Permissioned distributed ledger technology is thought to be more efficient than open blockchain. This is because it has been modified to address the problems of the former. These systems are sometimes called “permissioned Blockchain” because they can be used to address the issues of open blockchain. This statement is controversial, and you’ll see why down below.
Is “permissioned” decentralized?
There are many other options for DLTs, including permissioned, private enterprise, federated, and enterprise. It can sometimes be difficult to tell the difference between them. Let’s compare DLTs and blockchain to get this point across.
Permissioned DLT, and the mentioned variety thereof, are not decentralized. This should not be confused with decentralization, which could be fatal to a project. Some might argue that decentralization is possible to a certain degree. However, permissionless blockchain is decentralized.
Let’s simplify it. It is centralized if there are two parties to a transaction. You cannot change this. A public blockchain allows ordinary users to draft transactions and mine blocks themselves, without having to depend on any miner to include their transaction in a block. The network will accept a valid block if it is valid. Mining is a complex task that requires huge computational resources. However, there are no formal or technical barriers. You don’t even need permission to mine. DLT gives users different roles and authority. Users are not allowed to validate or create blocks. It is fine to have a central system, it is just important to understand what you are doing.
Related: What’s the difference between DLT and blockchain?
Permissioned DLTs cannot be decentralized from only one perspective. This is by having a consortium consisting of independent members (organizations and companies, etc.). The network’s sole authority to create blocks is held by the administrator. It will not be decentralized if there are only a few companies that are controlled by one beneficiary.
Remember that a consortium structure made up of independent members can be decentralized, but only for those members. It will remain centralized for everyone else.
Is DLT a cartel?
A consortium (private/permissioned) DLT can be considered a cartel. An antitrust body could question this sooner or later. An antitrust body may question the safety of a consortium’s terms and conditions.
It is safer to have a centralized system. However, a centralized system won’t be able to achieve the same reliability and credibility as blockchain. It will be as vulnerable as any other central system, and this is why.
A centralized DLT cannot be changed. The ledger can be modified arbitrarily by one or more of the people who control it, or even by hackers. Its open and competitive nature (mining or staking), makes it highly attractive. Any blockchain can attain immutability, and its records will be reliable. An unprecedented level of resistance can be achieved by thousands of independent nodes.
It usually follows the discussion on immutability. How do you correct a mistake? What happens if your smart contract needs to be changed? What happens if your private key is lost? You cannot do anything retroactively — it is impossible to alter the blockchain. It’s over. The DLT is often the opposite of a blockchain alternative. DLTs can be configured so that network controllers verify transactions at entry. Non-compliant transactions cannot pass through. It would be foolish to assume that network censorship will eliminate all errors and unwelcome transactions. There will always be an opportunity for a mistake. What then? What if you can make a retroactive change? However, if you can change history, it undermines the entire idea of blockchain. This level of immutability can’t be achieved by any other technology. This is not a benefit of blockchain. It is its unique advantage.
Similar: Returning to the original purpose of blockchain: Timestamping
However, immutability can be interpreted as something that hinders its legal application. Let’s say your circumstances have changed and you need to change the smart contact. This is why it is important to design an application that doesn’t compromise the immutability and integrity of the ledger. Smart contracts should be designed so that users can attach new transactions to reflect changes in the ledger. Blocks are chronological. Only the most recent transaction will reflect the current situation, all other transactions will be historical. It is not necessary to alter history. The blockchain is a public repository that holds all evidence about what happened. There are many ways to design applications that address all legal issues. This academic paper and this one offer solutions for managing property rights in blockchain registry. These issues were also addressed in the articles I published last year.
Blockchain is not for permissioned
It is possible to have anyone question it about your system. This academic paper provides further discussion on why permissioned isn’t a Blockchain. In a nutshell, not every chain of blocks in a Blockchain. Haber and Stornetta invented the concept of linking timestamped data chunks with hashes in 1991. It is not a “blockchain”, as it is much more than a collection of blocks. It’s about how these blocks were created and validated. The creation of blocks is the result of open, decentralized, and uncensored competition. This is how Satoshi Nakamoto defined blockchain. Anything that is centralized (permissioned or private, etc.) will be considered centralized. Anything is possible, but not blockchain.
