Ontology’s VBFT Consensus Algorithm Analysis
An Overview of Ontology
The company behind Ontology is a technology company called Onchain that launched NEO/GAS blockchain in April 2016. Although NEO and Ontology are both started by Onchain, they are both separate entities from Onchain. Most importantly, Ontology is not a competitor of NEO but rather a compliment to the NEO blockchain. It is designed to bring enterprise clients to migrate to blockchain technology and to provide a multi-chain, distributed trust collaboration platform that will bridge between the real world and the NEO ecosystem.
Ontology project aims to remove one significant hurdle that is keeping enterprises and governments from adopting existing blockchain technologies: the security concern. Due to the open-source characteristic of blockchain technology, it is prone to attacks from outside. With the lack of in-depth understanding of blockchain from most companies, they are right to be concerned about the safety of their data when considering the new technology. Ontology tackles this problem by allowing each enterprise clients to launch their private chains, thus remain in control of their data and infrastructure, while still connected to other chains in the network. Most notably, through Ontology, clients can utilize the distributed ledger technology (DLT) without having extensive knowledge of the distributed system, blockchain, or cryptography.
Ontology’s services are also customizable to fit the separate needs of different clients to incentivize corporate clients further to adopt DLT. Its ecosystem is designed to have a modular and pluggable architecture with a loose coupling design to allow elastic expansion and support different business purposes. Such architecture design was accomplished by incorporating two major parts in its ecosystem: Ontology Common and Ontology Custom. Ontology Common is a set of standardized modules and protocols that support a broad range of common applications such as identity verification, data exchange, and peer-to-peer communications. Ontology Custom is designed to meet the business needs in separate fields. It provides easily customizable protocols and modules that support business expansion and innovation, thus achieves flexibility in supporting different business blockchains. Together, Ontology Common and Ontology Custom helps connecting the real world businesses and the distributed ledger technology.
Ontology’s Consensus Algorithm
As a multi-chain platform, Ontology supports the next generation Ontorand Consensus Engine (OCE). It utilizes a new consensus algorithm called VBFT which combines Proof of Stake (PoS), Verifiable Random Function (VRF), and Byzantine Fault Tolerance (BFT). By mixing VRF into the algorithm, VBFT is considered an improvement over the BFT algorithm. VBFT can achieve chain scalability through consensus node selection with VRF, security by randomness and PoS, and fast state finality by utilizing BFT.
Let’s take a more detailed look at how the algorithm works. To understand how VBFT works on Ontology blockchain, we need to know that there are two parts in its core network: Consensus Network and Consensus Candidate Network. The consensus network consists of consensus nodes that are in charge of reaching consensus on transactions validation, block generation, block distribution, and blockchain maintenance. The consensus candidate network comprises of nodes that are not actively participating in reaching consensus but are synchronized with the consensus network on the latest blocks. Those nodes also monitor the network status, validate blocks, and help the consensus nodes managing the whole system.
In each round of consensus, proposal nodes, verification nodes, and confirmation nodes will be picked from the consensus network, in accordance to the value generated by VRF. Once the final consensus has been reached, all nodes in the network will receive the result from the confirmation nodes and start the next round of consensus. The value generated by VRF in the current round is determined by the hash value of the previous block, thus achieve verifiable randomness to promote security in the consensus process. Another benefit of VRF is that it gives the whole network an excellent (unmatched?) scalability. According to Ontology’s plan, the VBFT consensus algorithm can support up to 2401 nodes in the future, while still able to reach consensus in less than 10 seconds.
Consensus Nodes Incentive Model
Ontology’s mainnet, “Ontology 1.0”, was launch on June 30, 2018. Much like the NEO/GAS blockchain, Ontology is a dual-token blockchain as well. Its main token is called ONT, and the utility token is called ONG. ONT has a max supply of one billion and is indivisible while ONG, with the same max supply of one billion, will be the utility token and is divisible up to 8th digits. ONG will be generated over a period of 18 years at a declining rate, with approximately 16% generated in the first year, 47% by year 4, and 82% by year 12.
