A permissioned blockchain is a closed and monitored database that uses a distributed network of computers to store and share data.
To understand how a permissioned blockchain works, you first have to understand how public blockchains work.
The best-known blockchains, such as Bitcoin and Ethereum, are public blockchains. They are designed in such a way that anyone in the world can join the decentralized network of computers that power them. Anyone can also access the transaction records that are stored on these blockchains.
In contrast, a permissioned blockchain restricts those who can join the network and access the information or other resources stored on it. Access is configured by setting permissions — hence the term “permissioned blockchain.” These “settings” are the rules that the protocol and nodes agree on.
The rules on a permissioned blockchain can take many forms and be configured in granular ways. Nodes, or the computers that validate blocks on the blockchain, could be programmed to follow a set of rules that block certain types of transactions from going through. Certain nodes could be allowed to view transactions but not participate in confirming them, or some nodes could only be allowed to communicate with a restricted set of other nodes. Some information could be made available to all nodes, or even to the public, while other information remains private.
In short, a permissioned blockchain architecture allows certain rules to be set with only specific participants allowed.
Permissioned blockchains are often thought to still provide a version of decentralization. This is achieved, in theory, by allowing a trusted third party to run the network and delegate resources to certain nodes. If this is the case, then this trusted third party becomes a single point of failure that can be attacked by a bad actor. Since one of the core values of decentralization is the removal of a trusted third party, a permissioned blockchain cannot truly achieve decentralization.
Different people use the term “private blockchains” to mean different things. In some cases, it’s synonymous with “permissioned blockchain.”
In other usages, “private blockchain” refers to a blockchain that has a fixed network that no one else can ever join. People who use the term in this sense draw a distinction between permissioned blockchains, which can be configured to allow new members to join the network under certain conditions, and a blockchain where access is strictly limited to a select group.
Why might you want to use a permissioned blockchain instead of a public one? Consider the following use case examples for permissioned blockchains:
For decentralization advocates, there may not appear to be much difference between the use cases described here and what centralized databases all over the world already do. But for many enterprises who want to enjoy the efficiency and transparency provided by distributed ledgers but don’t want to fully decentralize their data for the public, a permissioned blockchain can have great appeal.