Consensus as a Service: a brief report on the emergence of permissioned, distributed ledger systems

Distributed ledgers and cryptocurrency systems are fundamentally different. The key difference involves how transactions are validated: Bitcoin uses pseudonyous and anonymous nodes to validate transactions whereas distributed ledgers require legal identities – permissioned nodes to validate transactions. Consequently, distributed ledgers are able to legally host off-chain assets due to their authenticated, permissioned approach to validation. Bitcoin and other permissionless systems cannot. Eight alternative projects are looked at. Each are at different levels of development and the overview includes a brief description of the value-add they are attempting to provide. Several use-cases for smart contracts and distributed ledgers are identified and comparisons between different types of distributed ledger technologies are made. Interoperability between systems, between new and legacy systems, is found to be an important intersection (e.g., where do smart contracts begin and end).
There are a variety of trade-offs between permissioned and permissionless systems involving speed, cost reduction, censorship, reversibility and finality. And due to their gated approach, permissioned systems as a whole are capable of clearing and settling assets faster and are cheaper to maintain than capital-intensive permissionless systems. Based on this research, it is unlikely that financial service providers like banks will have a need for cryptocurrency systems primarily because systems such as Bitcoin use anonymous validators and are unable to be a legally official register of assets due to the network’s vulnerably of transaction reversal by anonymous attack. In comparison, by design, permissioned, distributed ledger systems are more congruent with the existing banking system and therefore provide more utility to financial institutions.
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Authors

  • Tim Swanson