We have covered a lot about cryptocurrencies and how the underlying technology blockchain works. However, large enterprises still prefer to use private and permissioned networks instead of public and permissionless ones, but why? In this article, we will talk about how large enterprises are using blockchain nowadays and give you a handy guide that helps you determine if your project needs blockchain.
Introduction to Permissioned Blockchain
Blockchain is an implementation of distributed ledger technology (DLT) used to store data. Most cryptocurrencies are built on their own blockchains, which are accessible by everyone in the world; this kind of blockchain is known as ‘permissionless’ blockchain.
A permissionless blockchain is a network that everyone can join, and the information on the chain is available for all participants. In contrast, a permissioned blockchain is a blockchain network that needs permission to access. Permissioned blockchains only allow certain actions to be performed by authorized participants. As a result, the owner of a permissioned blockchain can dictate who can and cannot become part of its network. This control also enables the blockchain owner to decide the network’s structure, issue software updates unilaterally, and control almost everything that takes place on their blockchain.1 Information on permissioned blockchains will then be validated by approved members of that network. The owner can also control who can see that information.
Since a blockchain can be viewed as a database, what are the differences between a blockchain and a conventional database? We can use the table below to compare their main differences:
We have seen that traditional databases are widely used for data persistence in every field in the past decades. And in general, commonly databases are suitable in the area where
- Apps or systems utilise continuous flows of data
- Fast processing of data is required
- Data is relational
Features of Permissioned blockchain
- Varying degrees of decentralisation
- Private blockchains can be fully centralised or partially decentralised. It depends on the consensus algorithms that they wish to employ.
- Governance is decided by the members of the business network. There are various dynamics to determine how decisions are made on a central level.
- Efficient performance – due to the restrictive nature of permissioned blockchains, they tend to be more scalable and operate faster.
With the advantages of data integrity, safeguard against the single point of failure and consolidating controls, permissioned blockchains can be used in the private sectors in which participants have certain conflicts of interest against each other. For instance, a bank that hopes to build a blockchain system to store customers transactions could choose to only authorise the bank’s staff to view the data. The following table shows a list of popular permissioned blockchain platforms.
What is a Hyperledger Blockchain?
The official definition and description is as follows:
Hyperledger is an open-source collaborative effort created to advance cross-industry blockchain technologies. It is a global collaboration hosted by the Linux Foundation, including leaders in finance, banking, Internet of Things, supply chains, manufacturing and technology.
It is a project started in December 2015 by the Linux Foundation – and has received contributions from IBM, Intel, and SAP to name a few – to support the collaborative development of blockchain-based distributed ledgers. It has more than 100 member companies today.
Hyperledger was built with the aim of accelerating industry-wide collaboration for developing high performance and reliable blockchain-based DLT framework that could be used across various industry sectors to enhance the efficiency, performance and transactions of various business processes. It is important to note that Hyperledger is not a company, nor cryptocurrency, nor blockchain system. It works by providing the necessary infrastructure and standards for developing various blockchain-based systems and applications for industrial use. Hyperledger incubates and promotes a range of business blockchain technologies, including distributed ledger frameworks, smart contract engines, client libraries, graphical interfaces, utility libraries and sample applications.
Hyperledger projects
What Makes a Project Hyperledger?
All projects under the Hyperledger umbrella follow the design methodology that supports modular and extensible approach, interoperability, and security features.
In terms of the architecture, Hyperledger uses the following key business components:
- Consensus Layer: Responsible for generating an agreement on the order and confirming the correctness of the set of transactions that constitute a block.
- Smart Contract Layer: Responsible for processing transaction requests and determining if transactions are valid by executing business logic.
- Communication Layer: Responsible for peer-to-peer message transport between the nodes that participate in a shared ledger instance.
- Data Store Abstraction: Allows different data-stores to be used by other modules.
- Crypto Abstraction: Allows different crypto algorithms or modules to be swapped out without affecting other modules.
- Identity Services: Enables the establishment of a root of trust during the setup of a blockchain instance, the enrollment and registration of identities or system entities during network operation, and the management of changes like drops, adds, and revocations. It also provides authentication and authorisation.
- Policy Services: Responsible for policy management of various policies specified in the system, such as the endorsement policy, consensus policy, or group management policy. It interfaces with and depends on other modules to enforce the various policies.
- APIs: Enables clients and applications to interface with blockchains.
- Interoperation: Supports the interoperation between different blockchain instances.
Permissioned Blockchain and its Applications
Features of permissioned blockchains discussed previously (such as efficiency, decentralisation, and governance) make it suitable for private institutions such as banks and supply chains, for which security, identity, and role definition are important. In the following parts, we will provide some examples of industries where permissioned blockchains can be of use.
