Revealed: the fallacy of private,

permissioned blockchains
Table of contents
Revealed: the fallacy of private, permissioned blockchains 1

The complex problem of the Internet’s walled gardens 1

A simple solution: a native digital cash system for the Internet 2
Lost in translation: public blockchain 3
Bitcoin’s security depends on its ledger being public 4
The reality of permissioned blockchain for enterprise and government 4

Finding the truth via public blockchain 5

 Revealed: the fallacy of private,
permissioned blockchains
‘It’s easy to make simple complex but it’s very hard to make complex simple.
He who can make the complex simple is a special person.’– Chanakya

If we look at why organisations choose permissioned blockchains, the following emerges as their
requirements (specifically from governments): the belief that data can only be kept secure if it’s not
visible to everybody but only based on access allowed to them.

Ironically, the best way to secure data is to keep it in the public eye or make it public, and that’s exactly
what a public blockchain provides.

The complex problem of the Internet’s walled gardens

With the conclusion of the dot com bubble, the actual utility of the Internet started emerging, with
governments and businesses increasingly coming ‘online.’

The built systems focused on themselves as individual entities and delivering their utilities online. It
created a complex web of services and utilities online that are incompatible with each other. Every
entity has to have its structure to handle users and service providers. It also meant that when they
needed to talk to each other, they needed to work to establish every new connection. The fallacies of
this architecture pattern for Internet application has become more visible as the interactions increase in
volume and require real-time exchanges.

The complexity illustrates not just the problem of interoperability and intercommunication but also the
massive amount of duplicate work that needs to be done even when all of them are talking over the
same Internet protocol. Recently, we have seen the rise of platforms like Amazon, Google, Facebook etc.,
starting to offer specialised services.

They gradually build a whole ecosystem around their platform to offer all services independently,
minimising the need to talk to other applications. It had its downside that, when these platforms started
to become monopolies and, at times, started to dictate the terms of trade, and it often became tough for
governments to ensure fair trade practices.

1
Figure 1: Mesh network of applications and services
In the above diagram, the nodes marked A (Applications) are the centralised hub for the services and
utilities provided to consumers and users. Some of the critical issues that started to emerge are:

• Security of a single system is expensive and difficult to maintain

• Operational cost and complexity are high and increase over time
• Issues in terms of monopolisation and fair practices
• Single systems are becoming a bottleneck in terms of scaling the volume of trade
• Massive inefficiencies due to duplication and complex integrations

A simple solution: a native digital cash system for the Internet

Bitcoin was invented as a digital cash system with built-in accounting (triple-entry ledger model) which
runs on the Internet.

2
 A Bitcoin-Layered Network (BLN)

Layer 1: Miners
Nodes form a near complete graph

Layer 2: Service providers

Service providers connect to nodes in the
central core

Layer 3 and above: Users

Clients connect to service providers

What Bitcoin does is provides an alternative for all these millions of applications (e-commerce, banks and
the rest) that have duplicated some amount of functionality for payment systems with a single digital
cash system.

In its original implementation, Bitcoin can scale to support global trade transactions, which no system in
the history of the Internet has been able to do.

But that is not it; its built-in accounting ledger provides, for the first time, an option to perform real-time
accounting (ex., split tax payment, automated reconciliation).

Not just this, the biggest issue current banking and payment systems face is the volume of transactions
increasing as the world moves away from physical to digital payments, which is a big problem. Most
designs are attempting to solve it using sub-ledgers and then netting and settlement along with many
intermediaries ever-increasing the complexities of such systems.

Bitcoin natively can support micropayments. They can be as low as a thousandth of a cent or less, and
such a system’s fees still stay much lower than the mentioned value of the payment.

Not just this, as the transaction volume grows, the fees become less and less. Solving the problem of
digital cash via public ledger was the real invention of Bitcoin.

Lost in translation: public blockchain

As is often the case, simplicity is not always the first choice. In fact, due to the large number blockchain
projects with their native tokens, the idea of a single global blockchain has been overshadowed by
confusion more than clarity. This created a situation where risk-averse governments and enterprises
decided not to venture into high-risk cryptocurrency tokens.

3
They concluded that they could create blockchain solutions for their use cases without the native token.
The situation resulted in the creation of ‘permissioned blockchain systems’ where a permissioning
system replaced the economic model from the usage of the token. These systems only allowed approved
participants to access the blockchain and ledger. And as expected, this comes at the cost of complexity
and security.

