Tuesday, August 16

Inside the mind of the blockchain developer: blockchain consensus, part 1

Cointelegraph is following the development of an entirely new blockchain from startup to mainnet and beyond through its series, Inside the Blockchain Developer’s Mind. In previous parts, Andrew Levine Koinos Group discussed some of the challenges The team has grappled with ever since identifying the key issues they seek to solve and outlining three of the “crises” that are holding back blockchain adoption: updatability, scalability, and governance. This series focuses on the consensus algorithm: the first part is about the proof of work, the second part is about the proof of stake, and the third part is about the burn test.

In this article, I want to leverage my unique perspective to help the reader gain a deeper understanding of a popular concept in blockchain technology, but also one that is sadly misunderstood: the consensus algorithm.

To get a deep understanding of this component of a blockchain, one of the things I always like to do in these articles is start by taking a step back and looking at the big picture because the consensus algorithm is only a small part of a system. much larger.

Blockchains is a game where players compete to validate transactions by grouping them into blocks that match the transaction blocks that other players are creating. Cryptography is used to hide data that would allow these people to cheat. A random process is used to distribute digital tokens to people who follow the rules and produce blocks that match the blocks sent by other people. These blocks are then chained together to create a verifiable record of all the transactions that took place on the network.

When people produce new blocks with different transactions on them, we call it a “fork” because the chain now branches in two different directions. This is the exact opposite of what we want to happen. The entire value of a blockchain stems from the fact that everyone agrees, has reached a consensus, on what transactions happened and when. Therefore, consensus algorithms are intended to resolve forks.

Satoshi’s true innovation

At the end of the day, ensuring that everyone updates their database to match comes down to how they are punished when they don’t. The protocols contain rules for the correct order of transactions, but if there is no repercussion for violating those rules, they will be ineffective. The real innovation that Satoshi Nakamoto presented in the Bitcoin (BTC) white paper was his graceful use of economic incentives.

Satoshi Nakamoto did not invent the idea of ​​”electronic currency”. He created an elegant system to combine cryptography with economics to take advantage of electronic currencies, now called cryptocurrencies, to use incentives to solve problems that algorithms alone cannot solve. Its design forced people to sacrifice money to mine transaction blocks. People would have to sacrifice this money over and over and over again by following the rules of the system and trying to organize the transactions into blocks that would be accepted by everyone else on the network. If they did this long enough, they would receive a reward in platform currency.

Of course, there is no way for the blockchain to know that the money was spent in US dollars, yen, or euros, which is why it used a proxy in the form of mindless work. It made block mining unnecessarily difficult, so anyone who has successfully mined a block must have necessarily spent money on hardware and the energy to run that hardware. So every successfully mined block is backed by money that had been sacrificed not just on hardware, but also on the energy required to run that hardware and produce that block. Whenever there are forks, Proof of Work (PoW) consensus algorithms are an automated system whereby the fork supported by most of the work is the “correct” fork.

Related: Proof of Stake vs. Proof of Work: Differences Explained

This means that everyone who continues to produce blocks at that fork will continue to earn rewards, and everyone who continues to produce blocks at the other fork will get no rewards. Since these people have already spent their money to acquire hardware and run it to produce blocks, the punishment is easy because they have already been punished monetarily. They spent their money, so if they want to keep churning out blocks on the wrong chain, that’s fine. They will not get any rewards and they will not get their money back. They will have sacrificed that money for nothing. Your blocks will not be accepted by the network and they will not earn any tokens.

This proof-of-work system ensures that the only way for someone who doesn’t want to follow the rules, a malicious actor, is to acquire and run more hardware than everyone else combined – for example, by mounting a 51% attack.

This is the elegance behind proof of work. The system cannot function without sacrificing increasing amounts of capital. Satoshi combined crypto and economics to create a transaction book that is just as trustworthy as it is not.

However, there are different consensus algorithms that operate in slightly different ways. The best known is Proof-of-Stake (PoS), which I’ll cover in the next post in this series. After that, I will discuss the algorithm that we will use in Koinos, which is the first of its kind in a general-purpose blockchain.

The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Andrew Levine is the CEO of Koinos Group, where he and the former development team behind Steem blockchain build blockchain-based solutions that allow people to take ownership and control over their digital selves. Its core product is Koinos, a high-performance blockchain built on a completely new framework designed to give developers the features they need to deliver the user experiences necessary to spread blockchain adoption to the masses.