit. In this park, people can walk, run, play games, or have a picnic—no need for permission to do anything as long as you follow basic rules. Bitcoin and Ethereum run off permissionless blockchains. Anyone with access to the internet can participate in validating transactions, mining, or interacting with smart contracts. There is no central authority telling you what you can or cannot do, and the system thrives on openness and decentralization.
Just like a public park, permissionless blockchains have some challenges. Too many visitors at the same time can cause congestion, slowing things down (think about Bitcoin’s slow transaction times during busy periods and thus high transaction costs). And because anyone can join, you get bad actors, making security a constant concern.
Of course, the openness of permissionless blockchains is the selling point. You get complete transparency—anyone can verify transactions—and are resilient to censorship since no single entity controls the system.
Permissioned Blockchains: The Exclusive Club
A permissioned blockchain is like a private club. Not everyone can enter; only those invited by the management are allowed in. The management also controls what each member can do—some might have full access to all facilities, while others might only have permission to use specific areas.
Companies or organizations often use these blockchains for business purposes, where they need more control over participants and data privacy. For instance, only trusted employees or partners are allowed to validate transactions, and each participant’s role is carefully controlled. Unlike permissionless blockchains, permissioned ones often have mechanisms like Proof of Authority, where only trusted nodes with verified identities can validate transactions.
The key benefit of this system is efficiency—permissioned blockchains are faster because they don’t have to reach consensus across a vast network of unknown participants. However, with great control comes great responsibility. The central authority in permissioned blockchains must ensure transparency and avoid any manipulation that could undermine trust within the system.
So, Which One is Better?
It all depends on your needs! If you’re looking for a fully decentralized system that is open to everyone and highly resistant to censorship, a permissionless blockchain might be the best option. This is where you can trade crypto currencies. However, if you're a business and need privacy, speed, and control - permissioned blockchains are what you want.