Bitcoin, blockchain and cryptocurrency are words that most people have at least heard of since the industry exploded into the mainstream public consciousness in 2021.
Over the course of this series of articles, we’ll be delving into the basics of the industry, providing an introduction to crypto that will give you a solid grounding in the technology and a lexicon for its terminology — cryptographers should never be allowed to name anything the public will eventually need to know — in short, enough to understand what people are talking about and decide if you want to learn more.
See also: PYMNTS Crypto Basics Series: What’s a Consensus Mechanism and Why Is It Destroying the Planet?
So, What’s a Permissioned Blockchain?
One answer is that it is a blockchain that can only be accessed by users approved by a central authority. Another is that it’s an oxymoron that actually makes a lot of sense.
After all, isn’t the core feature of a blockchain is that it is decentralized?
Anyone can see the public transactions on a blockchain, and anyone can buy a computer, download the code and a copy of the blockchain’s blocks, and set up a node without asking anyone’s permission. For a block of transactions to be added to the blockchain, the nodes must agree that it is valid. Consensus is reached, the collection of transaction becomes an immutable part of the blockchain. That’s how it works.
Because that consensus is required, if enough people in enough geographically and politically diverse places set up nodes, blockchains are effectively uncensorable and unchangeable. And when that consensus is reached, a blockchain becomes useful: Two unknown parties can transact safely without the need for a trusted third party.
As bitcoin’s pseudonymous creator Satoshi Nakamoto made clear, that’s the whole point: Decentralization allows permissionless and trustless transactions. Which is why decentralized finance, or DeFi, allows users to thumb their nose at things like anti-money laundering rules.
So, to slightly reframe to our original question, why a permissioned blockchain?
Because there are a lot of business uses for an immutable ledger on which everything is immediately trackable to its source.
That’s why J.P. Morgan was building its own permissioned blockchain, Quorum, with its own cryptocurrency, the JPM Coin, not long after J.P. Morgan Chase CEO Jamie Dimon called bitcoin a “fraud” and threatened to fire any of his traders “stupid” enough to trade.
Quorum was used to power the 300-member Interbank Information Network, since transformed into JPMorgan’s Onyx unit’s Liink.
Read more: JPMorgan Uses Liink Network To Help FIs Innovate Payments Economics
Some of the biggest permissioned blockchain platforms include the Linux Foundation’s Hyperledger, incorporating IBM Blockchain’s flavor of Hyperledger, Fabric; Quorum, based on Ethereum’s technology and since sold to ConsenSys; and R3’s Corda, which began as a competitor to cross-border payments platform Ripple, battling for the right to take on SWIFT.
Saving Dollars, Saving Lives
We’ll get into the details of how permissioned blockchains work and what advantages they offer, but let’s start with an example of how they’ve been used. One of the first breakout successes in the permissioned blockchain world was the IBM Food Trust network, used by Walmart, Nestlé, Dole, Shoprite, French supermarket chain and B-to-C blockchain pioneer Carrefour, and many others.
Walmart started by testing a private blockchain on mangoes, but quickly pushed it into a far more important sector: leafy greens. If you’re not a dedicated carnivore, you’ll remember that in 2018, Romaine lettuce had an annus horribilis after multiple salmonella outbreaks caused several deaths, many illnesses and forced weeks-long recalls that saw many thousands of tons recalled and landfilled.
While the outbreaks were from geographically small regions, by the time the lettuce got to consumers, it had been intermingled with supplies from so many other regions by so many intermediaries that it took the Food and Drug Administration weeks to trace it to the source. At each layer, it had to go to all the intermediaries, have them trace their supply chain on their own systems, and do it all over again one step down the supply chain.
Enter blockchain. Walmart required all of its leafy greens suppliers to sign onto its private Food Trust permissioned blockchain. At every step, each container of lettuce received is recorded onto the blockchain as a transaction — effectively no different than what happens when you make a payment with bitcoins — rather than (or in addition to) each individual supplier’s own database. Only Walmart suppliers were allowed to use the blockchain, and Walmart could limit what each member saw — so suppliers would not be able to use it to spy on competitors.
See also: PYMNTS Crypto Basics Series: What’s a Blockchain and How Does It Work?
As a result, that Caesar salad could be tracked from farm to table instantly. Tracking salmonella-tainted lettuce would take moments, and thousands of Walmart supplier farmers would not see their livelihoods dumped in the garbage. Carrefour did the same thing with organic chickens, but slapped QR codes on the packages that could be scanned by shoppers for information about the specific farm where that bird was raised — a marketing tool.
Walmart China later combined the two, allowing consumers to track the provenance of pork after a series of severe food safety issues caused consumers to back away from the staple. Sustainable sourcing, fair trade wages for laborers and legal compliance are among the things that can also be tracked.
In January, Harvard Business Review published a case study of Walmart Canada’s use of permissioned blockchain for invoicing, allowing it to automate payments — using blockchain’s self-executing smart contracts — to 70 third-party freight carriers moving 500,000 shipments annually. This incorporates 200 data points ranging from time zones to fuel used. Disputed invoices dropped 70% to less than 1%.
The same techniques now track more than half the world’s shipping containers around the globe through a consortium permissioned blockchain project, TradeLens, started by shipping giant Maersk and joined by many of its largest competitors who saw not only the benefits, but the privacy protections available. Bring internet of things (IoT) technology-based thermometers onboard and milk buyers can see that a quart never lost refrigeration — and distributors can be alerted if it does.
How it Works
Permissioned blockchains tokenize every transaction, which is exactly what it sounds like — but instead of a cryptocurrency whose price depends on market factors, the tokens are simply issued for tracking purposes.
Because the nodes are centrally controlled, there is no need for expensive systems like mining or staking rewards or the transaction fees that compensate node runners.
See also: PYMNTS DeFi Series: What is Staking?
Because they are controlled by a single entity, or group in the case of enterprise blockchain consortia, there is a clear governance structure — a central authority that vets members, determines who has access to what information, and can offer security from hackers exploiting flaws in code. That said, without the independent node runners, the possibility of a 51% attack that allows bad actors to interfere with transactions is greater — although also easier to identify and the damage easier to reverse.
Read more: The 51% Attack: Crypto’s Double-Spending Achilles Heel
Smart contracts to automate invoices, payments, and really any kind of tracking can be can be pre-screened for flaws. And decentralized nodes mean decentralized storage of information, which is encrypted but also backed up.
And, because the participants are known rather than anonymized behind private key code encryption, transactions can be reversed and bad actors identified and expelled. There is no need for, or use for, independent developers who can write bad code without consequences.
See more: PYMNTS Crypto Crime Series: The $612 Million Heist That Wasn’t
And because the blockchain is still immutable, no one with the right access code can change transaction details. Beyond that, blockchain doesn’t have to replace legacy systems, but can be built alongside them.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
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