CryptoScalies: Cute Lizards at Scale

In our previous article, Scaling your dApps with Alacris.io, we gave a technical overview of the Alacris.io architecture. In this article, we will examine how our “Blockchain Layer 2 Operating System” will open new business opportunities as it enables distributed applications (dApps) to scale securely. To illustrate the capabilities of Alacris, we will consider everyone’s favorite dApp of the day: trading non-fungible assets with pseudo-random characteristics derived from a “genome,” visualized graphically as cute animals. In other words, CryptoKitties and its many spin-offs. Of course, this frivolous example will only be a fun device to examine issues that crop up in all dApps, including more serious ones like a decentralized exchange (DEX), or an on-chain car-rental service.

Despite CryptoKitties’ popularity, one thing that limits its usage is its reliance on an Ethereum transaction to generate each new kitty. Since Ethereum can only handle about 15 transactions per second for all users in the entire world (that’s about 9 million a week for everyone on Earth), this proved to be a severe bottleneck at the height of CryptoKitties’ popularity, slowing all transactions on the network to a crawl.

What if we could scale this dApp so it could be used by hundreds of millions of users at a rate of thousands of transactions per second? What if this scaling could be achieved without jamming the Ethereum blockchain, yet with all transactions 100% backed by Ethereum tokens? The Alacris.io architecture enables a variant of this dApp that scales beyond what on-chain designs allow.

Let’s call this variant CryptoScalies. This time the cute animals are lizards, with scales, at scale. Of course, since the Alacris.io architecture isn’t fully implemented yet, this will be a thought experiment — but one that hopefully clarifies the goal we are working towards.

CryptoScalies can be written as a series of “layer 3” applications on top of Alacris.io, defining a new asset class and ways to use it, and automatically benefiting from the scalability and security of the Alacris.io network of side-chains. Because CryptoScalies scale, users can breed and trade them as fast as they’d like. Side-chains also serve as marketplaces where users can publish sale listings and purchase offers for CryptoScalies, or even conduct auctions. But thanks to scaling, there is more to CryptoScalies than breeding and trading. Users can also organize play dates for their CryptoScalies so they can socialize and practice cooperative activities or competitive sports. Did you know that CryptoScalies enjoy improvisational jazz? That they love playing tennis doubles and team tournaments?

Scaling with Side-Chains

Breeding and trading CryptoScalies, having them play together or against each other, etc., are all made possible through side-chains: auditable sequences of transactions that help dApps scale by being kept off the main-chain, each managed by an operator that acts as intermediary between millions of users. Side-chain operators can be brokers, auctioneers, matchmakers, tournament organizers, or play other intermediary roles for all activities involving CryptoScalies. Users put each of their assets under the temporary and revocable care of a side-chain operator. Side-chain operators will then receive orders from users as to how they want to trade CryptoScalies, or how they want their CryptoScalies to interact with others, and under what specific conditions they are ready to transact.

Side-chain operators can orchestrate all these interactions with high throughput and low latency because they are authorized by users to do so independently of the main-chain consensus. They do update the main-chain, but only with a very short cryptographic summary of large batches of activity, from which each constituent action can be succinctly proven. Amortizing this small on-chain transaction over a large number of users makes side-chain interaction extremely cheap.

These characteristics mean that dApps on Alacris.io can scale. Side-chains are a generic solution to scaling all kinds of dApps: take our basic dApp for fast payment, and extend it with additional operations to handle your new assets and transactions.

Interactions between CryptoScalies

Thanks to side-chains, CryptoScalies can not only reproduce and change owners, but interact with each other, in a matter of milliseconds. These interactions would not be possible without scaling, as enabled by our side-chains. We will demonstrate two kinds of ways that side-chains can help scale activities between users: first, cooperative activities, illustrated with improvisational jazz and payment channels; and second, competitive activities, illustrated with a tennis match, but also auctions and exchanges.

In a cooperative activity, like musical improvisation, where the interests of all participants are already aligned, and the number of participants is relatively small (say a few dozens at most), it is better and faster for these participants to conduct their operations directly among each other without a referee. The side-chain will thus help them setup a shared interaction channel, where participants can conduct all their operations among each other off-chain, using multiparty signatures to validate the progress of their interaction and only posting to the side-chain (and indirectly to the main-chain) the final result of their interaction, if any. A well-known particular case for such a setup is payment channels in the style of the Bitcoin Lightning Network, or more generally state channels. Using Alacris.io allows these channels to scale further as a layer 3 solution than they can on Bitcoin or Ethereum as a layer 2 solution: it can be hundreds of times cheaper to create such channels as layer 3 on a side-chain than it takes to create a single channel as a layer 2 solution directly on the main-chain; and the latency to full confirmation is only marginally slower, as they propagate from users to the side-chain to the main-chain.

