Step by step guide to setting up a permissioned blockchain


Blockchain technology is a decentralized digital ledger that records and verifies transactions across a network of computers in a secure and efficient manner. However, there are different types of blockchains, including permissioned and permissionless blockchains. This article focuses on setting up a permissioned blockchain, which is a network where a centralized entity controls the access to the blockchain.

What is a permissioned blockchain?

A permissioned blockchain, also known as a private blockchain, is a distributed ledger that allows a limited number of participants to have control over who can access and participate in the network. It is a closed system where entities have to be invited to participate. Permissioned blockchains provide more privacy, security, and scalability, which is why many businesses prefer them.

Benefits of a permissioned blockchain

Permissioned blockchains have many advantages over other types of blockchain networks, including:

  • Control: A centralized entity controls the access and participation in the network.
  • Privacy: Participants can choose who they want to share their data with.
  • Security: Permissioned blockchains use digital signatures, cryptography, and other security measures to ensure that data is secure.
  • Scalability: Permissioned blockchains can process more transactions per second than public blockchains, making them ideal for businesses.

Step 1: Define the Network Participants

What are network participants?

Network participants are the entities or individuals that are authorized to access the permissioned blockchain network. These can include customers, suppliers, regulators, auditors, and any other relevant parties with a stake in the network. Defining the network participants is crucial in establishing a secure and controlled blockchain ecosystem.

How to define the network participants?

The following steps can be taken to define the network participants:

  • Identify the parties that will be involved in the network.
  • Create a list of criteria for the selection of network participants.
  • Verify the identity and reputation of the potential network participants.
  • Establish specific roles and responsibilities for each participant in the network.
  • Draft legal agreements and contracts that outline the responsibilities and obligations of each participant.

Why is defining network participants important?

Defining network participants is essential for maintaining the integrity and security of the permissioned blockchain network. It allows the network administrators to control who has access to the network and ensure that only trusted entities or individuals are authorized to operate on the network. Additionally, defining network participants can facilitate regulatory compliance, ensure adherence to industry standards, and promote efficient communication and collaboration between parties involved.

Step 2: Choose a Consensus Mechanism

Consensus mechanisms ensure that transactions added to the blockchain are accurate, valid and secure. Selecting the right consensus mechanism is crucial to ensure the success of a permissioned blockchain network.

List of Consensus Mechanisms

The most commonly used consensus mechanisms for permissioned blockchains include:

  • Proof of Authority (PoA)
  • Proof of Stake (PoS)
  • Byzantine Fault Tolerance (BFT)
  • Delegated Proof of Stake (DPoS)

Factors to Consider When Selecting a Consensus Mechanism

Choosing the right consensus mechanism depends on various factors. These include:

  • Speed and Scalability: Consider the volume of transactions that the network can handle and the speed at which these transactions can be processed. Fast transaction processing can be achieved through mechanisms like PoS and BFT.
  • Security: Security of the network is critical in preventing attacks and malicious activities. A mechanism like PoA ensures that only trusted nodes can participate in the network.
  • Cost: Incentives for network participation can be provided by rewarding nodes that contribute to the network. It is important to consider the cost of participation in relation to the rewards gained.
  • Centralization: Assess whether the mechanism promotes decentralization or centralization of the network. A decentralized network enhances transparency and lowers the risk of manipulation.
  • Environmental Impact: Some mechanisms are resource-intensive and are not eco-friendly. Consider the impact on the environment when selecting a consensus mechanism.

Step 3: Design the smart contract

Once you have defined the network participants and chosen a consensus mechanism, the next step is to design the smart contract. A smart contract is a self-executing contract with the terms of the agreement between the buyer and seller being directly written into lines of code. Here are the key elements of a smart contract:

  • Conditions: Smart contracts define the conditions that must be met before the contract can be executed.
  • Actions: Smart contracts specify the actions that will be taken when the conditions are met.
  • Penalties: Smart contracts may include penalties for non-compliance.
  • Payouts: Smart contracts can automate the process of payouts based on the terms of the agreement.

