Traditionally, these relationships have been mediated by contracts, payment systems, and intermediaries that can take days or weeks to settle across multiple jurisdictions. Blockchain is a technology that makes it possible for parties to update and maintain an append-only record of data jointly. If you are interested in trading Bitcoin, you may use a reputable trading platform like https://www.bitqs.io/.
Blockchain is best suited for situations where transactions between two parties happen rapidly and are high volume. In businesses, anything that has a transaction and is programmed for high volume lends itself to the blockchain. There are two viable blockchains today: permissioned and public (permissionless). The differences between the two are essential to understand in a business context.
Public blockchains are permissionless, anonymous, and decentralized. Anyone can download a full copy of the blockchain and participate in validating transactions and creating new blocks. No one owns or controls this type of blockchain, and anyone can use it by default. In businesses, public blockchain networks are a trusted way for operations to communicate data and transact with partners.
Permissioned blockchains, by contrast, have a limited number of validators (or “partners”) who have been vetted and authorized by the organization that is using the blockchain. The validators are typically referred to as “trusted parties” and are responsible for verifying and recording transactions in the network. This type of blockchain lends itself to business-to-business transactions between organizations on a single network. In this scenario, the participants understand who has authority on which block (chain) and how they can verify each other’s identity. Let’s discuss the pros and cons of these two types of blockchain in businesses and evaluate which is best.
Pros of permissionless blockchain in businesses:
A public blockchain is designed to be fully distributed, allowing anyone to participate without a central authority. This type of blockchain uses an algorithm to validate transactions and incentivize participation in the network. These incentives are often in the form of financial rewards, whereby participating computers are given cryptocurrency for keeping the network safe and secure.
2. Decentralized validation
The security is implicit in the network because it’s decentralized, and as such, it doesn’t rely on any single person or entity to secure it. A hacker would need to compromise every computer in the network simultaneously before they could compromise transaction integrity or availability.
The open nature of a public blockchain means that no one can change the data without everyone else knowing about it. That’s because the blockchain is replicated on so many computers that to change something on it would mean rewriting the blockchain’s copy held by every computer simultaneously. In businesses, this translates to a system with more trust because all participants can see what happens and hold each other accountable for bad behavior.
The public nature of a public blockchain means that anyone can see what is happening at any given time, unlike private blockchains, where only those who are invited/validated can see what is happening on them.
Pros of permissioned blockchain in businesses:
A permissioned blockchain is built upon a single organization’s infrastructure, reducing vulnerability to the outside world. The network operator has the participants vetted in advance and authorized to access it. Transactions between these parties are far easier to validate because trust between them is already established, making it easier for them to trust each other’s transactions in the network.
2. Single source of truth
The known identities of industry participants allow businesses to know who they transact with and where they stand with one another. Without this knowledge, businesses would need to go through a cumbersome process of cross-referencing multiple databases other stakeholders may hold to get an accurate picture of what is happening on the blockchain.
Known identities of the participants lend themselves to structured, controlled access rights for each node in the network. Businesses can control who can access what in the blockchain and when.
4. Speed of settlement
Because there is a smaller number of validators in a permissioned blockchain, it’s easier to validate transactions and, therefore, faster. Permissioned blockchain has demonstrated a transaction speed of fewer than 6 seconds for settling a cross-border invoice on their permissioned blockchain.
Permissioned or permissionless: which is best for businesses?
In businesses, decision-makers have a few considerations when deciding whether to use a permissionless or permissioned blockchain. On the one hand, public blockchains like Bitcoin and Ethereum have made much progress regarding speed and enabling frictionless transactions between users.
On the other hand, the benefits of using a permissioned blockchain are evident for business-to-business interactions, which are characterized by higher data privacy requirements. Although on paper, public blockchains should be better suited for business because they’re able to transact faster and with lower fees, it’s become clear that this isn’t always true.
As permissioned blockchains are built on top of existing infrastructure (e.g., banking system), they can leverage this infrastructure and speed up transaction settlement without relying on expensive public decentralized networks.
Furthermore, there is a lot of scrutiny around the security and stability of public blockchains like Bitcoin and Ethereum. A large number of transactions performed every second means that people can manipulate the network for their interests. It isn’t a genuine concern for business-to-business interactions where the companies are already known to each other, but it’s worth considering when evaluating your options.