On launch day, the consensus network used the Genesis setting, and there were 49 nodes. Among them, 42 are in the consensus candidate network, and 7 are in the consensus network. All nodes will receive ONG reward from basic consumptions (transactions fees, storage fees, smart contract fees, etc.) on the network with 50% of the fees goes to the 7 consensus nodes and the remaining 50% paid to the 42 consensus candidate nodes. To further incentivize participation in the consensus process, every year an additional 1% of the maximum ONG supply (10 million ONG) will be split evenly among all the nodes. This 1% ONG comes from the community incentives allocation.
Let’s take a look at how much ONG each node would gain for the first year. For the following calculations, we assume 1000 TPS on the network and no other types of basic consumption (smart contract fees, etc.), and each node stake the required minimum 100,000 ONT. Also, assume the consensus genesis setting is not changing for the first year. Please note that the 50% paid to the 7 consensus nodes is distributed to each node according to the Ontology Incentive Curve Equation which we will introduce later in this article. However, for this calculation, let’s assume the reward is distributed evenly among the consensus nodes.
- From staked 100,000 ONT: 15,768 ONG
- 1% community incentives allocation: 1 billion * 1% = 10,000,000 ONG, Split evenly among 49 nodes: 204,081 ONG each
- ONG from 1000 TPS: 0.001 ONG/Tx * 1000 * 3600 * 24 * 365 = 31,536,000 ONG;
- Each consensus node receives: 31,536,000 * 50% / 7 = 2,252,571 ONG
- Each candidate node receives: 31,536,000 * 50% / 42 = 375,429 ONG
Sum it up, the total income for a candidate node is 375,429 + 204,081 + 15,768 = 595,278 ONG for the first year. The total income for a consensus node is 2,252,571 + 204,081 + 15,768 = 2,472,420 ONG for the first year. As of this article, there is no market price for ONG. To obtain a rough US dollar estimate of the node reward, let’s assume the pricing relationship between ONT (US$4.18) and ONG is the same as NEO (US$37.39) and GAS (US12.98). Therefore, the estimated value of one ONG is US$1.45 as of this article. Hence, each consensus node’s ONG reward is worth US$3,585,709, and each candidate’s reward is worth US$863,158. If there is no basic consumption on the network at all, then all nodes will receive 15,768 + 204,081 = 219,849 ONG for the first year which is equivalent to US$318,781.
There is another mechanic in the incentive model that makes it unique. It is called Ontology Incentive Curve, as shown below.
The three points on the graph (A, B, and C) are representing the possible ONG compensation that can be obtained by staking different amount of ONT with point A representing the highest amount. If too much or too less ONT are staked, the nodes will receive less compensation. This mechanism reduces the possibility of the consensus being taken over by a few whales in the system as there will be less incentive. Moreover, when liquidity is required in the system, less ONT can be required for staking, thus free up ONT for circulation.
Please note the rewards calculated by us is subject to change from year to year as the ONG is generated at a decreasing rate, and the ONG from community incentive allocation will decrease as more nodes are added to the network. However, when the TPS, as well as other basic consumption on the network, increases, the node reward still has some upside potential even if there are more nodes to share it with.
Blockchain technology had attracted a considerable amount of attention recently, particularly when the price of Bitcoin reached US$20,000. However, we have yet to see many major corporations, organizations, or governments adopting the technology. One of the reasons is that blockchain is still in its infancy and thus difficult for organizations to fully understand it. The most significant reason, however, is that they don’t want to expose their data and infrastructure to public blockchains due to security and privacy concerns.
Ontology certainly understands those problems and aims to improve the onboarding experiences for enterprise clients and to expand the NEO ecosystem. With the functionalities Ontology provides and the security and privacy promised by customized private chains, we may finally witness a network of enterprise level real-world businesses and organizations cooperating and thriving on a distributed ecosystem.
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