How Permissionless Innovation Works

The invention of the Internet revolutionized the speed and scope of information exchange, connecting the world like never before.

Acquiring new skills or knowledge is no longer limited by the physical boundaries of schools and libraries. Anyone with an internet connection, anywhere in the world can tap into a vast ocean of knowledge at the click of a button. And this has some amazing downstream implications.

The accessibility feeds into the curiosity of human minds. We try to search for newer and better ways of doing things.

Technological innovation improves economic efficiency, expands the range of goods and services available to the public, and generally lowers prices and raises quality in the process. It also expands the range of potential social and cultural opportunities. This raises living standards over the long term by promoting greater health and happiness.

This ability for anyone to experiment and build better things is called Permissionless Innovation.

When humans are free to innovate without seeking permission, it leads to more efficient technologies, superior products, and services, all at an ever-reducing cost to the consumer.

Toll tax on the Superhighway

But, the picture is not all that rosy.

The invention of the internet has also led to the development of global surveillance systems that have eroded our basic liberties over the years. Building an economy on the information superhighway saw a rise of centralized authorities that charge tolls to maintain this highway.

Instead of money, the toll is charged in the form of trust. We trust these authorities to protect our data, provide equitable network services to all users, and even define credibly neutral laws of cyberspace.

In most cases, this dynamic works just fine. We tend to believe the juice is worth the squeeze as the convenience of life and the pace of information exchange driven by the internet far outweigh the price we pay in the form of trust. We willingly give away our privacy for the sake of this convenience.

In more extreme scenarios, however, these ‘permissioned’ systems can take the form of punitive actions aimed against certain individuals or groups. Governments freezing accounts, social media companies banning presidents from using their platforms, etc. are all examples of such extreme scenarios.

At a minimum, these permissioned surveillance systems slow down the pace of innovation by defining zero-sum rules of cyberspace. At their worst, they can limit individual & societal freedom.

This is why we need blockchains.

The promise of blockchains is to provide a platform for ‘toll-free’ permissionless innovation. It is to allow for trustless cooperation on a global scale: to remove singular points of failure from socio-economic systems and instead distribute the trust amongst a diverse (geographically and otherwise) group of people while using crypto-economics to make it tough for them to collude.

A credibly neutral network for permissionless innovation would be limitless in the scope of how people with diverse experiences & backgrounds can contribute to it. It would allow anyone to permissionlessly express their ideas in any manner they deem right, without being herded into socially acceptable norms.

Moving up the Permissionlessness Scale

So, how far have we come in developing completely permissionless blockchains?

Well, we are still laying the foundations! Rome wasn’t built in a day and permissionless-ness can’t be achieved overnight.

Instead, it’s an evolutionary process.

While biological evolution follows the ‘Survival of the Fittest’, Permissionless-ness follows ‘Modularity’. Breaking down the blockchain stack into individual components allows for an explosion of innovation at every layer of the stack.

Instead of requiring network participants to build a complete blockchain stack from scratch every time they want to build a “newer and better” use case, Modularity allows participants to focus on building the components that they have expertise in while outsourcing the development of the rest of the components.

And if you trace the development of blockchains from Bitcoin's genesis to the present day, one recurring theme stands out: Modularizing blockchains moves them up the permissionless scale - allowing for more innovation, more participants, and hence, more decentralization.

"Modularize and Decentralize"

Bitcoin: Permissionless Users

Bitcoin was invented in the aftermath of the 2008 financial crisis. Fed up by the incompetence of the traditional financial markets, Satoshi wanted to create a peer-to-peer version of electronic cash that would eradicate the need to trust a central party.

Traditional Capital markets consist of 2 main layers:

• The transacting parties: Sender and Receiver

• A trusted third party (bank) to oversee the transaction

Users rely on this trusted third party to open their books and add a ledger entry that debits the send and credits the receiver.

Satoshi’s brilliance was to separate these 2 layers - and decentralize the trust layer. The concept is simple & genius - Instead of trusting one single party to facilitate the transaction, now anyone in the world can validate all the transactions taking place on this public ledger called Bitcoin.

