Open vs. Permissioned: ‘Permissioned Networks’ are the Key to IoT Blockchain Development

Machines conducting transactions with other machines automatically—such as a car paying for gas by itself—may soon be a possibility.

Openness is great, but it also means more latency.

Most obviously, some viable blockchain instances – such as cryptocurrencies – are already being run as ‘open networks’, meaning transactions must be verified by ‘proof of work’ before they can be sent from party A to party B, says Mance Harmon, director of architecture at Ping Identity. Now, with the advent of ‘permissioned networks’, the possibility of blockchain becoming the basis for real-time machine data transfer and transactions – an IoT marketplace – could be realised.

Citing Bitcoin as the best example, Harmon explained:

“For an open network, the identity of its users is unknown and untrustworthy, so proof of work (Pow) is needed to ensure the security of the system.”

He also said:

“The proof-of-work mechanism results in a significant impact on the performance of the network, such as transaction throughput, consensus latency, or how long it takes the community to reach agreement on the order of magnitude of transactions.”

On the other hand, Harmon explained,

“Permissioned networks require a business contract with members, which requires a trust relationship to be established before members join the network. Therefore, network operators use a blockchain that does not require proof of work, which has better performance.”

He added that the main drawback of permissioned blockchains is their inability to scale.

Permissioned Web: Progress is being made

Harmon explained the applicability of blockchain:

“Permissioned networks are still in the proof-of-concept stage, and I haven’t heard of any reports of usable permissioned blockchains.”

However, things are moving very fast, and Harmon cited the Hyperledger project, which is managed by the Linux Foundation, as an emerging permissioned blockchain solution.

Harmon added that blockchain-enabled Internet of Things (IoT) projects — which use sensors or devices to record transactions — are “coming soon.” One example is Filament, which is directly creating industry-level blockchain IoT applications.

He said:

“Filament offers sensors in different form factors that can be used with traditional hardware or integrated into new devices. Each sensor, or object, has an identity and will create a signed sensor data transaction that is placed on the blockchain. Filament envisions that these sensors integrated with customer products will enable autonomous devices in decentralized networks to independently exchange value. These devices can negotiate the exchange of data, network access, currency (such as Bitcoin), computing cycles, service contracts, trusted introductions to other devices, and more.”

Blockchain trading: Who runs the market?

Harmon is bullish on blockchain’s prospects as an enabler of the Internet of Things, but warns that more work needs to be done to effectively establish ‘fair markets’ that cannot be influenced by ‘miners’ or other individuals monitoring the consensus system.

This market-driven approach to real-time data exchange and blockchain transactions is new to many companies.

Harmon said business models must change for IoT to realize its full potential, citing a conclusion advocated by IBM: "Objects will operate independently, using smart contracts for online marketplaces of services and information."

"For example, a car could autonomously communicate with a parking meter and negotiate a rate based on time and other factors. Another example is that every home has a weather sensor that manages lawn irrigation. Second, the weather sensor could provide sensor information on a marketplace and get paid for it. The price of that information could be set based on market supply and demand."