Users doing cryptocurrency trading have to choose between permissioned and permissionless blockchains, as both of them are opposite options. Permissioned blockchains have an administrator managing everything in the background.
On the other hand, permissionless blockchains are fully decentralized and public. No administrator is controlling permissionless blockchains, thus the name. However, both of these types of blockchains have to comply with local laws in every jurisdiction.
While both of these types of blockchains will help you manage your cryptocurrency portfolio, it is important to understand the difference between permissioned and permissionless blockchains for your good.
For example, public blockchains might look like the best option at first, but they are often way behind when compared to permissioned blockchains in terms of security and innovative features.
Introduction to Permissioned Blockchains
Permissioned blockchains are owned by private entities, and can only be accessed by a limited number of individuals. The administrator of a permissioned blockchain has absolute authority over the network, and they can invite people to join their blockchain by giving them keys and passwords.
The security and updates of a private or permissioned blockchain are taken care of by its administrator.
Permissioned blockchains are usually made and utilized by businesses and private entities. With the help of a centralized environment, businesses again oversee their employees while they work, and eliminate any bad actors while avoiding unnecessary logins.
Permissioned blockchains are known for their customizability, and data protection. However, the lack of oversight can lead to data manipulation, and the consensus mechanism on private blockchains is also very tough.
Introduction to Permissionless Blockchains
Permissionless blockchains are completely decentralized cryptocurrency exchange platforms. These platforms are immutable, have no administrator, and everything on these blockchains is transparent.
Permissionless blockchains are very secure and act strongly against any hacking attempts from the outside. However, since these blockchains are transparent, they are not usually good for private companies which need some secrecy. There is no central authority in permissionless blockchains.
These blockchains enjoy quick reconciliation processes and steadfast stability. However, their consensus mechanism is very power-hungry, and block sizes are small as well.
Permissioned vs Permissionless Blockchains: Key Differences
Ease Of Access
Permissioned blockchains are impossible to join unless you’re invited by the administrator himself. That’s because of the private nature of these blockchains.
On the other hand, permissionless blockchains are available for everyone to join, no matter where you might be living. All a user needs is a smartphone and internet access, and they can access permissionless blockchains.
No matter what type of blockchain you might be using, the key purpose of every blockchain is data collection.
Permissioned blockchains don’t do very well when it comes to security. Since businesses make their private blockchains with limited access, there’s no decentralization involved, and the data relies on a single server, or a small set of computers to be stored. This makes private blockchains prone to hacking attempts and double-spending.
On the other hand, permissionless blockchains are fully public, and the data is stored in the public ledger. With the help of multiple data storage points, public blockchains can easily avoid data manipulation and hacking attempts.
So, permissionless blockchains are way ahead in terms of data security, and the overall security of their users.
Transparency is one of the cornerstones of every blockchain network. However, permissioned blockchains lack transparency because of their very purpose and nature. Private blockchains are mostly used by private companies, which need a certain degree of secrecy within the network.
Permissionless blockchains, on the contrary, save their data by adding it to public ledgers. This ensures transparency and makes the data easily available to their users.
So, both the permissioned and permissionless blockchains have their uses and advantages for specific purposes. While permissionless blockchains work well for crypto traders/ investors, permissioned blockchains are much needed by private entities which need complete control over their data.