Permissioned vs Public Blockchains: A Head-to-Head Comparison

The most common and popular blockchains, like Bitcoin and Ethereum, are hailed for their transparency, decentralization, and trustlessness. However, these are not the only types of chains, others are much more focused on privacy and corporate collaboration. Let’s look at these permissioned chains, their use cases, and if they are a legitimate use of blockchain technology.

To understand the nuanced differences between a permissioned and public chain, let’s start with the basic definition of a blockchain: distributed ledger technology. At its most basic implementation, a blockchain is a way for multiple entities to come together and achieve a state of consensus about a given ledger with data. This data could be anything; the most famous examples are data related to transferring value or recording information. 

Blockchains like Bitcoin, Ethereum, or any other chain with cryptocurrencies are public chains. This is because they are open for anyone to use or join as a validator. For example, nobody can stop an individual from becoming an Ethereum validator, helping to confirm transactions on the network, using DeFi applications, and sending value to other Ethereum addresses. Since these networks are meant to be a neutral utility that can last indefinitely without any sort of centralized intervention, there has to be some incentive structure in place to prompt users to become validators and help secure the network. This is where cryptocurrencies come into play: public blockchain networks use cryptocurrencies as a native currency to keep the network running through transaction fees and validator rewards. Without a native currency, nobody would waste their computer resources to validate transactions. 

Public chains’ most significant strength is also their biggest weakness: publicity and transparency. On a chain like Bitcoin, everyone can see the entire transaction record dating back to the genesis of the blockchain in 2009. While this is great for ensuring transparency and reducing fraud, it severely limits the use case of blockchains to those use cases that do not require any level of privacy. 

Permissioned blockchains, on the other hand, only allow certain allowed parties to interact with and validate the chain. Individual designs differ, but typically there is some sort of consortium with governance rights over the protocol that can choose to allow or block members from using the chain. While this is more centralized and subject to censorship or downtime, it is also the only way blockchain can be used in specific industries. For example, the US-based HIPAA healthcare regulations would not allow private patient data to be stored on a public blockchain, even if it is encrypted. A permissioned blockchain storing this data could ensure that only the entities that a patient allows can see sensitive information. Other industries that could use this more privacy-oriented blockchain include banking, identity services, supply chain, and logistics.

Most of the time, permissioned blockchains are integrated with the backend of large corporations and are not directly investable like a public chain. Two prominent permissioned blockchain frameworks are IBM’s Hyperledger and Consensys’s Quorum Blockchain Service. Several companies have already adopted these frameworks to create their blockchains. For example, cobalt miners in the Democratic Republic of Congo have created a permissioned chain tracking the cobalt supply chain, from mining to smelting to a battery plant in South Korea. Quorum, which has the same tooling as Ethereum, is being utilized by companies like Bosch, Singapore Airlines, and Microsoft.

Both permissioned and public blockchains have unique and exclusive use cases. The everyday DeFi user will likely only interact with public chains, which have the benefit of genuine neutrality, transparency, and fraud resistance, which makes the chains perfect for financial and value-related use cases that do not necessarily have to be private. On the other hand, permissioned chains will likely only ever be interacted with indirectly, such as when interacting with healthcare data or traditional banks. Regardless of their use cases, both blockchains are helping to mainstream this technology and allow it to reach its fullest potential.

By Lincoln Murr

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