Permission Granted

Today I'll continue a review of the Linux Foundation's first Hyperledger blockchain class on edX, "Blockchain for Business - An Introduction to Hyperledger Technologies" with a focus on permissioned and permissionless blockchains.

One Pager on Permissioned and Permissionless Blockchains

Prior to this class I knew that some blockchains were permissioned and others permissionless, but I didn’t have a firm grasp of what those terms meant mainly because permission typically takes a preposition after it; notably, permission to do something or permission from someone. The shorthand terms permissioned and permissionedless, unfortunately, didn't spell out the rest. Today I'll make that a little more clear. 

Some blockchains such as the Bitcoin and Ethereum blockchains are permissionless. This means those who want to participate in them do not require permission from any central authority to do so. This makes sense for Bitcoin and Ethereum, two cryptocurrencies that individual consumers want to participate in and trade with without the need of an intermediary like a bank. Additionally, the more participants in a blockchain theoretically the more secure it is as there are more ledgers out there to confirm or deny one’s claims. That being said, open blockchains are also subject to more malicious actors entering the network and causing havoc because they are open and have no vetting process.

Conversely, a permissioned blockchain requires those participating to get permission to do so first. The Hyperledger blockchain is permissioned. As you can imagine, permissioned blockchains are less susceptible to malicious actors because they are vetted out to begin with. At the same time because there are less total participants involved in the network, it is less secure. A little confusing, right?

Here’s an example. Let’s say I send you 100 bitcoins on the Bitcoin blockchain. Not only will you and I have ledgers of the transaction, but so will the thousands of other nodes on the network. Why? Because the permissionless blockchain is a publicly distributed ledger and it's not only distributed between you and me, but between its vast network of nodes. If I then say, “Actually, I sent you 1,000 bitcoins” you and the thousands of other network nodes can check their ledgers and say, “Nope, you’re wrong. You only sent me 100.”

Now let’s perform the same transaction over the Hyperledger blockchain. Let's say I sell you my house on 10 Main Street for $100,000 and we record the transaction on the Hyperledger blockchain. At this stage there are only two participants in our permissioned and private blockchain. Unlike the Bitcoin blockchain which has thousands of eyes on every transaction, we only have two: yours and mine. But what if I change my story and say, “Actually, the house is $110,000. You owe me $10,000.” If you look at your block you'll see the contract for 10 Main Street for $100,000. Unfortunately, because there are only two nodes in the network it’s your word against mine. That’s dangerous. 

This is why it's important to properly vet your partners on a Hyperledger blockchain and achieve the proper consensus prior to conducting business. We'll dive into consensus on the blockchain in a future post.