Digital currencies
Facebook’s Libra (now called Diem) is built on permissioned blockchain using a consensus called LibraBFT (LBFT). LBFT decentralises trust among a set of validators that participate in the consensus protocol and maintain agreement on the history of transactions. Central Bank Digital Currency (CBDC) can also be built on permissioned blockchain to enhance the efficiency of cross-border payment. Blockchain enables trust between network participants who have individual incentives yet needs to collaborate with each other. In the case of CBDC, different central banks each have their own agenda yet need to collaborate with each other; hence this would be a perfect use case for permissioned blockchain.
Finance
The blockchain’s architecture based on distributed consensus eliminates single points of failure and reduces the need for data intermediaries such as transfer agents, messaging system operators and inefficient monopolistic utilities, thus enhancing security. The use of mutualiszed standards, protocols, and shared processes improves transparency by acting as the single shared source of truth for network participants. It can provide tools for granular data privacy across every layer of the software stack, allowing selective sharing of data in business networks. The private and hybrid networks are engineered to sustain large volumes of transactions and periodic surges in network activity.
Government
A blockchain backed government system can preserve data, streamline processes, and reduce fraud, waste, and abuse while simultaneously increasing trust and responsibility. On a blockchain-based government system, individuals, businesses, and governments share the same resources over a distributed ledger secured using cryptography. As data on the blockchain is immutable, it can improve data integrity and decrease the opportunity of corruption. This structure also eliminates a single point of fallibility and subsequently protects sensitive civil and government data.
Supply Chain
Supply chain systems contain complex networks of suppliers, manufacturers, distributors, retailers, auditors, and consumers. A blockchain’s shared and permissioned IT infrastructure would streamline workflows for all participants with the scalable business network. Furthermore, a shared and permissioned infrastructure would provide auditors with greater visibility into participants’ activities along the chain. Blockchain technology, combined with the ability to program business logic and the adoption of smart contracts increases the transparency into the provenance of goods (from the source point to end consumption), improves accurate asset tracking, and enhances licensing of services, products, and software.
Should I Use Blockchain for my Project?
Blockchain is widely talked about and becoming a household name nowadays. But is a blockchain necessary for all kinds of needs? Let’s discuss whether a blockchain is indeed the appropriate technical solution for a particular application scenario. To analyse the suitability, we introduce a classic decision model – the Decision Tree. A decision tree is a useful support tool to help you uncover possible consequences, event outcomes, resource costs, and utility.
Question 1: Do you have to save data or states?
This is completely independent of the blockchain, this is about the demand for a database in general, as blockchain is a kind of database system. If you do not intend to store any data in your organisation, you do not need a blockchain.
Question 2: Are there multiple writers?
A blockchain is necessary only if several writers or active nodes manipulate in blocks and insert blocks into the blockchain. This is because the technology offers no advantage if only one instance wants to store data, and you don’t have to worry about security or trustworthiness. A normal database would be better here because of faster response times and data throughput.
Question 3: Is there a trusted third party?
If all parties agree that they can fully trust a particular third party, a blockchain is not absolutely necessary. A blockchain has its advantages in avoiding centralised entities which are not 100% trustworthy.
Question 4: Are all writers known?
If all parties know each other, a permissioned blockchain could be considered. This is not a publicly accessible blockchain but is only reserved for certain participants. This can be limited to participants within a company or several cooperating companies and their suppliers and customers. In this case, you should note that the decentralised approach of the blockchain is not as relevant, and a centralised database is more to the point. If not all participants are known to each other, and there are concerns over trustworthiness, then the permissionless blockchain is a better option.
Question 5: Are all the writers trustworthy?
If all parties know and trust each other, a blockchain is unnecessary. While blockchains have other advantages, the disadvantages have to be also considered. If none of the participants are malicious but trustworthy, a normal database with shared write access can be a better solution.
Question 6: Is public auditability necessary?
The permissioned blockchain represents a solution in that all participants in the network know each other but do not trust each other completely.
Separation of rights would still have to be made. If writing / inserting data requires permission, yet anyone is allowed to read the data, it would be a publicly-permissioned blockchain (even in this case, the blockchain is able to encrypt critical data and comply with data protection rights). In a privately-permissioned blockchain, both the writers and the readers are restricted.
So now you’re across how the blockchain can work outside of its traditional financial framework, you can better understand the possibilities and potential need for embracing the blockchain system. From data libraries to other collected forms of information, blockchain could just be the safest, most reliable way to reshape the online security structure.
