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April 20, 2022

Permissioned blockchains, explained

Here we explain the concept of a permissioned blockchain. Find out what a permissioned blockchain is and whether a permissioned blockchain is private or decentralized.

If you’re only familiar with public blockchains like Bitcoin or Ethereum, the concept of permissioning is probably new. 

Maybe you’re wondering what a permissioned blockchain is, or confused about whether a network with entry prerequisites can truly be decentralized (often purported as blockchain’s entire raison d’être). 

We’re here to help! In this brief explainer, we’ll take a look at what exactly is meant by a permissioned blockchain and the benefits it brings by answering 3 common questions: 

  1. What is a permissioned blockchain?
  2. Is a permissioned blockchain a private blockchain?
  3. Is a permissioned blockchain decentralized?

What is a permissioned blockchain? 

Permissionless blockchains like Bitcoin or Ethereum’s public network are freely open for participation without restrictions. Anyone can perform transactions, participate in the network’s consensus mechanism, and view the ledger, with no authorization or identification required. 

Being permissionless, these blockchains preserve the pseudonymity of participants. For the financial industry, this just won’t cut it; not knowing who’s operating a node or participating in transactions poses severe problems for security and compliance.

That’s where permissioning comes in. 

A permissioned blockchain has some kind of control layer gatekeeping access. This control layer runs on top of the blockchain and governs which actions participants are allowed to perform, permissioning their participation in the network.

Every permissioned blockchain essentially involves authentication and identification as prerequisites to enter the network for at least one kind of participant. In practice, how this is implemented can vary widely. 

It might be that only validator nodes are permissioned, and the rest of the chain is freely open for any user. Or, it might be that the entire network is permissioned–like Polymesh! 

Polymesh is a permissioned blockchain because it requires all users to have their identity verified through a KYC process while onboarding, and likewise requires all node operators to pass through KYB as a licensed financial entity. 

The result? A blockchain that preserves the benefits of the technology (e.g. efficiency and transparency) without the traditional risks associated with public networks.

Is a permissioned blockchain a private blockchain?

Not necessarily! While it’s true that a permissioned blockchain shares some elements with a private blockchain (namely, the permissioning aspect), it’s not always a closed, opaque network.

Let’s use Polymesh as an example. 

Look beyond the permission layer and you’ll find Polymesh appears more like a public blockchain than a private blockchain–it’s available for anyone to use; they just have to verify their identity first.

So, where does a permissioned blockchain fit in the dichotomy of public vs. private? 

A quick scan of common guides (e.g. Investopedia, 101blockchains) and you’ll likely find permissioned blockchains form a third category or a middle path between public blockchains and private ones.

However, we’d argue that permissioned isn’t a third category but another dimension for classification that can be applied to both types of chains (and actually always applies to private ones). 

Jesus Ruiz of Alastria lays this framework out nicely in his 2020 paper on public permissioned blockchains. He claims we can classify blockchains as:

  • Private permissioned networks (i.e. private consortiums)
  • Public permissioned networks
  • Public permissionless networks 

What distinguishes a public permissioned blockchain from a private blockchain, Ruiz claims, is that the former has no barrier to entry even if it requires identification. 

This is the framework we apply to Polymesh. 

Polymesh is a public blockchain because anyone can view and pull data from the chain, and anyone can participate in the chain once they pass a simple KYC process. Furthermore, anyone can build or develop features and functionality on Polymesh as it’s all open-source.

Is a permissioned blockchain decentralized?

At its core, a blockchain is decentralized because it’s distributed across a number of nodes and relies on consensus to arrive at a single network state. But it can also be decentralized in the context of governance if no one entity controls those nodes. 

Is a private blockchain centralized? Yes. For a private blockchain, there is such an entity controlling the nodes, so private blockchains always have some aspect of centralization. 

Public blockchains on the other hand aren’t controlled by one entity (at least in theory), so they’re characterized by more political decentralization.

Ethereum’s Founder Vitalik Buterin puts it best: “[Public] blockchains are politically decentralized (no one controls them) and architecturally decentralized (no infrastructural central point of failure) but they are logically centralized (there is one commonly agreed state and the system behaves like a single computer)”.

Yet even within these layers there are varying ways to think about decentralization. 

For example, Polymesh has an element of centralization since it relies on a permissioning system with requirements around which entities are qualified to write new blocks. 

Take a closer look, though, and you’ll appreciate how Polymesh is largely decentralized:

  • The network is run by a number of nodes permissioned through a democratic governance model, none of which have dominant power. 
  • The software is open-source and can be changed and used by the community that develops it.
  • It’s independently governed by the not-for-profit Polymesh Association and not proprietary to any business.

Want to dive deeper? Learn more about why Polymesh is permissioned and how it works on the network.

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