Some argue that permissioned distributed ledger technology (DLT) can perform better than open blockchains because it is tuned for the latter's problems. Such systems are also known as "permissioned blockchains", as if blockchain is an advanced concept and "permissioned" is one of its variations. But this statement is controversial, read on, and you'll understand why.
Is "permission required" decentralized?
There are many other options to choose from in DLT: permissioned, private, enterprise, federal DLT, and more. Frankly, sometimes, it's not easy to tell them apart. Therefore, for this level of discussion, we only compare DLT and blockchain.
Neither permissioned DLT nor the aforementioned variations are decentralized. There should be no fallacies surrounding this as it can be fatal to a project. While some naysayers may claim that there can be a degree of decentralization, and of course permissionless blockchains are more decentralized.
In simple terms, if there is one person between two counterparties, and there is nothing you can do about it, it is centralization. In a public blockchain, if regular users don't want to rely on miners to include their transactions in blocks, they can draft their own transactions and have a block mined. If the block is valid, the network will accept it. Of course, mining today requires a lot of computing resources, but there are no technical or formal barriers to it — you don’t need to ask for permission to mine. In DLT, network users have different roles and permissions, and ordinary users cannot create and verify blocks. There's nothing wrong with having a centralized system; it's just a matter of knowing what you're getting into.
A permissioned DLT can only be decentralized in one sense, i.e. a federation of independent members (organizations, companies, etc.) run the network with exclusive power to create blocks. Having one beneficiary controlling several affiliates does not decentralize it.
Remember that any federation structure with independent members can be decentralized, but only for those members - it will always be centralized for all members outside the federation.
Is DLT a cartel?
A federated (private/permissioned) DLT can be considered a cartel. Sooner or later, antitrust agencies may challenge this. A safe strategy would be to ensure that the terms and conditions of the consortium are established in compliance with antitrust laws.
By the way, a fully centralized system is much more secure. But centralized systems can never achieve the level of reliability and trustworthiness that blockchains can. It will be as vulnerable as any other centralized system for the following reasons.
Centralized DLTs are not immutable. The ledger can be rewritten at will by someone (or multiple people) who controls it or by a cyber attack. Due to the openness and competitive nature of blockchains (mining, staking, etc.), any blockchain can achieve immutability, so its records will be trustworthy. Thousands of independent nodes ensure unprecedented resistance to any type of attack.
Usually, this comes after the discussion of immutability. How to correct the error? What if you need to change your smart contract? What to do if your private key is lost? You can't trace anything back - changes in the blockchain are impossible. It's hard to get overwhelmed. In this regard, DLT is often the opposite of blockchain alternatives. You'll hear that DLTs can be designed so that whoever controls the network validates transactions as they come in, so that non-compliant transactions aren't allowed through. But it would be a big mistake to think that online censorship will eventually rule out all erroneous and unnecessary transactions. There is always the possibility of error. Then what? Retroactive change as a last resort? But if you can change history, you destroy the whole idea of blockchain. No other technology ensures data immutability to this degree. This is not one of the advantages of blockchain - it is its significant advantage.
However, immutability is considered something that hinders its legal application. Say, your situation changes and you need to change the smart contract. The solution to this problem is to properly design the application so that it does not violate the immutability of the ledger. Smart contracts should be designed in such a way that users can append a new transaction that reflects changes to the previous transaction. Blocks are strictly chronological, only the latest transaction will reflect the current state transaction, while all previous transactions will be historical reference. You don't need to change history. The blockchain is a public repository of evidence that records everything that happened. For all possible legal issues, there are different approaches to app design.
Permissions are not blockchains
If anyone questions your system, they are right. In short: not every chain of blocks is a blockchain. Joining time-stamped data blocks with a hash was invented by Haber and Stornetta in 1991. But no one ever called it a "blockchain" because a blockchain is not just a chain of blocks. It's about how those blocks are created and validated. Blocks are created as a result of open, decentralized and uncensored competition. This is the definition of blockchain, and this is Satoshi Nakamoto's design. Therefore, anything centralized (permissioned, private, etc.) is not a blockchain.
Unfortunately, anyone is free to attribute the word "blockchain" to whatever technology they want, as there is no legal copyright or any legal protection for the word. Proponents of DLT strive to erase the lines between these concepts. But it’s only a matter of time until some attacks on private DLTs show the real difference between DLTs and blockchains and change the situation dramatically. There is a big difference in the number of nodes that secure the network, i.e. a handful of known nodes in a DLT network, or thousands of anonymous nodes around the world in a blockchain network.
We can argue about this on a theoretical level, but when it comes to losses due to system vulnerabilities, no one listens to enthusiastic speeches about DLT. People will start asking questions. If you use "proprietary/permissioned" DLT, you should be prepared for this.
If you still want permissioned networking
A safe strategy is to use the term "DLT" in all communications. This may not address possible vulnerabilities, but you can say something like: "We never said it was a blockchain." By the way, ENISA (European Union cybersecurity agency) always uses "distributed ledgers" in their reports. ” instead of the blockchain. Instead, their colleagues at the National Institute of Standards and Technology used "blockchain" in their earlier report.
Do you want to create your own public blockchain network? It's not necessarily a good idea unless you have solid technology and a sound plan. First, [permissionless] blockchains do not imply security by default. To achieve a certain level of immutability and attack resistance (credibility and high market cap of your currency), you need thousands of independent nodes all over the world. If you have the resources to create community on this difficult path, your network will survive and you will be rewarded. But what are the odds?
DLT economy
If you're still thinking about creating a private or permissioned network, think about how to maintain this infrastructure. If it's just your network, then you can find a solution because the business application you develop on it can maintain it. But you must understand that network maintenance is entirely your responsibility.
If you have a coalition of members, how do they redeem infrastructure spending? In the blockchain, there is a native mechanism - cryptocurrency. Independent nodes compete to mine coins. This is how the entire infrastructure is created and maintained. Those developing applications on the blockchain need to worry about fees, not infrastructure.
But what does your DLT look like? Is your DLT only for private use by network members? In this case, the end must justify the means, so the reasons for independent players in the market to create their own DLT networks must cover the costs they incur to create and support the network.
Consider another story about a DLT, developed by members of a network for external users. Inevitably, you need to devise a viable economic model for network members. No one will waste their resources in vain, or resources will be applied unfairly - you will end up in a shared tragedy. One possible solution is to create network-native tokens — say hello to cryptocurrencies.
Are Private DLTs Blockchains?
Are permissioned/private DLTs better than blockchains? This is not an appropriate question. They are different and their use depends on what you are trying to achieve. However, it is a fallacy to attribute the properties of blockchain to permissioned DLT.
Leading existing blockchains can provide reliable infrastructure for applications. The idea that immutability hinders blockchain adoption is a misconception. Rather, it is a major advantage, as no other technology offers such a high level of record confidence. There are various ways to create full-fledged applications without conflicting with immutable ledgers.
Individually controlled DLTs are centralized and thus require the same attention to cybersecurity as any other centralized technology. A consortium DLT is decentralized for its members, but always centralized for external users (if the DLT is designed for public use, of course). At the same time, in private applications between independent members, the use of such DLT can be fruitful, but be aware that it may be considered a cartel and challenged by antitrust authorities.
Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.
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