Blockchain technology has been quietly gaining more and more traction within business and finance over the last few years as its ability to efficiently secure data and transactions becomes more apparent everyday.
Bitcoin, as an experiment, is the greatest bug bounty program in history. If someone were to find a backdoor, any problem in the code that person would become extremely rich. They have not yet. The blockchain experiment proves itself everyday by merely existing.
To understand permissioned vs. permissionless blockchains we need to first understand decentralized and centralized systems in general.
Centralized vs. Decentralized Systems:
Bitcoin was created not to compliment centralized systems but in an adversarial role to the current centralized systems of governance.
A centralized system is one that that is governed by a hierarchical authority; examples of such being banks, credit card company’s, etc. If you want to use a Visa card you must request access from Visa and be approved. At any time your access to that line of credit, or in the case of a bank, your funds may be made unavailable to you and your access permanently revoked.
Conversely a decentralized system is one that requires no permission to access or use its network. As an example, Bitcoin has no barriers to entry outside of a computer and internet access. Anyone from rich to poor can download a bitcoin wallet and immediately be able to send and receive funds. No matter what you do, what you say or who you say it to, no one can put a hold on your funds or stop you from interacting in the crypto market place outside a third part restricting your access to the internet. That being said there are technologies like COINTEXT which I wrote about in an earlier article that allows anyone with access to a cell tower to create a wallet and transact using Bitcoin Cash (BCH). With this service, technically someone could theoretically live completely within crypto without having ever accessed the internet.
PERMISSIONED VS. PERMISSIONLESS BLOCKCHAINS:
Now that we have a general understanding of decentralized and centralized systems we can more readily understand permissionless and permissioned blockchains.
Bitcoin as was already described above is the example of a permissionless blockchain. There is no barrier to entry to use it. Anyone can run a node, run mining software/hardware, access a wallet and write data onto and transact within the blockchain (as long as they follow the rules of the bitcoin blockchain). There is no way to censor anyone, ever, on the permissionless bitcoin blockchain.
Sometimes referred to as “private” blockchains, you are required to have some sort of permission to access any or parts of that blockchain. There are a multitude of variants and hybrid permissioned/permissionless blockchains that exist. For example a blockchain may be public to read the information but require permission to access or transact on their network.
Ripple, as an example, is a hybrid permissioned blockchain whereby they, as a central authority, act as the transaction validators and build their own nodes throughout the world, even though you may transact using their XRP token without permission.
Other permissioned blockchains may be totally in house (highly permissioned), unable to be accessed or read outside of the authority who controls it.
Some claim that blockchains without POW (Proof of Work) mining algorithms for verification are not blockchains at all but merely shared ledgers. I dont totally agree, I think it would have to depend on the circumstance and besides, those of us who disagree are comeing from the decentralization point of view and as such shouldnt be in the business of being “Only we may grant thine use of the word blockchain” definition authoritarians.
Which is better? Does it matter?
This is all subjectively based. Are we talking about humanity in general? myself as an individual? the company I run? The environment?
I am a subsidiarity/decentralist at heart, believing that decisions are best made at the lowest level possible. Decentralized systems like Bitcoin and the concept of DAO (Decentralized Autonomous Organizations) that run on immutable algorithmic rule based decision making will be crucial to how society is structured in the future. However that is the 10000 ft. level view with a heavy dash of the futurism I love to wax poetic about.
What is real world, on the ground answer to which is better?
As is a common term in permaculture…
Despite my philosophical leanings, I see the utility of hybrid/permissioned blockchains that would be preferred by corporations or organizations with specific needs that dont value total transparency and an end in itself.
GE does not want to have all of their transactions, supply management, legal contracts and decision making written onto a public ledger for public view. They would be stupid to do so as it would put them at a severe disadvantage in the market vs their competitors whos strategies and situations would be more opaque.
Current regulations being as they are, there is no bank or financial institution that would dare pivot their entire infrastructure onto a public blockchain. While technically feasible, to meld their entire financial transaction structure into the same stream as a public blockchain would leave them open to severe AML/KYC (Anti-Money Laundering/Know Your Customer laws) concerns and most likely investigations and legal troubles. Im not saying these archaic regulations are good, I’m merely saying THEY EXIST and this is why institutional money has been extremely wary of public blockchains in general while very active in the permissioned space.
Insitutional concerns relating to safeguarding of proprietary information and privacy of users can and will be rendered void with the advent of new technologies developing in the blockchain space as we speak.
Enigma is a project that I had been keeping my eye on and have recently invested in. It is was started by a group from MIT which will allow individuals and companies to verify proof of transactions on the public blockchains while private/proprietary information is conducted through Enigma’s nodes offchain. In short you will be able to take leverage the trust of public blockchain’s while protecting proprietary information.
Another bridging of the public/private divide are technologies such as ARK which would allow hybrid or even highly permissioned blockchains to interact with public ones. For example Wells Fargo could be running a highly permissioned blockchain while allowing for deposits or payments by a customer in bitcoin and outgoing transactions to a smart contract on Ethereum or EOS.
The key component of blockchain’s appeal is the immutability of transactions records; that being the inability to go back and change information that has been verified in the past. This is secured by the consensus based Proof of Work algorithms that are decentralized among thousands and millions of miners and nodes on the network. Bitcoin for example is so secure because anyone can become a miner or run a full node (yes im aware of some details that muddy waters here in the BTC world, but this isnt a technical paper but a general overview).
With a network the size of around 100,000 miners, Bitcoin is secured by the fact you would need to convince a majority of those miners to lie for you. Not impossible but much more improbable than say the federal government being hacked and tens of millions of employees personal information being leaked to who knows where.
Why is it more improbable?
because OPM was already hacked and Bitcoin has operated for 10 years without an incident despite billions of dollars in incentives to find a way to corrupt the network.
Decentralizing the network secures it. If you run a highly permissioned system where you control the nodes, you are merely opening with the same single point of failure weaknesses already inherent in non blockchain centralized systems we have today.
DECENTRALIZATION HAS ALWAYS BEEN THE TRUE STRENGTH OF BLOCKCHAIN
In the end…
Corporations and governments will still choose to trust permissioned systems, clinging to their single point of failure weakness as a strength. Perhaps technologies like Enigma and Ark will allow these systems to finally bypass these archaic institutional hangups.
The market will decide, but in the long run it will not be in their favor to ignore.
Public decentralized blockchains will continue to exist. The genie is forever out of the bottle and no one, not a business nor a government can stop them.
Lets not continue to waste our energy attacking permissioned protocols, let us put our passion, money and energy into building and proving that a decentralized future is the best option for all.
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