What it means
A blockchain stores records in linked blocks that are copied across many computers, so no single party controls the history. On a public, or permissionless, chain anyone can take part, and security comes from open competition and cryptography.
On a permissioned chain a gatekeeper decides who gets in, and every participant has an identity that the others can see. That change of design has practical consequences.
Because the members are known and trusted to some degree, the network can use faster agreement methods than the energy-hungry mining used by some public chains, and it can handle many more transactions per second. It can also restrict who sees which data, which matters for confidential commercial records.
Typical users are groups of organisations that need to share a single version of the truth but do not trust one another enough to rely on one member's database. Examples include banks settling trades, shippers tracking containers, and insurers sharing claims data.
Well-known platforms for this include Hyperledger Fabric and Corda. For finance leaders the questions are about governance, cost and value.
Who runs the nodes (the computers that hold the ledger), who decides on rule changes, how are disputes settled and what does it cost to run? A permissioned chain is only worthwhile if it removes real costs such as reconciliation, delays or duplicated data entry.
The nuance is that a permissioned blockchain gives up some of the key advantages of the public version. It is less resistant to censorship, because the gatekeepers can change the rules, and it can look much like a shared database with extra steps.
The honest test is whether a conventional shared database could do the same job more cheaply.
In practice
Real-world examples.
Example
A group of eight banks sets up a permissioned chain to record trade confirmations. Each trade is entered once and visible to the two parties involved, which removes the need for each bank to reconcile its own records against the others every night. Operations staff spend far less time chasing mismatched entries, and settlement can happen sooner. The banks share the running costs according to their trading volume.
Example
A shipping company and its customs brokers, port authorities and trucking partners use a permissioned chain to track containers. Every handover is recorded with a time stamp, so disputes about who held a container and when can be settled quickly. Customers can also see the status of a shipment without phoning each party in the chain. Insurance claims for damaged goods become easier to prove.
Example
A food retailer requires its suppliers to log batch details on a permissioned chain. When a contamination alert arrives, the retailer can trace affected products to their source in minutes rather than days. The retailer also limits what suppliers can see about each other, so commercial secrets stay protected.
Case study
Seen in the real world.
Tidewater Mutual is an illustrative, fictional insurer that joined a consortium of six insurers to build a permissioned chain for sharing claims information. The goal was to catch duplicate claims submitted to several insurers at once.
The members agreed rules for who could write data, who could read it and how new members were admitted. Each insurer ran its own node and shared only the fields needed to spot duplicates, so customer details remained private.
In the first year the network flagged enough duplicate claims to save Tidewater about $1,800,000, against annual running costs of $700,000. The illustrative lesson is that a permissioned chain pays off when many parties share a costly problem and are willing to agree on common rules. The consortium also learned that the technology was the easy part, and that agreeing governance and cost sharing took far longer than building the software.
Watch out
Common mistakes.
- Assuming a permissioned blockchain has the same trust properties as a public one, when a small group of gatekeepers controls it.
- Building a chain without first asking whether a shared database would do the job, which often costs less.
- Ignoring governance, so that members cannot agree how to change the rules or share costs.
Questions
People also ask.
What is the difference between permissioned and permissionless blockchains?
Permissioned chains admit only approved participants, while permissionless chains such as Bitcoin let anyone join.
Are permissioned blockchains private?
They can be, because access to data can be restricted to certain members, although privacy depends on how the system is designed. Members should check what is visible to whom before joining.
Why do banks prefer them?
Banks must know who they deal with for legal and compliance reasons, and a permissioned chain gives them identified counterparties with controlled access. It also helps them show regulators who did what and when.
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