Could a hybrid blockchain consensus be better than the sum of its parts?

The Lost Link
Nov 4 · 9 min read

There is much debate around whether or not Proof of Stake (PoS) is a better consensus mechanism than the resource-demanding and constantly criticized Proof of Work (PoW). Potentially a combination of the two could assist with some of the downfalls of each.


Disclaimer: to give this article context you should already have some understanding of blockchain technology. If you would like to find out more and get a primer for this article, a great introductory article regarding blockchain technology can be found here.


Overview

Over the next 7 minutes, you will gain an understanding of what is PoW and PoS, examples of systems using them, the benefits and the downfalls? With a high-level understanding of those concepts, the two will merge and you will be able to see why a hybrid system could potentially fix the downfalls of each.


1. Proof of Work

The puzzle that a miner solves during the block creation is called Proof of Work (PoW). PoW is the process of a miner solving a hard mathematical puzzle that spends computational power but can be verified quickly. The difficulty of this puzzle adjusts depending on the collective power all of the miners are consuming. The miners compete against each other in solving these complex computational puzzles. The chance of a miner solving the problem is proportional to the power they consume in relation to the power being consumed within the network. Once a miner finds the solution to a new block, they can broadcast that block to the network. All other miners will then verify that the solution is correct and the block will likely be confirmed. A more comprehensive explanation can be found here.

Being the original, largest and most famous of all PoW blockchains. Using PoW, Bitcoin consumes a large amount of power to secure the network (estimated at around 200 million kilowatt-hours per day at the time of writing). The power is used to secure the network while also adding value to the underlying asset — Bitcoin. This is a double-edged sword, while it makes it very costly to perform an attack on the network, it’s consumption of power is as much as some small countries and by some is considered a poor use of energy.

Being the second-largest blockchain by market cap at this time, Ethereum is another example of a PoW blockchain. The present state of Ethereum as a blockchain is similar to Bitcoin but also introduces the concept of smart contracts. Ethereum adopted the same PoW consensus as Bitcoin because at the time of inception it was the gold standard in consensus mechanisms. The Ethereum Foundation has since acknowledged some of the downfalls of PoW and is actively researching and working to implement a PoS system shortly.

The main benefit is the strength it provides against attack. The bad actor must have a lot of resources (money/compute power) to try and attack the network. Secondly, it is hard for spammers to spam the network with useless transactions. The costs for a potential spammer to send the multiple transactions would be less than the potential gains they would receive. Lastly, It is a tried and tested method. Overall since its beginnings with Bitcoin in 2008, it has performed exactly as it is intended, preventing attacks and providing security, the most important factor in a blockchain.

As discussed previously the biggest downfall in a PoW system is the inefficient use of a somewhat finite resource -energy. This is due to the way we generate electricity at present. Some potential methods of rectifying this are to generate power from renewable resources to mine the underlying asset. There are lots of mining companies researching this and implementing different methods including solar or hydropower mining farms. Find a great article on some companies using these methods here


2. Proof of Stake

At its core, Proof of Stake (PoS) is implemented through some combination of rules determining the next block producer. We can think of it as a lottery system where the odds are determined by your ‘stake’ in the network. This could be the number of coins that you hold. If your node is chosen randomly then you sign the next block and in turn receive the mining rewards. This is simply an overview of PoS and there are many various iterations that networks are trialing at present. For a more detailed overview of the different methods and variants that some networks are using check out this article. There may become a standard or there may end up being many different variations.

Algorand uses a pure proof-of-stake (PPoS) protocol built on Byzantine consensus. Each user’s influence on the choice of a new block is proportional to its stake (number of tokens) in the system. Users are randomly and secretly selected to propose blocks and vote on block proposals. All online users have the chance to be selected to propose and vote. The likelihood that a user will be chosen, and the weight of its proposals and votes, are directly proportional to its stake.

Cardano is using a consensus mechanism called Ouroboros. Ouroboros is unique as the first PoS blockchain protocol based on formal, peer-reviewed academic research.

With Cardano staking, a node is selected to generate a new block based on their relative economic stake in the network. In other words, nodes are selected to form a new block premised on the probability proportional to the number of coins that the node possesses. Thus, the more coins that a node holds, the increased likelihood that the node will be selected to generate a block. Nodes on the Cardano network that possess a positive stake are known as ‘stakeholders’, and nodes that are chosen to form a new block are called ‘slot leaders’

Blockchain systems were invented to essentially provide a trust system. One essential breeding ground for trust is a community. Trust is to the community what blockchain is to Bitcoin. Without the two, neither can exist. In around 2010 as the Bitcoin network grew larger, mining became unfeasible from a home computer with the increase of the mining difficulty, so did the ability for small players to contribute to the network.

