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Ethereum Consensus and Scalability (Blockchain series — Part III)

An analysis of the current model and the future model

Consensus methods are spoken on consistently in regard to different blockchains, but what exactly does a consensus provide for a given blockchain? Furthermore, why does it matter? In this article we’ll discuss the current Ethereum consensus method, the future consensus method that the Ethereum team plans to implement, scalability solutions, and the effects of Ethereum updates on Bethereum.

Consensus Defined

A consensus is:

a fault-tolerant mechanism that is used in computer and blockchain systems to achieve the necessary agreement on a single data value or a single state of the network among distributed processes or multi-agent systems.

Yes, that definition is complicated and incredibly ambiguous. We will, therefore, provide a straightforward explanation. First, we must acknowledge that the blockchain consensus mechanism is vastly different than a central computer system consensus mechanism. The latter has a limited number of users that are responsible for administrating tasks, such as adding or deleting records. Individuals that created the central system allocate administrative responsibilities to others as they see fit. In blockchain, there is also a creator of the system, however, the creator does not allocate administrative responsibility. These responsibilities are left to independent individuals (or nodes) who have the computing power necessary to validate, monitor, and store records of the entire system (hence the decentralised aspect of blockchain). Since the records contained in blockchain consist of validated currency transactions between wallets, nodes are directly responsible for verifying and storing all transactions. You may be wondering why anyone would chose to have the burden of administrative duties. There are incentives to becoming a node, holding records, and verifying transactions in a blockchain system. The incentives are embedded in the two consensus mechanisms discussed below.

The Proof of Work Consensus (PoW)

The PoW consensus mechanism is utilised currently by both Ethereum and Bitcoin. PoW awards individuals with native tokens (Ether or Bitcoin) for mining activities. Mining is the practice of solving block equations to verify various transactions. The process involves an immense amount of computing power. Individuals who participate in mining activities are rewarded with cryptocurrency on each occasion that they verify a new block. The quickest individual to solve each block (most likely the one with the highest level of computing power) is granted the reward. To verify a new block, each node in the network most store all previous blocks in the chain. The PoW mechanism is incredibly inefficient and time consuming. The Ethereum blockchain currently processes about 15–30 transactions per second. This poses several issues to decentralised applications, such as Bethereum, that rely on transaction speed for platform efficiency. The PoW mechanism also presents a scaling dilemma. Since each node must store the entire blockchain to verify transactions, there will be a point in time when the chain becomes too large for smaller nodes to store all blocks, thus the system risks becoming controlled by a few large nodes. The Ethereum team is planning to solve these challenges through a change in consensus mechanisms and an implementation of a scalability protocol.

The Proof of Stake Consensus (PoS)

The Ethereum team is pursuing a switch from PoW to PoS. The PoS mechanism is similar to PoW in that both methods provide similar cryptocurrency incentives to nodes that verify and store transactions, but there are still vast differences. While PoW depends on computing power to mine blocks, PoS depends on a node’s stake (typically the amount of currency a user holds) in the system. The more stake a user controls, the more authority they have over validation. For example, in the Ethereum update, a set of validators take turns proposing and voting on the next block. The weight of each validator’s vote depends on the size of their stake (the amount of Ether held). Typically in a PoS protocol, nodes are awarded tokens either on the amount of stake held (in dividend format) and/or by validating transactions. The PoS system is much more secure and energy efficient than PoW. Since each node is allocated voting weight before block validation occurs, there is not an abundance of nodes competing to solve one block. Additionally, PoS encourages trustworthy actions, as all nodes contain a stake (currency) in the blockchain. A nodal attack on the chain would only cause financial harm (decrease in currency price) to the users operating the nodes.

Ethereum Sharding and Off-Chain Transactions

Although not apart of the consensus mechanisms, we must make note of the update to remedy the scalability issues that Ethereum faces. As mentioned previously, the current Ethereum model is unsustainable due to the requirement of every node storing the entire blockchain and the low transaction speed. There are two solutions to these issues and both are being considered by the Ethereum team:

  1. Sharding the blockchain. Sharding is the process of breaking down an entity into smaller units. Essentially, each node would store a portion of the Ethereum blockchain and verify new transactions based on the data it held. If a node were to need knowledge about transactions or blocks it didn’t store, it would need to find other independent nodes with that information.
  2. Off-chain transactions: In this process, most transactions would occur off the Ethereum chain on auxiliary chains. This would eliminate the need to verify all transactions on the main chain. A gateway protocol would be implemented between the auxiliary chains and the Ethereum chain to update transactions. At any time, all participants involved in transactions on the auxiliary chains could consult the Ethereum chain for verification on the state of a block.

Either of these solutions would significantly increase the transactions capable per second, however, the sharding protocol would only truly remedy the nodal storage of the entire main chain dilemma.

The Effect on Bethereum

So how is this related to Bethereum? As a decentralized application that operates on the Ethereum blockchain, all updates implemented effect Bethereum to a certain extent. The switch from PoW to PoS will add an extra layer of security to the platform, substantially decreasing the probability of a centralized attack on users’ holdings of Bether. The switch will also decrease transactions fees on the chain, granting prospective Bether holders a lower price when purchasing or transferring the token. The increase in scalability will allow Bethereum to expand its platform to frequent, high-payout, gamification products. Bethereum is in a perfect position to benefit considerably from these updates, as they are rolled out in the coming months.

Part 1: What is Ethereum? The technology behind Bethereum
Part 2: Cryptocurrency Wallets: Sending and receiving tokens

Bethereum is a decentralised, social-betting platform based on Ethereum technology and Smart Contracts. Want to know more? Start here.

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Bethereum is a decentralised, social-betting platform based on Ethereum technology and Smart Contracts. Unique social and gamification elements deliver the most engaging and secure betting platform on the market.

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Philemon Viennas

Philemon Viennas

Co-Founder of Phuble (social media platform for investors), Founder of Vuuple (blockchain-based cloud storage application), Mobile game developer (Vuuple Games)

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