There are various tools you can use to code smart contracts, including Solidity, a programming language developed specifically for Ethereum blockchain, and Chaincode, a smart contract platform used by Hyperledger Fabric. These tools offer features such as debugging, testing, and deployment of smart contracts on the blockchain network.

Step 4: Choose a blockchain platform

Comparison of various blockchain platforms

There are numerous blockchain platforms to choose from, and it can be overwhelming to decide which one is best for your permissioned blockchain. Some popular blockchain platforms include Ethereum, Hyperledger Fabric, Corda, and Quorum.

Ethereum is a popular open-source blockchain platform that allows developers to build decentralized applications (dApps). Hyperledger Fabric is a permissioned blockchain platform that provides greater control and security for enterprise applications. Corda is a blockchain platform designed for financial institutions to facilitate secure and confidential transactions.

Quorum is an open-source blockchain platform that was created by JPMorgan Chase. It is designed for private transactions within a consortium and offers privacy features such as transaction and contract confidentiality.

Factors to consider when selecting a blockchain platform

When selecting a blockchain platform, there are several factors to consider:

  • Security: The security of the platform is crucial as it determines the level of trust the participants have in the network. Consider the security features offered by each platform and its track record in preventing and addressing security breaches.
  • Performance: The platform’s performance determines the number of transactions it can handle per second. Consider the scalability and speed of each platform to ensure it can meet the demand of the network.
  • Cost: The cost of implementing and maintaining the platform can vary greatly. Consider the licensing fees, development costs, and ongoing maintenance expenses to determine the total cost of ownership.
  • Community support: Consider the size and activity of the platform’s community to ensure the availability of resources and support. A vibrant community can also offer opportunities for collaboration and innovation.

Step 5: Set up the permissioned blockchain network

Before setting up the permissioned blockchain network, it is necessary to specify the hardware and software requirements for the same. Listed below are the hardware and software requirements:

Hardware requirements

The hardware requirements for setting up a permissioned blockchain network depend on the complexity and size of the network. However, the typical hardware requirements are:

  • Individual nodes with high-speed internet connectivity and 24/7 uptime
  • Sufficient storage space for blockchain data
  • High processing power to handle complex smart contracts and large-scale transactions

Software requirements

The software requirements for setting up a permissioned blockchain network include:

  • A blockchain platform with support for permissioned blockchains
  • Consensus mechanism compatible with the blockchain platform
  • The programming language used to code the smart contract
  • A secure digital wallet to store and manage cryptocurrencies

Step by step set up guide

Once the hardware and software requirements are defined, follow the step-by-step guide to set up the permissioned blockchain network:

  1. Set up the blockchain platform of your choice based on the hardware and software requirements
  2. Install the required software tools for coding and deploying the smart contract
  3. Define the network participants and grant them appropriate access to the blockchain network
  4. Choose the consensus mechanism best suited for the blockchain platform and network size
  5. Design the smart contract with all the necessary elements and deploy it on the blockchain platform
  6. Test the smart contract for any bugs and ensure that it works as intended
  7. Launch the permissioned blockchain network and start performing transactions on it

By following these steps, you can set up a permissioned blockchain network that is secure, efficient, and transparent.



The process of setting up a permissioned blockchain network can be quite daunting. However, understanding the key elements involved and the factors to consider when selecting various components can make the process more manageable. In this guide, we have outlined the steps involved in creating a permissioned blockchain network. We have also provided a list of consensus mechanisms and blockchain platforms that can be used for the development process.

Benefits of a Permissioned Blockchain Network

A permissioned blockchain network offers numerous benefits. It offers more privacy and security since all participants are known and verified. It also enables companies to control who can access certain parts of the network. This makes it less vulnerable to attacks and fraud. In addition, permissioned blockchain networks offer better scalability since they can be customized to handle specific business processes.

Future of Permissioned Blockchain Networks

Permissioned blockchain networks will continue to play a significant role in various industries, especially in sectors where privacy and security are paramount. In addition, as the technology evolves, we can expect to see more robust blockchain platforms and consensus mechanisms that offer better scalability and performance. In conclusion, organizations that are considering adopting blockchain technology should first assess their business needs and determine if a permissioned blockchain network can offer the necessary benefits.