Permissioned blockchain arose out of the need of the public to interfere in private transactions. It is fundamentally the same concept as with the blockchain technology I previously wrote on. While the original blockchain allows all members to transact and verify transactions, in permissioned blockchains, the right to verify transactions is available only to a permissioned few.

This model is all set to revolutionise e-governance across the globe.

 

What is blockchain?

For a much clearer idea of permissioned blockchain I recommend that you understand the original blockchain model in depth. Here are some of my previous articles on:

What are bitcoins / cryptocurrency / blockchain – what is so different than fiat money?

How blockchain is changing the legal industry: Smart Contracts

Mining is the process through which new transactions are verified, processed into blocks and added to the blockchain network. Those who do it are called miners. They are rewarded with new digital tokens. The reward is the only way of creating new digital tokens on the network.

In a much simplistic expression, blockchain is the method of maintaining a public ledger of who owns how much money. It is novel because transactions can take place between two persons without the involvement of the traditional system of banking. The members themselves verify and record the transactions permanently on the ledger in an immutable form.

Blockchain therefore does away with the need of a middleman like the bank.

The blockchain model promises us a future free from middlemen. Intuitively, we have always hated middlemen as they invariably increase transaction costs. Middlemen include, music distributors, cab aggregators, lawyers, accountants, banks, so on and so forth.

Imagine sending ten lakh rupees from USA to India at a total cost less than fifty rupees, or paperless real estate transactions, or never having to hire an accountant and never having to fight a commercial dispute!

 

Why permissioned blockchain?

As of now, humans cannot prosper in peer-to-peer economies, we need strict hierarchies to co-exist and to differentiate between the right and wrong. There needs to be one central axis for guidance towards one direction.

Governance, peerages, bureaucracy, at least that is how it has been till now, and surely we will take at least another century to learn to deal in complete privacy. While all new technologies are prone to abuse, only those which adjust to the human nature thrive and grow in the long run.

 

The problems of the original blockchain model and bitcoins

In the original concept of the blockchain network the bitcoin model incentivises the act of mining by rewarding the miner with fresh tokens. Therefore, mining and miners would not and cannot distinguish between legal transactions and criminal transactions. On this system all transactions are equally good and it is just a flawless method of accounting.

This is when the trouble starts. The onset of bitcoins saw a huge spurt in criminal activities, especially the most heinous of them. Criminals found a great way of settling their accounts with each other. With more and more acceptance of bitcoins globally the value of the criminal transactions also increased.

Hence, no government would ever want to officially recognise the bitcoin currency. The acceptance would directly mean that they are either ignorant of or totally fine with the huge criminal aspect bitcoins reveal everyday. Unnecessarily, blood money gets equated to good hard-earned money.

Furthermore, those who were happy working hard and paying taxes, would never want to deal in currency which is equally being used by criminals. As a result, the growth of bitcoins invariably prove the criminal affinity of the human society and of the profiteering others who want to cash in on the growing value of it.

People have asked me if they should invest in bitcoins, I say the trajectory of bitcoins will depend on the frequency of crimes taking place through the network. More the wrongdoings, lesser the probability of it scaling globally. The frequency of bitcoin related crimes in the global media would ultimately decide its fate. If you are a part of the network and you want it to grow, stop abusing it.

 

The permissioned blockchain model

After all, in its originality, blockchain never guaranteed usage coherent with established law of the society. It only delivers immaculate accounting through the triple entry accounting system.1

Even one drop of blood on the bitcoin network should not be tolerated. What do we have to guarantee the usage of the blockchain model according to established law and order? Is there any way to make sure of that?

Fortunately, yes!

Permissioned blockchain networks creates a group of participants in the network who get the express authority to validate new transactions and to participate in the consensus mechanism. Consequently, this creates a system of hierarchy where two or more types of members have different set of rights on the network.

Theoretically, one type of membership can hold the right to allow or deny new entrants to the network based on their legal identities. Another type of membership can hold the right to verify new transactions according to the law of the land. A separate membership can be introduced for taxmen who would be credited with taxes the moment a transaction happens.

This system of hierarchy brings in legal accountability and prevents criminal transactions from happening. Miners and mining need not be deprecated, mining in its original sense may still maintain the transactions and the economy. However, mining of only verified transactions shall take place.

Or, mining can be limited only to the central bank and government who can use the privilege to manage the economy and do public spending.

 

How to create a permissioned blockchain network?

A Digital Signature Certificate Authority (‘DSCA’) may issue Digital certificates to distinguish between members. The DSCA shall store the digital certificates along with their public keys of all members.2

A DSCA may issue different classes of certificates according to the nature of the membership. A specific class of certificate for a specific government agency. Say, the Income Tax department for taxation, judges for attachment of property, police for verification, UIDAI for biometric identity, so and so forth.

Instead of a PAN Card or an Aadhar card, a DSCA may issue a network identity to everyone for the rest of their lives.

 

Applications

Voting and referendum

In a big country like India, collecting public opinion is difficult due to lack of technology infrastructure. The permissioned blockchain model may serve to make referendums real in India.

Everyone can hold one VoteCoin and transfer the VoteCoin to a political party of choice to cast their vote. The party emerging with the most number of VoteCoins in a specific period of time would be the winner.

Attachment of property

Court officers may prevent transaction of an attached real estate property by not validating the transaction on the network.

Cab drivers

Cab drivers may be issued the permission to run ‘smart contracts’3 of driving. Consequently, those not having the permission would not be able to enter smart driving contracts.

Sectoral regulators

Companies may issue digital tokens instead of shares. State agencies like the Securities Exchange Board or the Competition Commission would hold the sole right to validate such issuance.

Municipality of a district can validate or deny transaction of real estate in the concerned locality.

Stamp Duty

A notary can verify and levy stamp duty on a smart contract on the blockchain network.

Corporate governance

A company can create private network based on a permissioned blockchain model. CEOs and Board of Directors may hold the sole right to verify and make transactions on this network.

Journalism

In a crowd-sourced media house, editors may reserve the right to publish content.

Anything!

Finally, there is no end to the application of the permissioned blockchain model!

 


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  1. How blockchain is changing the finance industry: Triple Entry Accounting
  2. Section 24, Information Technology Act
  3. How blockchain is changing the legal industry: Smart Contracts

Posted by Donnie Ashok

Donnie Ashok is a freelance technology advisor, cyber security advisor and a final year law student studying B.A.LL.B at Gujarat National Law University. IndiaTechLaw is an initiative by Donnie Ashok.

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