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A Beginners’ Guide to Permissioned Blockchains

It has been a few years since the topic of blockchain technology invaded the market for the first time. Today, people are gradually learning to see a blockchain and a cryptocurrency as two distinct concepts.

The technological and financial culture is growing, and, as a result, the industry is attracting more developers and users. Among the many consequences of this trend, we find the appearance of new tools.

Today we will talk about one of the many new applications of this technology. Permissioned blockchains represent an example that is gaining interesting popularity.

But what is a permissioned blockchain? And how does it differ from traditional permissionless blockchains?

What is a permissioned blockchain?

Let’s start from a premise: several ways to build a blockchain exist. Likewise, access to these systems is not unique, and developers can customize such aspects.

Some blockchains need permission to write and read the information on the system. As readers may have guessed, this category is that of permissioned blockchains, which we will study today.

We can see a permissioned blockchain as a virtual ledger that not everyone can. Administrators may give the right to read the information, to modify or write it.

A digital certificate allows users to prove their identity and their right to access the blockchain. If you are familiar with traditional (or “permissionless”) blockchains, understanding how a permissioned system works will not be difficult.

A comparison with permissionless blockchains

The permissioned blockchain technology is generally the same as a permissionless system. Obviously, a closed system needs several adjustments, such as an identification system.

Below we explore the topic by explaining why the market sometimes requires the creation of a permissioned blockchain. It will also be helpful to analyze the pros and cons of the two different systems.

Why does the market need permissioned blockchains?

Researchers shared many studies on the creation and use of permissioned blockchains. It is clear that limiting access to a system seems to go against the original nature of blockchain technology.

Companies increasingly appreciate the usefulness of private blockchains. This choice should not surprise us, especially if we think about the value of confidential information in a business.

If we introduce the concept of access management into the system, we obtain a permissioned blockchain. System administrators can decide who joins the network and what these people can do.

A bank may decide, for example, to restructure an internal IT system into a blockchain structure. There is no reason why an external user should access this data, and this is where the need arises for a private system.

Furthermore, people with different seniority in the bank may have different roles in the blockchain. It could be risky to give every employee full read and write rights. Hence the need to create a permissioned blockchain becomes clear.

Summing up the pros and cons

We can summarize the advantages of a permissioned system as follows:

  • Strong privacy, as authorization is required to view transaction information.
  • Customizability for unique needs since it allows for different setups, modular components, and hybrid integrations.
  • Decentralization may happen in stages, allowing various companies to participate without the dangers associated with highly centralized models.
  • Transaction verification and consensus need fewer nodes, which improves performance and scalability.

Concerning the negative aspects, we should mention:

  • There is less transparency to outside oversight because the number of participants is limited.
  • One could override consensus more easily because the owners and operators can change consensus, immutability, and mining rules.
  • The number of participants needs to respect a limit, and the network’s managers establish privacy restrictions. Overall, there is less transparency to outside supervision.

The permissionless approach finds itself in a specular situation in terms of pros and cons.

Choosing a suitable blockchain for each project

To choose a suitable blockchain for a project, we need to define the strategic goal. Instead of starting with a blockchain “plan,” we should consider how the firm may function.

Second, we must prioritize use cases and efforts in the context of the larger picture rather than in isolation. This is when we need to ask ourselves several questions about the goals we aim to achieve.

Specifically, we must consider the stakeholders’ best interests when selecting a blockchain type. Clients will often not have extensive experience in the blockchain industry. Therefore, it is up to the management to explain the perks of our choice to the users.

Conclusions on permissioned blockchains

Blockchains with restricted access will probably change how we think of our economy. They deliver blockchain advantages in a closed ecosystem respecting an organization’s requirements.

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Cost-effectiveness, competent governance and efficient performance are just a few of the advantages that come to mind. It will be fascinating to see how different sectors adapt this tool to their needs.

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