This week Mark Zuckerberg testified in front of the House Financial Services to supposedly talk about Libra the proposed cryptocurrency and digital payments technology Facebook is proposing. The fact that only a small handful of the congressmen and women actually asked about Libra as opposed to grandstanding for the cameras was disappointing. One topic as a result that was not covered in enough detail for me was the difference between Libra and Bitcoin and what is different at a technology level.
This blog plans to cover one of the main differences between Libra and Bitcoin which is the type of underlying blockchain network that sits underneath the currency or token. In summary, I plan to cover the difference between Permission and Permissionless Blockchain.
Two fundamental types of Blockchain exist; permission and permissionless. A permissionless blockchain is as its name suggests, a blockchain where no permission is required to become part of this blockchain network and contribute to its upkeep. Anyone or anything can become part of a permissionless blockchain. Trading on the network doesn’t require permission, running a node on the network doesn’t require permission, setting yourself a miner doesn’t require permission. Basically, download the required software, set up your wallet, node or whatever components you need to serve your requirements and of you go. I other words a Permissionless Blockchain is a way of saying “public.”
As anyone can join a permissionless blockchain, they tend to be described as decentralized in that no one company or permission is a central point in the network as say a Central bank would be in the fiat currency system. As you can imagine this feature of the Bitcoin network appeals to the parts of the Cryptocurrency community that doesn’t like or have faith in centralised control be that either by a state or any other part of the existing financial services industry.
My personal opinion is that one of the main drivers for the growth and widespread adoption of Bitcoin has been that it is truly global, has no central command and control structure and is a pure manifestation of an egalitarian open source-based technology.
So why do different types of Blockchain exist?
Well there are tradeoffs. One trade-off is that permissionless blockchains are often slower than permissioned alternatives. Transaction information stored on a Permissionless blockchain is validated by the public. With no central organization to regulate what goes on, the system is built on the foundational principle of public consensus on what transactions are considered legitimate. Think of it this way, you have a large family and you need to get everyone in the family to agree on where the 25 of you pick as a location for your summer vacation. The alternative is that your mother just picks the holiday destination, and everyone gets on board. This is a permission-based Blockchain model
Permissioned blockchains flip the whole idea of Satoshi Nakamoto’s original plan for blockchain a full 180 degrees. Blockchains were in their first manifestation designed to be open, free, and public systems. A permissioned blockchain is effectively the opposite. Permissioned blockchains are also oftentimes called private blockchains.
The principle is simple; permissioned blockchains require permission to join. As a result, the owner of a permissioned blockchain has the ability to dictate who can and cannot become part of the network. By way of controlling who has access to the network this the blockchain owner can: dictate the network’s structure, issue software updates, and generally control everything that takes place on their blockchain.
Information on permissioned blockchains is validated only by approved members of that blockchain. The owner can also control who sees that information. In some cases, the public will be able to view certain information stored on a private, permissioned blockchain. Going back to the large family example, your Mother as the central controller of the family network decides who joins the family and what role they play in family decisions.
For a real-world example, let us imagine a supermarket is planning to track vegetables on the blockchain to ensure the provenance of organic vegetables. The information is validated and approved by the supermarket and its suppliers, but the public will be able to trace produce back to its origin. The IBM Food Trust network is such an example. Due to the constrained and smaller nature of permissioned blockchains, they tend to scale better and operate faster.
Hyperledger Vs Ethereum
The big discussion in the permission Blockchain space is what blockchain standard will prevail with Hyperledger duking it out with Ethereum for addition. I could literally write a 10-part blog series on the pros and cons of each technology choice. However, my quick take is that the cryptocurrency world prefers Ethereum as there is also a cryptocurrency called Ether. Large corporations probably prefer Hyperledger as it is managed as a foundation by the Linux Foundation.
The Libra Foundation is planning to use a permission Blockchain and Facebook will operate the Calibra wallet on this network. In order to join the Libra network, I would imagine the Libra Foundation would need to sign off and allow membership, although their statutes as a Foundation are still in flux as they have only had one board meeting to my knowledge as of yet.
In a permissionless blockchain, public network participants validate transaction information. In permissioned systems, transaction information is validated by a select group approved by the blockchain’s centralized owner or group of owners. Permissioned systems tend to be more scalable and faster but are more centralized. Permissionless systems are open for all to join, and as a result, usually more decentralized, the tradeoff is speed and scalability. How the Libra Foundation and Facebook with their Calibra wallet plan to operate their permission-based blockchain network will be interesting to watch develop in the coming months and years.