Permissioned Blockchain - What It Is, Examples, Use Cases (2024)

What Is A Permissioned Blockchain?

A permissioned blockchain is a distributed ledger technology that restricts access to its network and data. In this blockchain, participants must have permission or credentials to join the network. This controlled access offers greater security, confidentiality, and control, making it suitable for enterprises and organizations with specific requirements.

A group of trusted entities in this blockchain collaboratively maintain and validate the transactions. These entities collectively decide on the rules and governance of the network, which can include selecting who can join, verifying transactions, and implementing smart contracts. Thus, it offers enhanced privacy, faster transaction processing speeds, and scalability.

• A permissioned blockchain is a distributed ledger technology where users must have permission or credentials to join the network. This restricted access provides security, confidentiality, and control. Thus, it is valuable for companies with specific requirements.
• It is beneficial for conducting high-speed transactions where low latency is crucial. Moreover, these blockchains can efficiently support larger transactions per second. Additionally, they are scalable for enterprise-level applications.
• However, creating and maintaining this blockchain may be costly because of its high initial development and operational expenses. Some organizations may not have sufficient funds to invest in the infrastructure and resources that these blockchains require.

Permissioned Blockchain Explained

A permissioned blockchain is a controlled and private network where access to participate and view the data is restricted to authorized entities. They are employed by organizations and groups that require enhanced control, privacy, and security over their blockchain activities. The governance for this blockchain is managed by a consortium of trusted participants who collectively determine network rules, consensus mechanisms, and overall management. These entities rigorously control access, using methods like digital certificates or cryptographic keys to ensure that only the approved users can engage with the network.

These blockchains often employ efficient mechanisms like practical Byzantine fault tolerance (PBFT), delegated proof of stake (DPoS), or Raft consensus. Thus, it enables faster transaction validation and reduced energy consumption. Additionally, these blockchains efficiently safeguard privacy and confidentiality, a crucial requirement for industries where sensitive information must be kept confidential. Moreover, these blockchains support smart contracts, which reduces the need for intermediaries and optimizes operational efficiency.

Characteristics

Thecharacteristics of permissioned blockchainare:

• Access Control:These blockchains have strict access control. Only authorized users are allowed to join the network. Access can be controlled through digital certificates, cryptographic keys, or other authentication methods. Thus, it ensures that the network is limited to known and trusted participants.
• Network Governance:They are typically governed by a group of trusted entities. These users collectively decide on network rules, consensus mechanisms, and governance. Hence, these blockchains have a more centralized governance structure.
• Consensus Mechanisms:Such blockchains use consensus mechanisms to validate transactions and maintain the ledger's integrity. They often employ more efficient consensus mechanisms. As a result, these mechanisms enable faster transaction validation and lower energy consumption.
• Privacy and Confidentiality:Enhanced privacy and confidentiality are significantcharacteristics of permissioned blockchain. Users have greater control over who can access their data and transactions. Thus, it is crucial for industries where sensitive information must be kept confidential.
• Smart Contracts:Many such blockchains support smart contracts, self-executing code that automates processes and agreements when predefined conditions are met. Smart contracts can streamline complex business processes, reduce the need for intermediaries, and enhance operational efficiency.

Use Cases

Somepermissioned blockchain use casesinclude:

• Banks and financial institutions use these blockchains to facilitate faster and cost-effective cross-border payments and settlements. They streamline trade and finance processes, reducing fraud and improving transparency in international trade transactions.
• Companies in the food, pharmaceutical, and luxury goods industries use these blockchains to track the origin and journey of products, ensuring authenticity and compliance with regulations. They help manage inventory levels, automate reorder processes, and enhance supply chain visibility.
• Healthcare providers use such blockchains to securely and efficiently manage patient records, ensuring data privacy and integrity. Moreover, the pharmaceutical industry employs them to trace the production and distribution of medications, reducing the risk of counterfeit drugs.
• One of the crucialpermissioned blockchain use casesis to develop secure and transparent electronic voting systems, reducing the potential for fraud. Additionally, Governments can use these blockchains for identity verification, enhancing security in passport issuance and border control areas.
• They help artists and creaators protect their intellectual property rights by transparently recording ownership and usage rights. Furthermore, legal firms and businesses use these blockchains to automate contract execution and ensure compliance.
• Educational institutions utilize these blockchains to verify and share academic credentials securely. It aids in reducing fraud in the hiring process.

