Article by Forbes: Ilker Koksal
Blockchain technology has become relevant to the market following the appearance of Bitcoin, as it represents its backbone and the innovation that makes digital currencies so exciting and full of potential.
Blockchain technology allows the transfer of data/assets/value between two parties while eliminating the need to rely on a third party to facilitate the said transfer. Therefore, it provides a trust layer that did not exist until now, for all types of transactions – as all members of the network have access to the same information via the ledger, thus making it easy for participants to verify and authenticate past transactions.
In business-to-business scenarios, blockchain networks allow for increased trust between parties and instant access to relevant, authentic information. This is so thanks to the fact that blockchains provide a historical record of all transactions, alongside the means to record these entries.
A single, universal blockchain network cannot possibly serve all industries, granted the vastly different needs of businesses, and individual users. This has led to the creation of numerous blockchain networks, each with a slightly different set of protocols, while the back pillars remain the same. Despite the vast number of blockchain networks available at this moment in time, the market has two types of blockchains: permissionless (public) and permissioned (private).
Permissionless blockchain networks power up most of the market’s digital currencies. They allow every user to create a personal address and begin interacting with the network, by submitting transactions, and hence adding entries to the ledger. Additionally, all parties have the choice of running a node on the system or employing the mining protocols to help verify transactions.
In the case of Bitcoin, mining is done by solving complex mathematical equations which in return validate the transactions saved on the network – anyone is free to download the bitcoin blockchain and begin mining operations, in exchange for mining fees and block rewards.
Additionally, for digital currencies such as Ethereum, the blockchain network also supports smart contracts, which are automated transactions that self-execute when specific criteria are met. As Ethereum also employs a permissionless blockchain, anyone can develop and add smart contracts onto the network, with no limitation imposed by the developers.
Apart from allowing anyone to get involved in the network, there are few more characteristics associated with the permissionless model. These are:
- Decentralization: Permissionless networks need to be decentralized, which means that no central entity has the authority to edit the ledger, shut down the network, or change its protocols.
- Digital assets: Another characteristic is the presence of a financial system on the network. Most permissionless networks have a user-incentivizing token, which can grow or fall in value depending on the relevancy and state of the blockchain they belong to. Currently, permissionless blockchains employ either monetary or utility tokens, depending on the purpose they serve.
- Anonymity: Anonymity has become quite relevant in the industry. Many permissionless networks do not require users to submit personal information before being able to create an address or submit transactions.
- Transparency: Transparency is a required characteristic in blockchain networks, given the fact that users who get involved must be incentivized to trust the network. Therefore, a transparent network needs to freely give users access to all information apart from the private keys – from addresses, to how transactions are processed into blocks, and the freedom to see all transactions processed by the network.
And, in the market, there are different examples of it as well. Cypherium is one of the public and permissionless network to deliver the speed and security of the HotStuff algorithm to its users. By nature, the HotStuff algorithm is permissioned, Cypherium amends HotStuff to become public and permissionless
“Cypherium’s new CypherBFT consensus amends HotStuff so that users will be able to admit themselves without central administrative permission, making the network fully decentralized and permissionless. Of course, users will control their private keys, transact autonomously, and freely associate”. Said Sky Guo, Founder, and CEO Cypherium.
It is an entirely permissionless and decentralized public blockchain. Users do not need the approval of any trusted authority to join the network and participate in the protocol. Anyone can use the blockchain to transact and participate in block generation. The data is public so that every participant can read every block. And every participant can write a transaction in a future block.
On the other side, when we look at Facebook’s Libra, they just use this technology to speed up the communication between its handful of centralized, permissioned nodes. It seems it’s usage kind of primarily when thinking about the great network capacity that HotStuff enables. Also as Joseph Lubin, co-founder of Ethereum states Libra “is a centralized wolf in decentralized sheep’s clothing”.
Based on everything that has been outlined so far, permissionless blockchains are bound to be more open to users and tend to have very strict protocols. Transactions are usually verified by all nodes on the network using highly secure consensus protocols.