Bitcoin’s security depends on its ledger being public

The best security model is giving no access to anyone, which is why a Bank like Monzo, which uses PKI to
create user accounts, keeps its root key in an air-gapped laptop isolated and wholly disconnected from
any form of communication. However, this can not be the model for applications running and connected
to the Internet.

So what is the best way to secure something?

Ironically, the answer is not so apparent. It is to keep it in the public eye or make it public. And that’s
exactly what a public blockchain provides.

Publishing information in public does not mean that sensitive data should be put on public records for
anyone to access. In the context of public blockchain, it means that we can put data signatures, hashes
and indexes on the blockchain, which are then recorded immutably, making the source of information
tamper evident. It means that information traces* in public can provide the best possible security and
transparency for a system of records.

*Traces in public are imprints that go on public blockchain so that the data integrity is ensured along with
transparency

The reality of permissioned blockchain for enterprise and government

Governments and enterprises, partly due to their apprehensions and partly due to a lack of analytical
research and analysis, have concluded that permissioned blockchain provides them with the benefits of
accountability and transparency while keeping their data private just as they currently do in central IT
data centres.

However, they ignore that when building permissioned blockchains, they aren’t doing anything different
from the existing system setup. The data is still stored under the same controlling entities and prone to
manipulation by the same actors. It still allows for running multiple ledgers or books in parallel, allowing
for different versions of truth to exist. In addition, they are now trusting permissioned blockchain’s
codebase, their developers and their security setup, which adds to further risk for this system.

Another reason for this choice is that the government is not willing to give control to unknown entities
who are mining the blocks in a public ledger.

4
The codebase of a permissioned blockchain is provided by private companies, and the governments trust
them. This, in many ways, is less secure than trusting companies that are performing mining that have
no knowledge of what is present inside the transactions and have to abide by a strict rule set which is
agnostic to information present inside the transactions.

The security of a public blockchain is not hashing or keys. It is transparency and accountability, provided
by a fixed ruleset defined by the network protocol for consensus and mining transactions and publication
of the information on a public ledger which no one can change, not even the controlling entities like
miners who validate these transactions.

A simple alternative to creating a shared ledger and infrastructure around it as it is done in a

permissioned blockchain is shown in the diagram below, which allows governments to keep the
same controls and data ownership still but still use the benefits of a public blockchain. In this setup,
governments don’t even need to own the risk of owning a digital asset (which can be provided by a third
party) but can use the full capabilities of a public blockchain. This can replace many of the permissioned
blockchain systems that require much complexity of building infrastructure, smart contracts and access
controls.

Data integrity with blockchain

• Blockchains provide public timestamp and index service

Digital asset service

Business workflow
Indexing service

Static data, BSV blockchain

dynamic data timestamping server
Hash (index) or data
IT system
Blockchain verification services

No changes to existing IT systems, only an extended integration with

blockchain to publish data signatures and hashes

Finding the truth via public blockchain

We all search for solutions using our different perspectives, but the goal is always the truth - not
anyone’s perspectives of the truth, but the truth.

This is what Bitcoin was made for, to create a single global public record of truth. It doesn’t matter
whether it is decentralised or centralised; what matters is if the public ledger records the truth as once
recorded, it allows anyone to access and build on the truth.

It allows courts to get evidence; it allows businesses to share common public information; it allows us as
a society to come on board for building and to maintain our history together. That’s what is the purpose
of blockchain and the Bitcoin protocol.

5
At the root of most corruption stories, there is someone in the middle, the intermediaries, who act as a
broker between the two trading entities who did something which enabled the corruption. These two
need them as they don’t trust each other. But when we replace intermediaries by a public ledger of truth,
they can execute the trade now using this public record of truth rather than intermediaries.

Permissioned blockchains are another incarnation of these trusted intermediaries, and using them will
not make the IT systems any better than they already are; in fact, it will be a step backwards due to
dependencies created on a third party for the systems that don’t really need them.

Systems are designed based on the risk and the context of the security of a system. Governments in
their aversion to the use of the native token for a blockchain system, are missing critical aspects of why a
blockchain works.

Instead, they should consider the problem of the utility and capabilities that a native token is used
for, and not as a speculative asset for investment. It is unfortunate that there even exists any other
blockchain that is other than the original invention, the Bitcoin protocol implemented currently as the
BSV blockchain. It can provide for every use case for a blockchain and is the only blockchain that has
demonstrated scaling capabilities to support global trade volumes.

We look forward to a future where we can clear the fog of misinformation and truth shines.