Examples

Let us study the following examples to understand this blockchain:

Example #1

Suppose a small manufacturing group has three member companies: Apex Ltd., DreamZone Company, and FastRush Ltd. They decided to implement a blockchain to streamline their supply chain. Each company in this group maintains a node on the blockchain. When Apex Ltd. produces a product, they record it on the blockchain and specify its quality and quantity.

DreamZone Company, which assembles the final product, can access this information, which ensures they have the right components at the right time. Once the assembly is complete, DreamZone Company records it on the blockchain. FastRush Ltd. is responsible for distribution and checks the blockchain to confirm the product is ready for shipment. This transparent, permissioned system ensures all parties can access the supply chain data while maintaining privacy and security.

Example #2

Hong Kongis intensifying its attempts to create its digital currency this year. However, the regulator has left it up to the banks to decide whether the ledger will be centralized or decentralized. At least one of the significant banks is considering creating an e-HKD on a blockchain.

The central government has not dictated the design of Hong Kong's central bank digital currency (CBDC), as revealed by a bank official who was not authorized to discuss the matter publicly. There are significant security and privacy implications depending on whether the e-HKD will be issued on a permissioned or permissionless chain. This is anotherpermissioned blockchain example.

Advantages And Disadvantages

The advantages of Permissioned blockchains are as follows:

• They provide a higher degree of privacy and security. Access is restricted to authorized users, reducing the risk of data exposure and unauthorized transactions. It benefits industries like healthcare and finance, where sensitive data and regulatory compliance are critical.
• A select group of trusted entities governs these blockchains. This centralized governance structure enables quicker decision-making and facilitates network management.
• This blockchain often employs efficient consensus that offers faster transaction processing and requires less computational power, making it suitable for high-speed transactions where low latency is crucial.
• Due to controlled participation and efficient consensus, these blockchains can handle more transactions per second, making them scalable for enterprise-level applications.

The disadvantages of Permissioned blockchains are:

• They are often criticized for being less decentralized than public blockchains. The control and governance by a select group of participants can lead to concerns about centralization. This centralized control can undermine the fundamental principles of blockchain technology.
• Since these blockchains have fewer participants, they may be more susceptible to collusion or attacks from within the network. The network's security relies heavily on the trustworthiness of the participants and makes it vulnerable if any participant becomes compromised or malicious.
• Building and maintaining this blockchain can be expensive because of its initial development costs and ongoing operational expenses. Smaller organizations and startups may find it challenging to invest in the infrastructure and resources required for these blockchains.
• They have restricted access, which limits the network effects and potential benefits that can be achieved from a more extensive, open network. In contrast, the smaller networks may not offer the same innovation, liquidity, and ecosystem growth level.

Permissioned Blockchain vs Permissionless Blockchain

The differences between the two are as follows:

Permissioned Blockchain

• In these blockchains, access to the network and participation is restricted to authorized entities or participants who are granted permission. This controlled access allows for higher privacy, security, and regulatory compliance, making it suitable for applications where data access must be limited to trusted parties.
• These blockchains often have a more centralized governance model, with a select group of entities or consortium members making network rules and operations decisions.
• Thus, it prioritizes privacy and confidentiality by limiting data access to authorized participants and allowing for confidential transactions.

Permissionless Blockchain

• Permissionless blockchains are open to anyone who wants to participate without permission or approval. This open access promotes inclusivity, censorship resistance, and global participation. It aligns with the principles of decentralization.
• These blockchains are characterized by a high degree of decentralization, where no single entity or group controls the network.
• Thus, this blockchain prioritizes transparency, as anyone can view the transaction history and ledger contents.

Frequently Asked Questions (FAQs)

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