TNT: A Permissioned, but Trustless Blockchain
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TNT: A Permissioned, but Trustless Blockchain
by Joseph Mark Haykov
October 2, 2024
Permissionless and Permissioned Blockchains in Decentralized Finance
The term "permissionless" in the context of decentralized finance (DeFi) refers to a system where no permission from intermediaries or central authorities is necessary for individuals to participate in a peer-to-peer network. Cryptocurrencies like Bitcoin and Ethereum exemplify this concept, as they allow anyone to not only send and receive funds but also to write and execute smart contracts without requiring approval from any third party—hence the term "permissionless."
This characteristic means that cryptocurrencies like Bitcoin—barring fraud by payment processing nodes, such as a 51% attack—carry no counterparty risk, similar to commodity money like gold or silver, which also bear no counterparty risk. For instance, transferring value by paying with a gold coin does not require the consent of any third-party intermediary, thus eliminating the risk of fraud by a counterparty. This contrasts with transactions such as paying by check, which rely on multiple intermediaries—such as the bank of the individual issuing the check and the bank of the individual cashing or depositing it—to approve and process the transfer.
Permissionless systems, such as Bitcoin, enable direct peer-to-peer exchanges without intermediaries, thereby eliminating the counterparty risk associated with traditional banking.
Permissioned blockchains are centralized systems that require authorization to participate. These blockchains operate similarly to traditional databases, where a central authority—the administrator—manages access and controls transactions. This structure contrasts sharply with the decentralized and open nature of permissionless blockchains like Bitcoin.
Permissioned blockchains can be compared to technologies like DRBD®. While DRBD ensures high availability by mirroring data between servers, it relies on intermediaries and centralized control, resulting in counterparty risk. This risk is inherent in permissioned systems due to the presence of a third-party intermediary—the database administrator—who can exert full control over the database, including restricting payments or even confiscating funds. For this reason, permissioned blockchains are irrelevant to decentralized finance (DeFi) and the discussion of trustlessness. They fail to offer disintermediation, which is the primary advantage of permissionless systems like Bitcoin.
Bitcoin, for instance, consumes substantial electricity to secure its network, effectively mitigating counterparty risk. The removal of inherently untrustworthy intermediaries is essential to eliminating counterparty risk—a fundamental element of trustlessness in systems like Bitcoin. In contrast, centralized control in permissioned systems makes them vulnerable to risks like confiscation, which Bitcoin's decentralized structure is specifically designed to minimize.
Bitcoin, as a digital currency, enables the transfer of Bitcoin between wallets in much the same way U.S. dollars can be transferred between traditional bank accounts. Unlike Ethereum, which supports additional features like smart contracts and decentralized applications, Bitcoin's sole function is to facilitate these transfers. In this sense, Bitcoin precisely mirrors the functionality of M2 dollars balances in checking accounts, offering no capabilities beyond acting as a straightforward currency for transactions.
One of Bitcoin's defining traits is its unparalleled "trustlessness," which has contributed to its dominance, with a market capitalization exceeding a trillion dollars—surpassing Ethereum’s market capitalization. However, Ethereum is used more extensively than Bitcoin in real-world use cases, such as smart contracts, as exemplified by Ethereum-wrapped Bitcoins (e.g., Wrapped BTC). While both Bitcoin and Ethereum are permissionless systems, Bitcoin is considered more trustless—a crucial distinction that underpins its standing as the most secure store of value in the cryptocurrency market.
Trustlessness refers to the removal of counterparty risk, eliminating the need to rely on intermediaries. By removing human counterparts from the transaction process, trustless systems significantly reduce the potential for fraud or misconduct. However, while Bitcoin is described as trustless, it is not entirely immune to threats. For instance, a 51% attack—where an entity controls the majority of mining power and manipulates the network—remains a potential vulnerability. Additionally, real-world examples, such as the FBI’s seizure of Bitcoin ransoms, demonstrate that Bitcoin can still be tracked and confiscated, signaling that it is not entirely beyond intervention.
Despite these limitations, Bitcoin is still viewed as relatively more trustless than other cryptocurrencies, including Ethereum. While Ethereum offers more complex functionalities, such as smart contracts, and undergoes regular protocol upgrades managed by a core development team, Bitcoin’s design minimizes the need to trust any central party. This key difference contributes to Bitcoin’s status as the premier store of value in the crypto market.
