Blockchain Technology

Blockchain Technology

The rise of Bitcoin, cryptocurrencies, and blockchain technology has ushered in a new era of cryptographically sound and secure digital value. The value of cryptocurrencies come from a few factors but the two major ones are ease of use and security.  While cryptocurrencies are getting easier to use every day and security is very strong, the leap to daily use has, so far, been hard for the mainstream public. The intrinsic value of gold and silver backed up by cryptography and blockchain tech aims to solve these issues.

a. Consensus Algorithms

At present, there are three types of consensus algorithms powering blockchains. Bitcoin uses a method referred to as Proof Of Work (PoW), and was the first known blockchain. PoW was a breakthrough and fostered decentralization in the early days, but the nature of PoW resource requirements (ASICs and energy) strongly incentivized centralization of mining and control, a problem that Proof Of Stake (PoS) and Delegated Proof Of Stake (DPoS) address.

The type of work being conducted in order to mine and power the network is a complex set of math problems where the probability of mining a block is dependent on how much work is done by the miner. Miners compete for blocks with ever increasing difficulty, and have to upgrade constantly to newer, faster hardware in order to continue to mine. Because of this, each Bitcoin transaction today uses as much electricity as it would take to power a U.S. Household for an entire week. This method is not economically or ecologically sound, and requires massive scale that exacerbates the problem. In recent research, experts argued that bitcoin transactions may consume as much if not more electricity as Denmark by 2020.

PoW has also proven to be not as decentralized as other consensus models. Due to the inherent reward system based on computational power, miners typically pool together into mining pools in order to compete for block rewards. This has created a centralized hierarchy within Bitcoin, with only three or four mining groups controlling the majority of block production. Because of this, the miners themselves are a source of centralization.

Bitcoin also suffers from congestion problems due to the PoW reward system, and is now processing maximum transactional capability with a long queue of transactions in an overflow. This causes delayed transactions and results in much higher fees for transaction transmission.

Another consensus algorithm is known as Proof Of Stake (PoS). Unlike the proof-of-Work, where the algorithm rewards miners who solve mathematical problems with the goal of validating transactions and creating new blocks, with the proof of stake, the creator of a new block is chosen in a deterministic way, depending on its wealth, also defined as stake.

In PoS, there is no block reward, the miners instead take transaction fees, and are referred to as forgers, and the forgers are always those who own the coins minted.  As with Bitcoin, PoS also has massive problems with network congestion and rising fees associated with increased usage and adoption. A perfect example is the CryptoKitties smart-contract that launched on the Ethereum network in the winter of 2017. In December, CryptoKitties was responsible for over 20% of the total traffic on the Ethereum network, and caused network congestion to reach unprecedented levels. Fees also rose massively with congestion, with several companies and exchanges having to freeze operations until the congestion subsided to manageable levels. Ethereum network currently sits at one hundred percent utilization of its transactional capabilities, with transactions also in an overflow queue. With increased adoption, one can surmise that this problem will continue.

As with PoW, centralization also appears to be the case with a majority of forging being pooled into a few entities. At present only two to three pools control well over the majority of computational power on the Ethereum network.

b. The Quintric Approach

Quintric has chosen to use the consensus model called Delegated Proof of Stake (DPoS).  DPoS was created by Daniel Larimer after experimenting with PoW in the early days of Bitcoin. Daniel was quick to realize that the transactional speed of Bitcoin was inadequate for industrial and commercial applications, as well as the required energy costs becoming unsustainable as well as wasteful.  Daniel also recognized that PoW mining would become more centralized in the future, with large mining pools controlling a majority of the PoW network.

In order to match the needs of business in a real-time environment, Daniel Larimer decided to invent and build a new consensus algorithm that requires little energy to use and run, something very secure, but also able to transact at the lightning fast speed of business. This resulted in the creation of Delegated Proof Of Stake.

DPoS is more efficient than Proof of Stake all together, and does provide more decentralisation than Proof of Work and Proof of Stake when it comes to rewarding block signing. It also provides much faster confirmed transactions on networks and for businesses that implement this technology.

Delegated Proof of Stake uses a type of reputation system and real time voting system to achieve consensus. What is different about this technology versus other consensus technologies is that a panel of trusted parties is established, and all members of that group are eligible to create blocks and prevent other non-trusted parties from doing so. These trusted parties are referred to as delegates, and are responsible for creating blocks on the network, however they are unable to change transaction details.  A witness could prevent specific transactions from being included in a block; however, if a transaction is not included in a block, the next network block will be twice the size and will only slightly delay the transaction or block.

If any witness were to behave as a bad actor in that way or in other ways, their behavior would be exposed.  Stakeholders on the network can then vote to remove that particular delegate, and choose another block producer to take its place.

The amount of delegates required to run the network can be increased or decreased depending on needs and scalability, however all parties signing blocks in the network are of equal stake. This means it would require more than half of all block signers to collude in order to take over the network, however network stakeholders can remove those parties at any time, which makes it much more difficult to cheat the system or to take over the system through centralization of power.

Power usage to run the DPoS network is minimal, with each transaction using less than one second of laptop battery power versus an entire household for a week, as with PoW.  This is environmentally friendly and allows the network to run without the use of expensive ASIC processors as well as  massive energy and cooling costs.

DPoS was tested by the BitShares network in a stress test in March 2017 on geographically distributed nodes with peak processing rates of 3,328 transactions PER SECOND (199,680 transactions per minute) more than 10x the Waves (LPoS) stress test results.  From these results, it was estimated that DPoS could be capable of up to 180,000 transactions per second if the network hardware used in the test were to be scaled to meet transactional demand.  By comparison, VISA network is capable of handling 24,000 transactions per second, NASDAQ with recent system improvements increased its capability to a little more than 10,000 per second, and MasterCard comes in at 38,000 per second.

DPoS technology is currently responsible for processing more than half of all daily transactions in the entire blockchain industry, and is capable of processing every transaction on the blockchain daily with no congestion or overflow.  DPoS blockchains have also been operational for several years, currently hold the record for most processed transactions per day, the longest blockchain, and are the fastest confirmed secure transactions available.