Permissioned networks are often confused as permissioned blockchains, but that’s not the case here. ‘Networks’ in this context entail a wide range of DLTs or Distributed Ledger Technologies, including blockchains.
DLTs are technologies that help record transactions, authentications, and interactions decentrally and are maintained by a network of computers and not by any central authority.
The concept of DLTs was first explored in 1991 by Stuart Haber and Scott Stornetta when they wrote a paper called “How to Time-Stamp a Digital Document.” Their document was focused on tamper-proofing digital timestamps in a distributed system using signatures. Then in 1997, Tim May proposed a type of digital money based on the remailers system. It is a method of forwarding messages while maintaining anonymity. In 2002, David Mazierers and Dennis Shaha built on this and put forward a way to make a trusted file system on an untrusted server.
Then came Satoshi Nakamoto, who brought together all of these concepts and launched Bitcoin on the first-ever blockchain.
Blockchain Isn’t the Only DLT; It’s One of the Many
With the launch of the Bitcoin blockchain, the concept of DLTs came into the limelight. People started using the words blockchain and distributed ledger technology interchangeably. But though it’s the most renowned DLT, it shouldn’t be understood as the only.
Apart from blockchains, DAG, Hashgraph, Holochain, etc., are also forms of distributed ledger technologies. All of them are used to store and manage data decentrally, and they all could be permissioned or permissionless networks.
What are Permissioned and Permissionless Networks?
In its most basic sense, a permissioned network is open for any and everybody to participate in.
- Anyone can participate in the consensus of the network, and each of them has a copy of all transactions of the network.
- The transactions can be viewed publicly by everyone, but their identities are encrypted.
- Open participation makes it highly secure because control is decentralized.
- It is open for developers to propose changes to the protocol.
- The tokens of the network are utilized to incentivize participation.
In short, Permissioned networks are fully Decentralized, Transparent, and Anonymous.
On the other hand, A Permissionless network is one where participation is restricted to a set of people.
- The participation is limited to a group of people, and only they partake in consensus.
- Because access is restricted, there is controlled transparency and anonymity. The group decides the level of anonymity and transparency on the network.
- Limited involvement also makes it less secure because they may tamper with data at their own discretion.
- The members themselves lead the development.
In a way, Permissioned networks are partially Decentralized, Transparent, and Anonymous.
But don’t jump to conclusions yet.
Though permissionless networks are widely decentralized, have high transparency, and are more secure, there are also some downsides.
- They are highly resource-intensive due to network-wide participation.
- They face scalability issues and a lack of privacy because their data is publicly available.
Whilst permissioned networks enjoy
- Cumulative decentralization; they may add more people to the group as they deem fit.
- Enables businesses to interact with each other without engaging in centralized models
- They also benefit from solid privacy and scalability because of limited participation.
The Final Verdict
Permissioned and permissionless networks vary primarily in how they are controlled and managed. Which of them is better depends on the different use cases. Varied use cases value different features; for some, privacy might be essential, whereas scalability could be crucial for others.
Permissioned networks can be effective in cases where organizations need to secure their data and not allow public access. It can be used in Healthcare, Real Estate, the Educational sector etc. These organizations can use permissioned networks and share access with required parties for easy communication and data exchange. It would be a misfit if they were to store data on a permissionless network.
For example, the government of India plans to use permissioned blockchain for its Ayushman Bharat initiative. It will store the electronic medical records of users and secure them by a confidential code accessible to only patients. Simultaneously they are also testing permissioned blockchains to streamline the logistics industry.
Similarly, Permissionless networks could be helpful in use cases that require greater transparency but do not breach users’ privacy. It includes voting, fundraising, digital identity management etc. If these applications are built on a permissioned network, it would be difficult to conduct them transparently.
Yes, Permissioned networks will have a future in the long run.
We say this knowing; Decentralization is the core of distributed ledger technologies, and permissioned networks restrict unnecessary involvement and access and thus could get somewhat centralized. But does everything need to be fully decentralized?
We have not even scratched the surface of distributed ledger technologies. We have a long way to go till we experiment with multiple types and variations of such technology. But one thing is for sure no one type can take over everything. Every sector has different needs and priorities, and accordingly, these technologies will be utilized.