Anyone can add an entry to the ledger transferring their bitcoin to someone else. And anyone - regardless of their nationality, race, religion, gender, sex, credit worthiness - can for absolutely no cost, create a Bitcoin address in order to receive payments digitally.

And this idea is revolutionary! Bitcoin is the world’s first practical implementation of globally accessible money. A public, permissionless digital payments system - available to all, and owned by no one.

In the years since the invention of Bitcoin, however, two challenges have become apparent:

1. Bitcoin is one app: permissionless money

Global cooperation can take many forms of expression: financial transactions, support for a football team, religion, memes, etc.

Bitcoin’s model limits users to express themselves through financial transactions. Don’t get me wrong - In absolutely no way does this imply what Bitcoin has brought to the world is anything less than a revolution. But it only allows one form of expression. Humans are so much more!

2. Bitcoin’s execution & consensus have to follow strict ‘permissioned’ rules

In fact, over the years, as the size of the network has grown, high hardware requirements to produce blocks and validate transactions have meant that Bitcoin has grown to be more and more centralized. There are 5 mining companies that handle ~80% of the Bitcoin block production.

Ethereum: Permissionless Users & dApps

If Bitcoin is decentralized money, Ethereum is the decentralized computer.

Ethereum continued to build on the Modularity theme and separated Bitcoin into two further layers - Trust and Innovation. It delivered a universal smart contract platform, on top of a layer of decentralized trust.

Why is this powerful?

This smart contract platform invites anyone and everyone to innovate on the Ethereum blockchain using smart contracts. From a DEX to a game to a university - any anonymous entity could build anything on top of Ethereum, and yet it would work because everything would be secured by an entire decentralized network of validators!

THIS is a paradigm shift! As Sreeram Kannan mentions, it’s a shift analogous to the inception of the Venture Capital industry:

• With VCs, innovators could build on their ideas without needing to worry about bootstrapping capital.

• With Ethereum, innovators can build on their ideas without needing to worry about developing trust.

Instead, Ethereum’s trust layer will take care of making sure that the rules are legit, the code makes sense, and the transactions are valid.

By separating innovation from Bitcoin’s trust layer, Ethereum moved up the permissionless scale, allowing anyone to innovate on its ‘trustless’ platform. And it didn’t stop there.

The Ethereum community ruthlessly follows the vision of permissionless innovation. Most recent upgrades and the upcoming features in the Ethereum Roadmap have been guided by the Northstar of pushing this vision forward. And they all follow the same theme -

‘Modularity Enables Permissionless Innovation’

1. PBS: Separating block production from block proposing

(a) The Merge

In the beginning, Ethereum used the same Proof-of-Work consensus mechanism as Bitcoin which required setting up mining infrastructure. However, it always planned to make a switch to Proof-of-Stake once the infra was ready and there were enough users who would be willing to stake their ETH to secure the network. The vision for PoS is to allow users to validate transactions using a simple phone/laptop with an internet connection.

But it’s not as simple as it might sound. Even in PoS, block building requires expertise and a higher level of infrastructure that we cannot expect every granny and dentist to have. That is why, a major (upcoming) aspect of the PoS implementation is enshrined Proposer-Builder Separation or PBS.

(b) Proposer-Builder Separation

PBS follows the theme of Modularity by separating the roles of block proposers and block builders. And it’s a fascinating concept - Block building is tough to decentralize, so instead, we decentralize the block-proposing part of it. Vitalik emphasizes this in Endgame.

Centralized builders will be able to create blocks as they wish, but they would only be included in the blockchain if the proposer attests to them. And what would it take for the proposer to attest to a block? A laptop and an internet connection.

Currently, most of the Ethereum validators use external PBS (operated by Flashbots) to produce blocks.Flashbots is a highly respected entity in the crypto sphere, but it is a third party. With enshrined PBS, the idea is to allow for this separation within the Ethereum protocol.

2. Rollup-Centric Roadmap: Permissionless Users, dApps, and Execution Environments

Aligned with the theme of modularity, Ethereum has also dedicated itself to a rollup-centric future. Let’s see what this means:

There are several components to a “transaction” on blockchains - Execution, Data Availability, Consensus, and Settlement. With the rollup-centric vision, Ethereum separates and offloads the execution layer to rollups to lower the congestion on the Ethereum network.