In a competitive activity like a tennis match or tournament, the interests of participants are locally opposed to each other; the side-chain operator can then act as a neutral referee who will ensure interactions are fair without sacrificing latency. Typically, the game mechanics involves users each making strategic choices or contributing to random seeds and publishing a digest of their choices in a first phase. In a second phase they reveal their verifiable choices, leaving no way to cheat, except trying to time out rather than lose explicitly. With a neutral referee, those who fail to reveal their choices in a timely fashion lose their match by default and get excluded from their tournaments. Low-stake tournaments can have long timeouts, whereas high-stake tournaments will require players to remain constantly connected. Repeat offenders may also get excluded from all further activities unless they pay a suitable penalty to fully compensate victims and show their atonement. More generally, users who fail to complete their part of the protocol are increasingly penalized as their misbehavior repeats and/or as the stakes get higher. In financial transactions, they may have to pay interest or rent on the assets immobilized by the other parties during their lack of response, taken out of the collateral bond that was posted. On the other hand, in higher trust settings, when friends play for fun, acquaintances play with low stakes, or business partners interact in repeat business, they may nominate a referee among themselves, or rent a trusted yet affordable one, who can serve them as a faster, layer 3 solution. Users can thus achieve higher speed and lower transaction fees without sacrificing the security of transactions being ultimately backed by the blockchain.

In all of these cases, the Alacris.io architecture can help create new applications not otherwise possible, using side-chains to enforce verifiable computations.

Holding Side-Chain Operators Accountable

Side-chains can be a great resource if their operators are indeed honest and competent. But why should anyone trust these operators? For the very same reason that you might trust anyone else — because side-chain operators are motivated by the profits from behaving honestly and will be held accountable if they don’t. Side-chain operators are competing on a free market and will lose their customers if they don’t offer the best value for their customers in terms of service and price.

We have designed the Alacris.io protocol so that a side-chain operator can only lose money by acting maliciously, while their honest behavior will earn them business, and in turn, profits from fees.

Real-time auditing of a side-chain operator’s behavior ensures that there is a limit to how much damage they can do before they are caught — at which point they forfeit the bond that they posted as collateral. If that limit is small enough compared to the bond, it will not be in their interest to cheat at all. There is still the case of the incompetent side-chain operator getting hacked by those who might profit at the expense of both the operator and the users; but even in this case, the limits on possible damage mean that the risk is insurable — and on-chain or off-chain means are available to make honest users whole. We also expect hacks to be rare because Alacris.io will provide code with enough proof of correctness that it will not be the weakest link in the security defenses, as well as guidelines and training to deploy our code securely.

A side-chain operator’s track record can be established because its public keys provide a long-term pseudonymous identity. If a side-chain operator has been providing great service, they will be very recognizable. If a side-chain operator behaves dishonestly, they will have to create a new identity, post another bond, and build a reputation from scratch, just to be able to cheat again. Moreover, the Alacris.io architecture allows for people and institutions that already have a reputable identity to become side-chain operators that are recognizable and therefore, more likely to be a preferred side-chain operator. Based on this identity and reputation, some may even be able to purchase insurance so that users would be fully compensated even if the side-chain operator were to fail or get hacked, improving their trustworthiness to users. Users will thus have a wide range of side-chains to choose from, depending on their trust network and risk profile.

The last aspect of accountability that ensure that there will indeed be a free market in side-chains is that users can individually repudiate an unsatisfactory side-chain operator — any user can at any point unilaterally extract their assets from their side-chain’s custody by appealing to the main-chain contract.

Reasons to leave may include:

• The side-chain operator could be incompetent or dishonest.
• The side-chain operator’s servers could be destroyed or captured.
• The powers-that-be in a country where the side-chain is operated could prohibit the operator from handling further transactions.
• The side-chain operator could increase their fee schedule beyond what the user is willing to pay.
• Network disruption could make it impossible or impractical for the user to communicate with the side-chain operator.
• A spokesperson for the side-chain operator made disparaging comments about the user’s favorite celebrity.

Ultimately, any user’s reasons are their own, whether wise or frivolous.

Whatever the case, users can move all of their assets to another side-chain, with no justification required, and even without active cooperation from their original side-chain’s operator. In the Alacris.io architecture, this is guaranteed by the smart contract that binds the side-chain to the main-chain. Users can post transactions on the main-chain that the contract forces the side-chain operator to process. Users can even post transactions on the side-chain of another operator who will batch such transactions on the main-chain. Thus, mass exits from a side-chain can scale when that side-chain suddenly becomes unpopular — whether because of a fee hike, a scandal, or cheating.

This right to exit possessed by every user ensures free competition among side-chain operators. But what if all side-chain operators hike their fees at the same time? The right to enter ensures that anyone can become a side-chain operator, even you, dear reader, if you believe that you could provide a cheaper, better service to yourself, your friends, and other “victims of the system,” and still swim in gold (or even merely break even). It’s a free market out there, and we expect competition to keep prices down and service quality up.

