How Permissioned Blockchain Works

Permissioned blockchains are blockchain networks that need access before one can take part in them. In this context, there is a control layer running on top of the network that oversees the actions that are initiated by the allowed participants. As you must have noticed already, these types of blockchain work in a way that is completely different from the system of private and public blockchains. The way they are fashioned, they can take advantage of blockchains without having to sacrifice the authority detail present in a centralized system.

Basically speaking, there is one huge difference between a permissioned and a permissionless blockchain network. That is, the manner in which the participants interact with the network. In a permissioned system, there is a restriction on the consensus participants, which makes permissioned networks highly configured and under the control of the breadwinners. Be as that may, there is nothing bad about it because it is all about building a suitable blockchain network.


The most common types of blockchains that allow anyone to take part and carry out transactions are public blockchains. People can as well participate in the consensus method. Nevertheless, there are numerous public blockchains in the crypto work, and Bitcoin and Ethereum are the two most prominent examples. Bitcoins prides itself as the first generation digital currency, which makes use of the most fundamental idea of blockchain.

As for Ethereum, it brings more to the table by offering its developers the ability to develop a distributed app - also known as dApps - with the aid of smart contracts. Public blockchains as well make use of a consensus algorithm that does not support a permissioned approach. They are open-source, and anyone who does not have any prior permission can take part in the network.

How It Works

While permissionless blockchains are increasingly gaining acclaim in the world of business, many firms are now beginning to take cognizance of the many upsides to adopt blockchains to augment their systems. They do this to instill trust, transparency, and, in the case of B2B exchanges, efficiency. For example, the Hyperledger Foundation is the pioneering open-source initiative for B2B blockchains.

In a permissioned blockchain, the showrunners are members of a consortium, and stakeholders opt-in to create a network. Pre-approved entities are the only ones who can run the node which validates transaction blocks and execute blockchain-based smart contracts. With permissioned blockchains, it is easy to share trusted information in a secure context. This is done with the confidentiality that businesses require to operate at top effort.

A permission blockchain is designed to make use of computationally inexpensive consensus algorithms. Compared to permissionless relatives such as the proof-of-work, this blockchain sits on substantially better scalability and performance. Blockchains such as the Hyperledger Fabric have additional innovations in the offing with respect to the roles of the nodes. Generally, they do not use crypto-economic models or monetary tokens because of the nature of the business networks.

Governance And Transparency

The semantics of management are very different when it comes to the permissioned and permissionless blockchains. In the former, governance is determined and consented by the members of the blockchain business network. Among peers, code quality, code changes economic incentives, and power allocation are dependent on the dynamics of the business. These parameters are also based on the collective motive for which the network was formed and designed. This way, companies will be able to do things quickly in ways suitable for their models.

For permissioned blockchains, having transparency into the work carried out by each node may not be as essential as it is to the network members in the permissionless sect. Everything is contingent on the way the business relationships are established as well as how the blockchain is configured. Being that a good number of permissioned blockchain networks do not have crypto-economic incentives built into them, the major incentives of the participants is minimizing cost, time, and the ease of sharing information across the platform.


For a permissioned blockchain, the degree of decentralization is dependent on how the members of the network agree to structure their business relationships. The ‘no central control’ concept is relevant in this case, given that the consortiums are managed entities. In the same way, the degree and quality of decentralization on the network rests on the number of peers, the anticipated number of bad nodes in the network, and the caliber of consensus the members decide to use.

Algorithms such as Byzantine Fault Tolerance - which is different from the conventional proof-of-work algorithm used in permissionless blockchains - seem to be the go-to for permissioned networks. Hyperledger Fabric supports almost a dozen consensus algorithms via its plug-in architecture. Decentralization is a given in the design of the blockchain, but having the right governance model is more important. It is more important because power and control structures may not be evenly distributed.


There are distinct nuances of philosophy between permissioned and permissionless blockchains. In the same way, they have different capabilities and adoption affordances. Businesses that are looking forward to leveraging blockchains need to understand these nuances in order to sidestep costly mistakes along the line.

With the maturity of the present-day blockchain stacks, permissionless models are the best fit when crypto-assets are part of the business model. When companies have plans to use blockchain primarily for the motive of securing a trusted, non-repudiable source of fact, permissioned models are best suited for them. As time goes by, there is a likeliness that firms will adopt multiple types of blockchains at once.

Now that you know what permissioned blockchain is, it's time to reach out to us to collaborate on your next blockchain project.

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