What is wrong with Blockchain?

QPQ Media
QPQ Media
Jul 10 · 4 min read
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Written: 31st July 2018

Author: Aidan Finn (Chief Operating Officer, QPQ.io)


Variants of Blockchain have already delivered credible steps towards enterprise grade DLTs ever since the first seismic shift which was to introduce a Proof of Stake approach to validate transactions on the Blockchain, as an alternative to the original Proof of Work approach.

PROOF OF WORK BLOCKCHAIN:

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Photo by Michael Dziedzic on Unsplash

The Proof of Work Blockchain runs across the whole world-wide network of “miners” who operate farms of expensive, highly tuned, mining computers. These miners race to solve the complex algorithms that are sent out across the network as each transaction or transfer is executed. The first mining computer to solve the algorithm gets a financial reward in the form of cryptocurrency, once the rest of the community provides a consensus that the algorithm has been correctly solved.

Every time an algorithm is solved, it is secured in a new block of data and that new is put in place in the same time order across the open network of all ledgers across the globe. In this way a ledger record is created, and it is sealed as soon as the next block is written on top. At that point it can never be reversed. This provides an immutable record across all ledger systems worldwide.

However, Proof of Work Blockchains cannot scale any further and in according to many, they have already scaled too far. This is true on many levels.

1. There are now 713 Proof of Work crypto coins in existence. Power consumed worldwide through the Bitcoin Proof of Work Blockchain has increased 520% in the last twelve months. The total power consumed in Bitcoin’s Blockchain is the equivalent to 159 countries’ entire power supply, including all of Africa! It has been shown that the amount of electricity required to power 1 Bitcoin transaction would power 610,000 VISA card transactions instead.

2. Proof of Work transactions are never validated by all the nodes on the Blockchain, so it can and does happen that what was deemed to be a consensus is subsequently “challenged” and the solution provided I shown to be incorrect. In this case, the transaction that had been “solved” is scrapped and the race for a solution is started again. This entire process takes much longer than other payment transfers technology and is not fast enough to scale.

3. The reward offered to those who solve algorithms first increases with the size of the transaction, so mining groups will seek to win the race to solve the large transactions and leave the smaller ones in the queue. This can lead to even greater transaction delays for some.

Vitalk Buterin, one of the founders of Ethereum, (the second largest cryptocurrency in the world) has just laid out an entire plan for the migration of Ethereum from Proof of Work to a different mode known as Proof of Stake.

He recently posted these and many other questions to the Distributed Ledger Technology World and the answers to each question confirm the absolute restrictions of Proof of Work Blockchain.

1. Bitmain* and affiliate pools now have 53% of all bitcoin hashpower. Isn’t this a really big problem? *(Bitmain and affiliate pools are large cryptocurrency mining farms that have grown to enormous proportions)

2. Proof of Work is burning billions of dollars per year, even more than all scams and thefts combined. Isn’t this a big tragedy?

3. What are the centralisation risks in Proof of Stake? **(This is an important question as it is regularly an argument of Proof of Work Blockchain enthusiasts that “other applications” or blockchains involve centralising. This ignores the fact that Proof of Work Blockchain remuneration to miners has meant the rich get richer and more powerful, allowing them to monopolise the Proof of Work Blockchain, which is actually not the case in other Blockchain solutions).

PROOF OF STAKE (POS) BLOCKCHAIN:

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Photo by Umberto on Unsplash

POS involves trusted hash data handlers, known as nodes, placing a stake of some of their own digital assets (a cryptocurrency stake) as security to the network.

In a PoS model, consensus is provided by the node holders. These node holders receive a smaller sum of cryptocurrency than a miner would, however they do not have the overheads of a mining machine or any power costs to pay out, so the net reward matches or betters the PoW process.

The nodes are held accountable by large fines for any attempt to manipulate the strict process of verifying and providing consensus.

The possibility of losing income and of losing their stake or even more, serves as a deterrent for any node attempting to go rogue. The actions of one rogue node in isolation would be immediately picked up by the others.

As Proof of Stake has developed, so too have alternative approaches to provide greater efficiencies, greater speeds and lower transaction latency. Most solutions involve a centralised governance board of nodes known as Master Nodes which undertake complete governance of the Blockchain and maintaining the integrity of its protocol.

For more insights into QPQ.io and our pursuit towards building a network infrastructure to enable a digital universe, please visit qpq.io or reach out to us at qpq@qpq.io

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