Verifiable Computations

The main technical challenge in holding side-chain operators accountable is, how can you audit a side-chain operator’s behavior, in real-time, and verify that they are indeed honest? That’s where the Alacris.io architecture brings new answers.

Consider the verification of arbitrary computations, such as interactions between CryptoScalies. The Alacris.io architecture makes this verification efficient by shifting most of the work out of the blockchain consensus where computations are expensive, into the computers of individual users and side-chain operators for whom it is cheap. The network doesn’t run the computations, it only verifies them. The interactions will be specified in the Alacris.io programming language, which will allow for extraction of all components of the system: the software that partakes in the protocol, the software that computes the results, the software that produces a proof that the result is correct, the software that checks the proof that the result is correct, the software that argues the proof before the consensus (if required), etc. Application programmers will be able to write the software once and be confident that all these moving parts fit snugly with each other, and that the overall system is fast, robust and secure.

There remains the issue of making transaction data available for audit. Repudiable side-chain operators are required to constantly maintain a suitably indexed journal of all their activities on a side-chain. Then they must constantly publish this journal to a Shared Knowledge Base, that makes the data available to verifiers and serves as an oracle to make this data availability known to the main-chain. The Alacris.io contract on the main-chain then relays the public status of the data. Side-chain operators partake in the court registry and watch each other; they risk their own money if another side-chain operator starts lying, and an adversary would have to capture a majority of side-chain operators to take over the system.

In the end, side-chain operators leave behind an audit trail — the very state of their side-chain — and the transactions they facilitate are only considered confirmed after the trail itself is validated. This leaves precious little space for a side-chain operator to cheat in any way without getting caught and losing big. Whether they match users on an exchange, preside over auctions, arbitrate a tennis match, facilitate payments, or conduct any kind of activity, this activity can all be audited and verified. The only leeway they have is in denying or delaying service to some users while processing other users faster. Quality of service is not verifiable by the court system, but it is measurable by the users who can compare how well they are treated by various side-chain operators, and decide to which side-chains to bring their business and at what price.

Confirmation, Fast and Slow

Transactions go through many stages, and which stage you consider “confirmed” depends on how much you trust other participants with respect to the transaction amounts at stake.

1. If a close friend or an otherwise reputable person promises to send you money to pay their share of a restaurant bill, you can probably take them at their word even before they complete the transaction, and cover their meal without waiting for the payment to clear two hours later. For somewhat larger bills from less trusted people who are nevertheless well-identified and solvent, you can also probably take their word, and escalate the situation if they don’t pay you in a timely manner: first, follow up casually, and if all else fails, take them to small claims court. In all these cases, you don’t need a side-chain to authorize an immediate transaction; still a side-chain can bring you lower transaction fees, and also peace of mind as the payment goes through the various stages of confirmation — especially in the border cases where you might not have been so sure about the trustworthiness of the other person.
2. If you fully trust that the side-chain operator is not colluding with a customer because it’s a big, known financial institution and the amount is small enough, you may serve that customer as soon as the side-chain operator sends confirmation of the transaction, which takes a fraction of a second.
3. If the payments you receive are suitably insured (at a small premium) or if you reasonably trust the side-chain operator not to cheat on the transaction you are receiving, then you may serve the customer as soon as a quorum of the Shared Knowledge Base agrees that the transaction looks good, which typically takes a few seconds.
4. If you have no reason whatsoever to trust either the customer or their side-chain operator, or if the transaction is large enough that you should take extra precautions anyway, then you should definitely wait for the consensus to fully confirm the transaction, which may take one hour, or even several hours, depending on the side-chain operator configuration.

There are all kinds of transactions, and a large number of them fit into Cases 2 and 3 above, at which point the Alacris.io system will make them fast when they would otherwise have been slow. Other transactions, such as in Case 4, are actually made somewhat slower than by directly using the main-chain, but are still cheaper using a side-chain, because you share with thousands of other users the cost of registering transactions with the distributed consensus. Notably, most casual payments can be transacted quickly as in Case 3: Small payments in stores up to a few thousand dollars using a reputable side-chain operator such as an established financial institution. As for playing tournaments between CryptoScalies through a reputable side-chain, it can also be considered fast for most purposes; but don’t go spending or gambling away all your earnings before they are fully confirmed (or do it using the same side-chain).

In conclusion, Alacris.io can help you develop dApps that scale, in a safe way. The volume of transactions can be large. The cost of transactions will be low. The effective latency of transactions will be low in a wide variety of cases and the security of the system will be much better than if you had to rebuild the same system from scratch using lower-level tools than those that Alacris.io offers.

If you enjoyed reading the article or would like to follow along with our progress, we invite you to share your thoughts and continue the conversation on Telegram at https://t.me/alacrisio.