Bitcoin is considered more trustless than Ethereum largely because of the immense amount of energy it consumes through its Proof-of-Work (PoW) consensus mechanism. PoW demands substantial computational power for mining, making the network extremely resource-intensive and difficult to attack. This high cost and effort required to compromise Bitcoin’s network enhance its security, making it far more resistant to manipulation or coordinated attacks.
In contrast, Ethereum's transition to a Proof-of-Stake (PoS) consensus mechanism introduces potential vulnerabilities. PoS relies on validators staking a significant number of coins to participate in securing the network. Since the number of validators is relatively limited, the risk of collusion and coordinated fraud increases due to centralization. Validators with large stakes can theoretically exert disproportionate influence over the network. On the other hand, Bitcoin’s PoW system, supported by a vast and globally distributed mining network, minimizes the risk of centralization and ensures that manipulating the network would require an impractically large amount of computational resources, further reinforcing its trustless nature.
A True No-Trust (Trustless), Yet Fully Permissioned Blockchain
The concept of a "trustless, permissioned" blockchain might seem contradictory. After all, doesn’t requiring permission from potentially untrustworthy third parties inherently violate the trustless principle by introducing intermediaries to authorize transactions? Surprisingly, the answer is no. This is because all commercial transactions, including Bitcoin payments, occur between two counterparties.
When someone receives Bitcoin as payment, it typically happens in exchange for goods or services. Unless you are making a charitable gift or receiving an inheritance, money functions as a medium of exchange in arms-length, commercial transactions, and such trade inherently requires agreement from both the buyer and the seller (the recipient of the funds). This is why, in traditional banking, a payment cannot be processed without the recipient’s permission. For example, you cannot force someone to accept a paper check—they must voluntarily deposit it. If the recipient chooses to tear up the check, the transaction never occurs. Similarly, unless a person agrees to accept gold, silver, or paper money, the transaction does not take place.
While Bitcoin and other financial systems—such as wire or ACH transfers—sometimes face issues like unwanted transactions due to poor design or implementation, properly designed financial systems—like the paper check payment system—require the recipient’s permission to complete transactions. This concept is central to permissioned and trustless blockchains like TNT, where the recipient’s consent is key to finalizing a transaction.
Here’s how TNT works: although TNT remains trustless—requiring no intermediaries, just like Bitcoin—it introduces permissioning by requiring the recipient’s approval before a transaction is confirmed. This system prevents unwanted or fraudulent transfers by giving recipients control over whether to accept funds. Crucially, this recipient-side permissioning does not compromise the decentralized, trustless nature of the blockchain. Instead, it enhances the system by adding an extra layer of security and control.
What makes TNT (True-No-Trust) blockchain necessitate even less trust than Bitcoin are the mechanisms it implements that allow recipients to reject unwanted credits, just as recipients can refuse checks or other forms of payment in traditional financial systems. TNT ensures that recipients must opt in to a transaction before it is finalized. This can be achieved through smart contracts or specific blockchain protocols that enable the recipient to pre-approve or deny receipt of funds (known as credits) before the transaction is completed. Such mechanisms protect recipients from being overwhelmed by unwanted or fraudulent transactions, like those that have affected organizations such as BlackRock’s Ethereum wallet.
By combining trustless validation with recipient-side permissioning, TNT (True-No-Trust) blockchain maintains a fully decentralized network while adding an essential layer of control. Transactions are still validated according to decentralized rules, but the recipient has the final authority to accept or reject the transfer. This hybrid dual-approval approach creates a blockchain that is both trustless and permissioned, ensuring participants have greater control over their transactions without sacrificing decentralization.
On the TNT blockchain, a transaction is confirmed only if the recipient explicitly consents to receive the funds. This opt-in mechanism ensures that TNT operates as a trustless system with decentralized validation while incorporating permissioning to give recipients control over incoming transactions. The receiving wallet can also be configured to accept all incoming credits automatically, replicating Bitcoin’s functionality.
By requiring the recipient's explicit permission, TNT prevents unwanted or fraudulent transactions and enhances user autonomy over financial interactions. Similar to traditional contract law, where both the buyer and seller must authorize the agreement through signatures, TNT requires dual authorization: the sending wallet must approve the debit, and the receiving wallet must approve the credit before the transaction is finalized. This dual-authorization process ensures that all transfers on the TNT blockchain are secure and transparent, just like legally binding agreements, and facilitates compliance with Anti-Money Laundering (AML) regulations and other regulatory requirements.
