Blockchain & Money: Session 9: Permissioned Systems by M.I.T. Sloan School of Management with Professor Gary Gensler

Session 9: Permissioned Systems

• Session 9 Study Questions:
  • What is permissioned or private distributed ledger technology? How does it differ from permissionless or open blockchain applications?
  • What are the key blockchain inspired features of Corda and Hyperledger Fabric? What is Digital Asset Holdings?
  • What are the business tradeoffs of utilizing a permissioned vs. a permissionless application? What are the tradeoffs for consumers?

• Session 9 Readings:
  • ‘Enterprises building Blockchain Confront Early Tech Limitations’, CoinDesk.
  • ‘Technical difference between Ethereum, Hyperledger fabric & R3 Corda’ by Nandi
  • ‘What is Corda’, Newton.
  • ‘A Blockchain Platform for the Enterprise, Introduction’, Hyperledger Fabric.
  • ‘What is Digital Asset? / Distributed Ledgers for Financial Institutions’, Coin Central.

Overview: Blockchain Technical & Commercial Challenges; Permissioned Blockchain Systems; Blockchain Systems vs. Traditional Databases; Conclusion.

• Permissionless = open distributed ledger
• Permissioned, = private distributed ledger technology
• Going back to the Blockchain Technical Features (from Session 4).
• NOTE: Permissionless & Permissioned both share the Ledger aspect, and the cryptographic aspect but differ when it comes to the middle part about ‘Decentralized Network Consensus’!
  • It all comes down to who gets to add the additional date, a small exclusive private set, or open to all publicly???

Permissioned Private Blockchains (Key Design Features) (Technical Features)

• Membership Limited to Authorized Nodes (FYI…Layer 2 technology can be membership based, but it’s a technology that’s also open to everyone to use how they see fit.)
• Transactions can also be limited to Authorized know participants.
• Data & Ledgers can be partitioned to keep amongst subgroups of Nodes.
• Consensus built on Permissioned, Private Protocols–Globally or Modular between Transacting parties:
  • Practical Byzantine Fault tolerance
  • Delegated Notary Nodes
  • Diverse Protocols–from Protocols for Multi-Party Consensus to Crash Fault Tolerant for 1 Party
• Uses Cryptography & Registration Authorities to Mask User Data
• Facilitates Smart Contrats using Chaincode or other Programming Language.
• No Native Currency–Possbile, though, with Smart Contracts.
• Code is generally Open Source.

Hyperledger Fabric and Corda vs. Ethereum

Characteristics	Ethereum	Hyperledger Fabric	R3 Corda
Programmings Language	Solidity	Go, Java	Kotlin
Governance	Distributed among all participants	Linux foundation & organization in the Chain.	R3 & organizations involved.
Smart Contract	Not legally bounded	Not legally bounded	Legally bounded
Consensus Algorithm	Proof of Work Casper implementation P.S.	PBFT	Notary nodes can run several consensus algorithm.
Scalability	Existing scalability issue.	Not prevalent.	Not prevalent.
Privacy	Existing privacy issue	Not prevalent.	Not prevalent.
Currency	Ether	None; Can be made using Chaincode.	None.

Note: Hyperledger & Corda are 2 of the biggest private platforms. (Fall 2018).

Note: (Also, there’s a lot of debate about whether private, permissioned blockchains even count as a blockchain according to Nakamoto’s rules.)

• Conclusions:
  • Public Blockchain provides P2P Networking, but with Costs
  • Decentralization Costs and Trade-Offs of Permissionless Blockchain need to be compared to Centralized and Permissioned Systems
  • For Scalability, Efficiency, & Privacy Challenges–though promising work exists on possible solutions–the Financial sector currently favors Permissioned Systems
  • Blockchains–Private & Public–can provide real-time Final Settlement features and lessen Reconciliation costs compared with traditional databases
  • Permissioned Systems may currently provide better performance and privacy than public blockchains but innovation may well narrow the gap.
  • Public Blockchain–Unknown participants;
  • Private Blockchain–Known participants, no native currency; publicly verifiable;
  • Traditional Databases–Trusted Party Hosts Data;

Biblio:

• Gary Gensler. 15.S12 Blockchain and Money. Fall 2018. Massachusetts Institute of Technology: MIT OpenCourseWare, https://ocw.mit.edu. License: Creative Commons BY-NC-SA.

Video Link: Session 9: Permissioned Systems.