While more than a decade has passed since the creation of Bitcoin and the industry has already come a long way, there are still some challenges to be resolved to enable anyone to participate in a blockchain-based economy. The main challenges Blockchain platforms face are scalability, sustainability, and interoperability.
There are different approaches to increase scalability. One approach is to directly make changes to the code of the mainchain, as has happened in the case of Bitcoin Cash.
Scaling One Chain
With the Bitcoin Cash Hardfork, the block size was increased to accommodate more transactions in single blocks to enable higher throughput, hence increasing scalability. Similarly, the SegWit update to Bitcoin facilitated the creation of lightning network and increased the block size to alleviate fee pressure.
Potential problems that arise with increasing block size are that it suppresses transaction fees and forces miners to rely more heavily on block rewards that will eventually stop in most blockchains. Running a node can become very expensive, which forces a chain to rely more on service providers to ensure the chain's integrity.
Scaling with multiple chains
Instead of relying on the mainchain and making changes to increase scalability, other networks rely on shards or parallel chains. Ethereum plans to use sharding to enable fast transactions and high throughput with the security of the main chain.
Off-chain scaling
Lastly, the third approach to scaling consists of building sidechains like plasma or a network of nodes like the lightning network that takes transaction load off the mainchain.
Sustainability
Blockchains are built to last forever, and making drastic changes to the source code is a very disruptive process, often splitting the community. Therefore, it’s crucial for blockchain developers to build sustainability in mind, allowing the chain to adjust to major changes and balance incentives.
How does Nervos address these challenges?
The team behind Nervos built the platform to address all the above-mentioned challenges current blockchain networks are facing. Nervos is a layered network infrastructure that supports the needs of the decentralized economy.
Nervos is based on a core belief that combining several layers with their specific functions is better than accommodating everything in just one layer.
Consequently, the Nervos network is made up of 2 different layers:
- Layer 1 (Common Knowledge Base) = a value preservation network inspired by Bitcoin, open-source, and public. This layer forms the backbone of all dApps built on the platform. It provides security for everything that happens in the upper layer.
- Layer 2 expands the capabilities of the first layer by increasing scalability, enabling low fee transfers without posing a risk to the main chain. The blockchains in this layer can deploy a consensus algorithm different from the one used in Layer 1.
By providing freedom for developers to chose consensus algorithms on layer 2 without sacrificing security, Nervos facilitates high scalability. This also keeps transaction fees on layer 1 to a minimum, solving the blockchain trilemma in a secure, permissionless, and decentralized way.
Consensus
One of the most important parts of any blockchain network is finding consensus. Without consensus, no new blocks would be added and no transactions executed. Nervos was inspired by the consensus algorithm created by Satoshi Nakamoto but has built on it to create its own ASIC-resistant algorithm.
The development of ASIC has been largely responsible for driving out individual miners, which can decimate the decentralization of a network. To adjust the mining difficulty and optimize the usage of the network’s bandwidth, the consensus algorithm by Nervos relies on the orphan rate.
Orphan blocks are created when two miners produce a block at almost the same time. This happens because blocks aren’t instantly accepted to the blockchain. A delay can lead to another miner trying to solve the same block. In the end, the block with a larger share of proof-of-work will be included in the chain, leaving the other block discarded.
Orphan blocks are especially prone to be created when the latency of the network is high. Therefore, Nervos created “Eaglesong,” their very own hash function for proof-of-work in nervos, which will have a target fixed rate for orphan blocks. If the rate is very low, the difficulty will be lowered, and more blocks will be produced & vice versa.
Common Knowledge Byte (CKByte)
To allocate storage on the Common Knowledge Base, the team has created a native token called CKbyte that entitles the holder to occupy a part of storage equivalent to the number of tokens they hold. If someone holds 1000 CKByte, they can use those to create a cell of 1000 byte size or multiple, adding up to 1000.
However, using CKByte for storage creates opportunity cost as holders could also decide to lock up their CKByte in the NervosDao — a special smart contract that insures against inflation. It counteracts the impact of inflation by allocating a portion of secondary issuance tokens to holders.
CKByte can also be used to pay for transaction fees as well as the execution of smart contracts. With the existing setup CKBute translates to demand for a multitude of assets into demand for a single one, because, to store other digital assets on the CKB, users will need CKBytes.
In the future, the Nervos team foresees that a layered architecture could be the perfect base to create compliant solutions and apps to facilitate large-scale adoption.
CKB is trading on Bitcoin.com Exchange with BTC and USDT pairs.