How Does TNT-Bank Software Work?
TNT is a hybrid, all-purpose blockchain that seamlessly integrates both permissioned and permissionless functionalities. This design caters to decentralized environments while adhering to the regulatory requirements of traditional financial systems. By combining unrestricted participation with regulatory safeguards, TNT serves as a versatile solution for both decentralized and regulated ecosystems.
Permissionless Mode
In its permissionless mode, TNT operates similarly to Bitcoin, allowing users to transfer coins to any wallet without restrictions. However, TNT introduces a crucial security feature: dual approval. Both the sending and receiving wallets must approve transactions. The receiving wallet generates a credit-approval public-private key pair, which provides a digital signature to authorize incoming credits. Without this signature, transactions are invalid. This mechanism empowers recipients to reject unwanted payments, thereby enhancing security and reducing fraud risk while maintaining a trustless, decentralized system. Additionally, users can configure their wallets to automatically approve all incoming credits, mirroring Bitcoin’s functionality where transactions cannot be refused once signed by the sender.
Permissioned Mode
In permissioned mode, wallet creation and management are controlled by authorized custodians, such as banks like JP Morgan or the European Central Bank. These custodians hold TNTcoin-seeded wallets and authorize the creation of new wallets using their credit-approval keys. This "vouching" system ensures that only custodian-authorized wallets can create and approve new wallets, maintaining centralized oversight and regulatory compliance across the network. Custodian banks monitor wallets to enforce Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, making TNT ideal for regulated environments while preserving blockchain flexibility.
Dual-Approval System and Regulatory Compliance
TNT-Bank’s dual-approval system facilitates comprehensive regulatory oversight. When a custodian like JP Morgan creates a new wallet, the credit-approval key links to the bank’s approval mechanism. This setup allows banks to block suspicious or illegal transactions by withholding credit approval, thereby preventing unauthorized or illicit transfers from being recorded on the blockchain. This governance structure mirrors traditional banking oversight, ensuring blockchain transactions remain transparent and compliant. Custodian banks control transaction approvals, balancing blockchain’s decentralized infrastructure with centralized authority to enforce AML and KYC regulations.
Trustlessness and Autonomy
Despite the introduction of regulatory controls, TNT remains fully trustless because wallet owners retain complete control over their funds through their debit-approval private keys. In the event of a fraudulent or uncooperative custodian, wallet owners can appoint a new custodian by changing their credit-approval key pair, eliminating reliance on any single custodian and maintaining full autonomy. Additionally, in permissioned mode, custodian banks can block incoming credits linked to illicit activities, isolating suspicious funds. This capability bridges traditional financial regulations with decentralized blockchain technology. For instance, if a non-qualified investor attempts to buy shares in a restricted hedge fund, the custodian can block the transaction by withholding credit approval, ensuring regulatory compliance without disrupting TNT’s decentralized functionality.
Hybrid Solution and Security
By merging the decentralized nature of permissionless blockchains with the control of permissioned systems, TNT-Bank offers a unique hybrid solution that balances flexibility and security, enabling operation across various regulatory environments. Designed for recording and trading fractional asset ownership while protecting against fraud, TNT’s batch processing mechanism ensures transparency, with all transactions visible to TNT peer nodes for immediate detection of fraudulent activity. Even in permissioned environments, where debit authorization keys are securely stored on users' devices, TNT’s trustless system remains intact.
TNT’s dual credit-approval process empowers custodians to block illegal payments and allows users to reject unwanted transactions by refusing to sign them, maintaining system integrity. Additionally, users can transfer custody to their own node, removing reliance on custodians and further securing the network. This strengthens TNT’s trustless framework by eliminating counterparty risk, ensuring no participant relies on a single entity for security or trust.
Conclusion
By enabling custodians to block illegal transactions and allowing users to fork from fraudulent custodians, TNT effectively bridges decentralized technology and financial regulation. This flexibility makes TNT suitable for both decentralized finance (DeFi) and regulated financial ecosystems, providing a robust solution that combines the openness of blockchain with necessary protections against illegal activities.