With PoS, if designed correctly, it can empower individuals from any financial position to be involved and contribute to securing the network. This does not only provide a wider breadth to distribute power but also builds a community. Due to having a lot less moving parts compared with PoW, PoS cuts the time considerably as to when it can create and mint new blocks. This increases the functionality of the chain and helps in solving an important issue of scalability.

The very obvious point of where this system could break down is the capitalist effect. The individuals or groups with the largest stakes in the network have the most potential to sign and mint blocks. They also gain power allowing them to grow larger and larger compared to the other participants within the network.

Another issue is Nothing at Stake (NoS) problem — Nascent forks of blocks within a blockchain are common during everyday operations. While PoW incentivizes miners to focus their resources on the chain of blocks that is more valuable (because of the high external cost of participation), PoS nodes can immediately start signing chain forks without disincentive and potentially double-spend without anything at stake to prevent this behavior.


A win-win solution

What if we could take the positive aspects of both designs? Potentially, we could combine them in a way that can both reduce power consumption, increase security, scalability, and give any user the power to contribute to a system that can help create a layer of trust in our everyday lives. This is not a new concept but with packs of decentralized programmers, thought leaders and networks working tirelessly to solve smaller problems (scalability, interoperability, etc). Never have we been in a more fertile environment to consider the options available and breed a completely new kind of consensus that would not have been possible only a couple of years previously.

Let’s consider the implications of having a hybrid consensus. By combining the two mechanisms, it then creates two different landscapes in which a potential attacker must control to perform an attack. They would need to have control of more than 51% of both the total amount of stake being held and also the computing power being used for mining. This alone, significantly decreases how an attack could be performed.

With the possibility of having a module-based approach, you can design a system that can be updated as new technologies and ideas are created. This approach will help foster innovation at increased speed. As we know, Bitcoin has been slow to implement changes or upgrades as the system was designed as a starting point. Any further development needs to implemented with extreme caution due to the damages that could occur if not done correctly.

To be able to design the way at which the two systems interact with each other.

Some protocols on the forefront of this endeavor and designing their hybrid consensus approach.

DCRED’s hybrid consensus works like this. PoW miners ‘mine’ to create blocks. Shortly after that, the stakeholders ‘vote’ to confirm if the block is indeed valid. They do so by buying voting tickets, thereby temporarily locking their DCR in the network.

When a block is created, 5 tickets are chosen at random from the ticket database. If at least 3 votes are ‘Yes’ the block is validated and integrated into the Decred blockchain. In this case, both PoS and PoW miners are paid. If the vote fails, the block is discarded and the transactions return to be included in another block. In this case, PoS miners are paid, but PoW miners are not.

60%PoW Miners30%PoS Voters10%Decred development subsidy

For the current reward check docs.decred.org/advanced/inflation

As you can see 10% of every block is reserved for the development of the Decred system. This means that the community can always pay the best developers to work on new features. Find more information on DCRED here and the paper outlining their consensus here

Aion: The Open Application Network has their own unique hybrid system called Unity. In Unity, no assumptions about the structure of the blockchain are made. PoW and PoS blocks are mined and created by miners and stakers respectively and arrive in random order. In this system, PoW remains the same and PoS is introduced and added to create a system where the odds of achieving a consensus in either is around 50%. One of the challenges the team faces here is in experimenting with different adjustment algorithms and finding a fit. The final economic details will be released in the coming weeks before Unity is implemented. Currently, Unity is due to be released in November 2019. Aion will make the transition from a purely PoW system to Unity. You can find out more information about Aion here and a technical overview of Unity here.

Summary

We see above that there are some core underlying issues with both the PoS and PoW consensuses of most of the relevant blockchains today. The blockchain is still an amoeba compared to the Darwinian systems that they propose to disrupt and there still needs to be a lot of trial and error before we come up with an ideal solution.

What hybrid consensus offers is the next stage in the evolution process and a path to the next inevitable step to the future of trust. They may or may not solve the problems we have today but at the very least will generate a better understanding so we can move step by step forward on the trail.

The Lost Link

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Tech and Blockchain…

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