Permissioned Blockchain: Too Many Compromises, or a Private Database Solution?

Tibor Tarabek,is Chief Data Officer at FUERGY, a unique AI-powered device that utilizes blockchain to help users optimize energy consumption, maximize energy efficiency & participate in the energy market.

Industrial giant Siemens is one of the more recent corporations to join the likes of Standard Chartered in unlocking blockchain’s potential. However, like many big corporations who have entered, Siemens has chosen the closed group, private, invite-only option, otherwise known as permissioned blockchain. Rather than the more renowned visible, open-sourced, public blockchain.

Blockchain has proven too big to ignore as these large, worldwide corporations jump aboard the blockchain hype - but why are they opting for permissioned blockchain? What are the advantages, and is it, perhaps, the wrong move?  

Is permissioned blockchain just another database?

The main difference between public and permissioned blockchain is that in a public blockchain, anybody can participate in the network. But in permissioned, participants need to be selected in advance or invited, as access to the network is restricted. Permissioned blockchain is therefore running a closed environment and is therefore arguably acting similarly to a standard rational or nonrational database. Yes, it is still blockchain because it has the safety element as well as being searchable for history and records etc. However, some would go as far as to say that it merely replicates a new version of Oracle, Microsoft SQL, or IBM DB2.

A permissioned blockchain, also known as private blockchain, is supposedly run in closed environments to prevent others from seeing the transactions between two parties using the blockchain - just as a database would. However, a public blockchain can still offer some private options. Modern Delegated Proof of Stake (DPoS) based blockchains include details of transactions which other participants do not have to see, and can therefore be implemented as “private messages”.

For many companies, setting up a permissioned blockchain is therefore just a waste of time, energy and money. All it involves is writing up data into a new version of a database — just one with a fancier name.

Permissioned blockchain loses some of blockchain’s main advantages

Blockchain’s main selling point is the fact that it is an open, decentralized, peer-to-peer, borderless, permissionless, immutable system. Banks, and corporations that want to use permissioned blockchain are giving up some of the main value propositions of blockchain tech.

The whole point of using blockchain is to allow users to see all records from everybody involved, to know when they were written, how and in what context. In a permissioned blockchain this content is not visible to everyone. Corporations, for fear of privacy more than anything, want to build a small network of known actors, establishing a blockchain for themselves. However, in this permissioned network, the only privacy granted is from non-participants. While blockchain networks only run properly if there are multiple participants, and competitors, surely there is little benefit from being private from non-participants.

Public blockchains are so reliable these days, that users needn’t worry about data privacy. Even with today’s computing power, data visible on public blockchain is impossible to decrypt. And according to the base logic of every blockchain, the more nodes participate in the blockchain, the more complex it will be to tamper all of them at once in the real time, for any kind of attacker.

Public blockchain can offer corporations beneficial opportunities, such as exploring partnerships with unknown business partners that they will have access to. Ethereum, for example, is a platform built on public blockchain, and allows for the creation of “smart contracts”. These contracts, or transactions, occur automatically, instantaneously, and securely. Rather than having to go through the manual signing of paperwork, Ethereum-based smart contracts can automatically perform when the user’s specified conditions are met. Businesses looking for partnerships can do so in a fully distributed public ledger, eliminating costs of third parties and improving transaction security.

When does permissioned blockchain make sense?

Of course, there are still legitimate use cases for a permissioned blockchain. Permissioned works well for businesses that know exactly who the participants of the network will be - and how many of them there are. For example, a distribution or logistics company (like DHL or Maersk) working with their big customers. Both parties can establish a common blockchain system together where Enterprise Resource Planning (ERP) system transaction details of both their ERP systems will be written. A permissioned blockchain allows them to establish a trusted connection between these ERP systems, allowing both companies to write in their system transaction details. Both companies can maintain it, and no outside actor can become involved.

A permissioned blockchain is far from practical to set up and run without the right resources and therefore only really works for large companies with the infrastructure to maintain it. Companies can turn to several blockchain-as-a-service (BaaS) offerings to help operate a permissioned blockchain, such as IBM, the current market leader with 32%, or Microsoft with 19%. However, to do this would require capital that only giant corporations have at their disposal. For smaller companies, choosing a permissioned blockchain just isn’t worth it.

Permissioned blockchain is trying to become the corporate route into blockchain. Enterprises are opting for permissioned blockchain because they have the infrastructure, and perhaps seek the control that it offers. However, for many corporations, deciding to use permissioned blockchain has become more of a trend, or a move to stay up to date in this increasingly technological world. In reality, a permissioned blockchain is simply a new version of a database network that needs more resources and infrastructure to uphold.