Permissioned vs. Permissionless Networks

Permissioned vs. Permissionless Networks

Permissioned networks restrict the set of validators of a blockchain to a set of identifiable parties. Find the differences with Bitcoin and Ethereum.

Permissioned vs. Permissionless Networks

While Bitcoin and Ethereum are both permissionless networks, they are also public blockchains where anyone can operate a node to synchronize the entire history of their ledgers. Yet, permissioned networks can also be public, which has commonly led to confusion from everyone in the space.

This article defines both permissionless and permissioned blockchains and focuses on their differences and similarities. Finally, this article concludes with a brief summary regarding what permissioning features may make the most sense to cater to your needs.

What is a permissionless network?

A permissionless network is a network where any party can participate in the consensus process without any requirement to validate their identity from a central authority.

Blockchains like Ethereum, Bitcoin, or Cosmos are permissionless networks and allow any party to operate a node without any restriction, besides hardware, software, (and sometimes balance) requirements.

For instance, an individual has been able to mine Bitcoin since the launch of the network. Yet, it has become extremely competitive to mine Bitcoin owing to the centralization benefits (economics of scale with ASIC machines). However, many other cryptocurrencies can still be mined by a GPU/CPU (e.g., Monero, DigiByte). These cryptocurrencies all operate on a permissionless network.

What is a permissioned network?

A permissioned network is a network where only pre-selected parties can validate transactions and perform other operations.

Permissioned networks do not allow a non-certified/pre-approved individual to act as a validator. To prevent so, a dedicated layer is built in to allow specific actions to be performed only by identifiable participants.

Only a pre-selected set of operators is to be eligible for the validation of transactions and in charge of maintaining the consensus of the distributed network. However, in permissioned networks, standard nodes may (or may not) be operated. In contrast, anyone can start mining or apply to become a validator in permissionless networks, without any KYC requirement.

In this regard, permissioned networks mostly rely on Proof-of-Authority ("PoA") consensus mechanism.

For instance, a permissioned network could be a network of financial institutions where each company relies on the blockchain to settle derivatives transactions. In this scenario, the network would be private, with an additional privacy feature to omit transactions from all chain members. If the blockchain was comprised of hundred financial institutions, on-chain information would require encryption not to be readable by every institution. For instance, volumes of transactions between one buy-side entity and a broker are information that are not meant to be shared.

In the context of permissionless networks, the operation of a full node often differs from the validation of transactions. Typically, a network can be public, where anyone can decide to independently verify the transactions without the opportunity to validate pending and future operations. For more details, please visit our page underlying the differences between private and public blockchains.

Similarities and differences between permissioned and permissionless networks

In this section, we broke down differences & similarities between permissionless and permissioned blockchains in regards to ten different points.

  • consensus mechanisms
  • decentralization
  • the distributed property
  • scalability
  • energy consumption
  • smart contracts
  • network governance
  • whether a token is required
  • whether the network is public or private
  • whether privacy features can be implemented onto the ledger

The results are summarized in the below table.

PermissionlessPermissioned
ConsensusProof of Work (”PoW”)Proof of Stake (”PoS”)Proof of Authority (”PoA”)Proof of Stake (”PoS”)
Decentralization?As high as the number of the validators and their respective power on the networkLow
Distributed?HighUsually low, only amongst the distributed nodes
Scalable and fastLow to mediumFast
Energy consumptionHigh (”PoW”) to low (”PoS”)Low
Smart contractsPossiblePossible
Network governanceOn-chain/distributedCentral operators
Needs a token?YesUsually no but possible.
Private?No by defaultIt depends on whether third-party nodes can still be operated.
Privacy featuresPossiblePossible

The following table illustrates some permissioned networks and permissionless networks.

PermissionlessPermissioned
PublicEthereum, BitcoinPOA Network, Chiliz
Private-Hyperledger Fabric, Quorum, Corda

For a thorough explanation about the difference between public and private blockchains, please visit our dedicated page.

Should I use a permissioned or a permissionless blockchain?

The debate between permissioned and permissionless for business use cases has been long-standing in the blockchain industry since the release of Hyperledger and Corda in 2015. Part of it relies on the general misconception that private networks are synonyms of permissioned ones.

In general, permissioned blockchains have allowed higher transaction outputs per second (so-called "TPS"), making it more scalable than permissionless networks for business needs. However, this greater scalability came with a tradeoff: it resulted in lower distribution and decentralization of the network, which sometimes defeats the purpose of using a blockchain in the first place.

Yet, the growing popularity of second-layer networks is likely to challenge the status quo. Since everyone has well acknowledged the lower transaction output of permissionless programmable blockchains, second layers have built on the first layer's decentralization/distributed properties (e.g., Ethereum, Bitcoin) while providing greater flexibility in the output built on top of a distributed network.

Unfortunately, the debate between permissioned and permissionless network is not likely to end anytime soon. However, permissionless networks (like Ethereum) could serve as the general base layer, where a growing range of permissioned networks and other second layers would be built on it, each serving different use cases. This has been illustrated by the launch of the Baseline Protocol, built on Ethereum.

To conclude, in regards to business use-cases, the choice of the permissioning property of a network must always be considered in tandem with a thorough understanding of the differences between private and public systems.

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