Permissioned vs Permissionless Blockchains: A Detailed Comparison

Hello there! If you‘re looking to better understand blockchain models, you‘ve come to the right place. In this comprehensive guide, we‘ll explore the key differences between permissioned and permissionless blockchains.

Let‘s start with a quick 1-minute recap of what sets these two blockchain types apart:

Permissioned blockchains limit participation to authorized users and offer more centralized control. Permissionless blockchains allow anyone to join and promote decentralized consensus.

Now, let‘s dive deeper into the distinctions. By the end, you‘ll have clarity on which blockchain aligns better with your needs and goals.

Permissioned Blockchains: The Walled Gardens

Permissioned blockchains place restrictions on who can participate in the network. Access is limited to authorized, identified users only.

Participants must receive explicit clearance to:

• Join the network
• Read data
• Submit transactions
• Participate in consensus

Without this granted authority, users cannot access or interact with the blockchain.

Common examples of permissioned blockchains include:

• Hyperledger Fabric – Used for private enterprise blockchains
• Quorum – Developed by JP Morgan for internal banking needs
• R3‘s Corda – Targeted for financial services

Permissioned blockchains offer enterprises and organizations greater oversight, security, and privacy control. They are the walled gardens of the blockchain world.

Key Traits of Permissioned Chains

Let‘s explore the core features of permissioned blockchains:

Restricted Access

Unlike open permissionless networks, permissioned blockchains require an identity verification process to join. This enhances security and prevents tampering by unknown actors.

According to 16% of enterprise blockchain adopters, identity management is a top driver for deploying permissioned chains. [1]

Defined Roles

A central authority grants specific roles, responsibilities and access permissions to users. For example, users may be limited to only reading data or submitting transactions. This ensures accountability.

Centralized Governance

Permissioned blockchains have a centralized governance structure. The overseeing entity can push network updates, enforce rules, and resolve disputes without decentralized consensus.

However, this means less transparency compared to permissionless alternatives. Changes can occur without node-level approval.

Faster Transaction Speeds

With fewer nodes and no need for decentralized consensus, permissioned chains offer higher throughput and lower latency.

Transaction speeds are typically 1,000+ TPS compared to fewer than 10 TPS for permissionless chains:

Energy Efficient

Permissioned blockchains use efficient consensus protocols like PBFT, PoA, and PoS instead of energy-intensive PoW mining. This significantly reduces electricity consumption.

Ethereum‘s upcoming PoS merge is projected to reduce its energy use by ~99% [2]. This shift from permissionless to permissioned-like consensus will dramatically improve sustainability.

When Are Permissioned Blockchains Best Suited?

Due to their private, controlled nature, permissioned blockchains thrive in enterprise settings where security and oversight are priorities. Use cases include:

• Supply chain tracking – Permissioned systems can share sensitive logistic data between partners without exposing it publicly. Walmart uses Hyperledger Fabric to track food from farm to shelf.
• Banking – Financial institutions use permissioned chains for interbank payments and settlements. 75% of surveyed banks are willing to adopt permissioned networks. [3]
• Private stock trading – Permissioned blockchains enable private trading of traditional assets between approved investors and brokers.
• Internal databases – Enterprises can restrict internal data access with permissioned chains. This protects against external tampering.

Permissionless Blockchains: The Open Plains

Now let‘s explore permissionless blockchains. Unlike closed permissioned networks, these are open ecosystems that anyone can access and participate in.

Also known as public blockchains, leading examples include:

• Bitcoin – The first permissionless chain and #1 crypto asset
• Ethereum – Powering decentralized finance and applications
• Polkadot – Enables cross-chain composability

No authorization is needed to join permissionless networks. Users are pseudonymous and transactions are transparent on the public ledger. This facilitates financial access and censorship resistance worldwide.

Next, let‘s overview the key traits of permissionless chains.

Core Attributes of Permissionless Blockchains

Here are the defining features of permissionless blockchains:

Permissionless Access

As the name implies, anyone can join without restrictions. This fosters decentralized innovation. Participation is voluntary.

User Anonymity

Participants use public addresses instead of real identities. This provides privacy and prevents unnecessary surveillance.

Decentralized Consensus

Permissionless systems rely on node-level consensus to validate transactions, ensure integrity, and prevent fraud in a decentralized manner. No central oversight exists.

Transparency

Records are public and uncensorable. Transactions cannot be altered or deleted, only appended. This immutable transparency enhances security.

Greater Energy Consumption

Permissionless consensus algorithms like proof-of-work require significant computing power, which demands more electricity. This has raised sustainability concerns.

However, newer chains are adopting low-energy systems like proof-of-stake to address this.

Expanded Use Cases

Permissionless chains are better suited for permissionless digital assets, decentralized finance, and censorship-resistant applications. Regulated institutions prefer permissioned models.

Real-World Applications of Permissionless Chains

Thanks to their open accessibility and decentralization, permissionless blockchains enable unique use cases not possible on permissioned chains. These include:

• Cryptocurrencies – Permissionless chains like Bitcoin and Litecoin natively support uncensorable peer-to-peer transactions. Fiat-backed stablecoins also rely on public blockchains.
• NFTs – Non-fungible tokens representing digital art, collectibles, and assets are primarily minted and traded on permissionless chains like Ethereum, for permissionless access.
• DAO Governance – Decentralized autonomous organizations use permissionless chains like Ethereum for transparent, democratic decision-making around funds management and development.
• Decentralized Finance – Open lending, trading, and earning of cryptocurrency assets leverages permissionless chains to offer financial services without intermediaries.

Permissioned vs Permissionless Blockchains

Now that we‘ve explored both models in-depth, let‘s directly compare permissioned and permissionless blockchains across key aspects:

Neither architecture is inherently "better" — each offers distinct tradeoffs and is optimized for different goals.

The Rise of Hybrid Blockchains

With deeper understanding of both models, some blockchain projects are now adopting a hybrid approach, blending aspects of permissioned and permissionless chains.

For example, Sidechains like Polkadot‘s Parachains connect to a permissionless base layer while offering permissioned functionality optimized for enterprise needs.

Similarly, mega-chains like Cosmos contain permissioned zones for institutions and permissionless areas for community innovation.

By combining the best of both worlds, hybrid blockchains aim to unlock new use cases and gain mainstream traction.

Conclusion

We‘ve covered a lot of ground comparing permissioned and permissionless blockchains! Here are the key differences:

• Permissioned blockchains offer restricted access and greater control. Permissionless blockchains are open-access and decentralized.
• Permissioned chains prioritize speed, privacy, and efficiency. Permissionless chains favor censorship-resistance, transparency, and diverse applications.
• Permissioned models suit regulated enterprises. Permissionless models support digital assets and decentralized services.
• Hybrid blockchains blend both architectures for flexible functionality.

I hope this overview has provided greater clarity on blockchain types. Assessing your needs around privacy, access, and use cases will determine the appropriate model for your goals.

Let me know if you have any other questions!