Because there is no legal copyright and no legal protection for the word blockchain, anyone can use it to refer to any technology. Proponents of DLT tried to blur the line between these concepts. It is only a matter time before a few high-profile hacks of private DLTs reveal the true difference between DLTs and blockchains and drastically change the situation. It is important to distinguish between how many nodes are required to secure the network. For example, there are a few known nodes within the DLT network and thousands of anonymous nodes throughout the blockchain network.
This is a matter that can be debated on a theoretical level. But when it comes down to the possibility of losing money because of vulnerabilities in the system’s systems, no one will listen to passionate speeches about DLT. People will begin asking questions. If you use “private/permissioned,” you should be ready for this.
Related: Blockchain technology can transform the world. And not just through crypto
You can still request permissioned
It is safe to use “DLT” in all communications. Although it might not address potential vulnerabilities, you can still say “We had never said that it was blockchain.” ENISA, the European agency for cybersecurity, uses distributed ledger instead of blockchain in all its reports. In contrast, their American colleagues at the National Institute of Standards and Technology used “blockchain in their previous report.
Are you interested in creating your own public blockchain network. If you don’t have reliable technology and a solid plan, it is not a good idea. First, “permissionless” does not necessarily mean secure by default. You will need thousands of independent nodes from around the globe to achieve an acceptable level of immutability, resistance to attacks and credibility for your coin. Your network will thrive if you have the resources to build it on this difficult path. You will also reap the benefits. What are the chances?
You should think about how you will maintain your private network. This can be your network. The commercial applications you create on it can cover its maintenance. You must understand that network maintenance is entirely on your shoulders.
How can a group of people redeem infrastructure expenses? There is a native mechanism for this in a blockchain — cryptocurrency. Independent nodes can compete to mine coins. This is how all infrastructure is built and maintained. Blockchain developers don’t need to worry about infrastructure fees.
What about your DLT? Your DLT is it only available for private use by the network members? The end must justify the means in this instance, which is why independent market players created their own DLT network.
Another example of DLT is the creation of a network by members. You will have to create a sustainable economic model for network members. You will not see anyone spending their resources for nothing, or they will use them unfairly. This will lead to a common tragedy. One solution is to create a native token for the network — hello cryptocurrency!
Private DLT o a blockchain?
Is a permissioned/private blockchain better than a DLT? This is a poor question. They are all different, and their purpose depends on the goal. It would be wrong to attribute blockchain’s features to permissioned DLT.
You can use the infrastructure of existing blockchains to build your application. It is false to believe that blockchain cannot be applied in immutable form. It is actually a major advantage, as no other technology has such credibility for records. There are many ways to create mature applications that don’t run into the immutable ledger.
Security is as important for a centralized DLT as it is for any other technology. If the consortium DLT is intended for public use, it will be decentralized for its members but will remain centralized for all outside users. However, such a DLT may be useful in private applications among independent members. But be cautious with the objectives, as it could be considered a cartel, and can be questioned by antitrust authorities.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Oleksii Konashevych, the author of Cross-Blockchain Protocol for Government Databases : The Technology for Public Registries. Oleksii is a doctoral fellow in the Joint International Doctoral Degree Program in Law, Science and Technology, which is funded by the European Union. Oleksii collaborates with the RMIT University Blockchain Innovation Hub to research the potential of blockchain technology in e-governance, e-democracy. He is also involved in the tokenization and management of digital IDs, real estate titles, and public registries, as well as e-voting. Oleksii was a co-author of e-petitions law in Ukraine. He also collaborated with the country’s presidential administration. Oleksii also managed the non-governmental e-Democracy Group between 2014 and 2016. Oleksii was part of the 2019 drafting of a bill regarding Anti-Money Laundering in Ukraine and taxation issues related to crypto assets.