At a high level, this means that rollups execute transactions off-chain (away from Ethereum), and then post the transaction data and the proof of its correctness on Ethereum. In exchange, rollups get the same security guarantees as any other transaction on Ethereum.

This trade results in a win-win situation. Users get higher speeds and lower fees, and Ethereum gets to reduce congestion on the network.

The modularization of the execution layer has reduced the cost of innovation significantly. Developers don’t need to bootstrap an expensive trust network and stakeholders, and can simply build a rollup and tap into Ethereum’s security guarantees.

However, Ethereum base layer itself has remained a monolithic blockchain as it maintains the Consensus/Settlement Layer, the DA layer, and the Execution Layer inside its stack. If developers want to innovate using a different consensus mechanism than Ethereum’s PoS, or if they want to build a gaming dApp and want faster transactions than Ethereum’s 12-second block time, there is no way to do that!

Ethereum’s monolithic stack reaches its limitations here.

3. EigenLayer: Permissionless Users, dApps, Execution Environments, and Consensus

By default design, blockchains operate in their own siloes. If a dApp wants to access data from the outside world (say prices of assets, stocks, news, etc.), they need to rely on an entity called the ‘Oracle’. Or if they want to transfer assets to/from a separate blockchain, they need to rely on ‘Bridges’. Or if a dApp uses a high amount of data that requires faster processing speeds, it needs to be stored on off-chain data layers.

These services like oracles, bridges, and DA layers are often run by trusted third parties. These trusted parties can choose to decentralize the network (e.g., Chainlink) but they have to bootstrap a validator network from scratch, thus putting shackles on the innovation in this ‘Middleware’ layer.

Eigenlayer is a “restaking collective” that separates the consensus layer from the trust network and takes Ethereum further up the Permissionless Innovation scale. Anyone who is a validator for Ethereum, can ‘restake’ their ETH and opt into securing other “Actively Validated Services (AVS)”, which include these middleware solutions like bridges and oracles.

This allows the operators of these AVS to tap into Ethereum’s security network and removes the need for them to bootstrap a network from scratch. In turn, this reduces the cost of innovation and lowers the barrier to entry.

Want to build a Solana L1 fork? Simply launch your network on Eigenlayer and leverage security services of validators who are already running a node for Ethereum.

Modularism also shows up in other parts of the Ethereum stack:

1. Rollup Sequencers

Most rollups today have enshrined, centralized sequencers. Decentralized Sequencing is a design space being explored by teams like Espresso Systems and Astria. Centralized sequencer nodes are responsible for ordering rollup transactions in batches AND executing them.

Shared sequencers like Espresso abstract away the sequencing layer from rollups and allow anyone to participate in the transaction sequencing process. Since ordering transactions is a stateless process, it can be done quickly and efficiently without the need for any hardcore hardware.

2. Rollups-as-a-Service

Rollup SDKs and no-code RaaS services (like Eclipse, Sovereign Labs, etc.) take the modularism game to a whole another level by allowing anyone to build a rollup easily while choosing a different environment for each layer of the stack.

Celestia: The World’s First Modular Blockchain

No article on Modularism can be complete without the mention of Celestia, the network that popularized the idea of modular blockchains. Celestia aims to build a scalable DA layer that can be utilized by other modular blockchains to achieve high data processing speeds. A DA layer is only responsible for ordering transactions and guaranteeing their data availability.

Celestia’s Data Availability Sampling (DAS) primitive provides an efficient solution to the data availability problem by only requiring resource-limited light nodes to sample a small number of random chunks from each block to verify data availability.

Higher the number of light nodes that participate in sampling, higher the amount of data that the network can safely handle, enabling the block size to increase without equally increasing the cost to verify the chain.

Conclusion

Hopefully, it’s apparent how modularizing has almost been a pre-requisite to making blockchains permissionless. As we continue to modularize, we unlock new opportunities for cooperation and innovation that will shape the future of human interaction. And hopefully, this would empower individuals to participate in the global economy on their OWN terms.