In our previous article, we explained the need for separating the currency creation and record keeping consensuses to correctly align the incentives of all the players and create a unit of account for the crypto world.
Division of power is one of the key concepts for Meter’s consensus design. In the physical world, gold miners, who “produce” the gold, have always been separated from the bankers and accountants who keep records of financial transactions. Similarly, the Proof-of-Value (PoV) consensus separates these functions to act as a hybrid of Proof-of-Work and Proof-of-Stake.
Proof-of-Work has three main functions in Meter:
- Create new currency
- Generate true randomness
- Instrument the notion of time.
Meter is completely permissionless; anyone can join the network and start creating the currency. However, in the Proof-of-Work consensus, we have created a special change that ensures the cost of production for Meter tokens is consistent and unable to be gamed. This means each Meter token will only be created when it makes sense economically.
The Proof-of-Work Meter miners are like the physical world’s gold miners; they invest more in mining when the price of Meter is high, and reduce their spending (or shift their computational capacity to mine other cryptocurrencies) when the price is low. Their profit-maximizing behavior will naturally create discipline in Meter’s monetary policy.
Proof-of-Stake is responsible for record keeping in Meter’s blockchain system. To prevent censorship, Meter allows a big pool of validators (participating nodes that manage the transaction records). At the beginning of each epoch, a group of validators will be randomly selected from the validator pool to form a committee. During the epoch, only the validators within the committee can create and vote on the blocks, following a BFT style consensus. This ensures high performance and instant finality, both of which are desirable for financial applications.
The Proof-of-Work miners and Proof-of-Stake validators maintain separate chains. The two chains only interact at end of every epoch, when they cross reference each other. This ensures it is impossible to go back in time and create new chains (this is called a long-range attack).
Because of the changes in the economic and game design, this Proof-of-Value consensus is able to combine the benefits of both Proof-of-Work and Proof-of-Stake while avoiding the problems in both. As we know, in Bitcoin or other Proof-of-Work cryptocurrencies, the network hash rate directly correlates to the price or the market cap of that cryptocurrency. In Meter, the hash rate only correlates to the increment of market cap.
Such a difference makes Meter more environmentally friendly than any traditional Proof-of-Work cryptocurrency. Based on our estimation, to support an economy similar to the United States, the annual money spent in mining would be similar to the annual budget of the U.S. Mint and U.S. Engraving and Printing. Proof-of-Work is able to introduce true randomness and a notion of time. These are important to prevent censorship and attack, which is extremely hard to obtain in Proof-of-Stake.
The combined Proof-of-Value consensus is therefore permissionless, green to mine, and extremely fast, while remaining highly decentralized. We have a target of 1,000 transactions per second in a pool of more than 1,000 validators on a single chain. There is nothing preventing Meter from further unlimited scaling through sharding and sidechains.
What are your thoughts about our PoV consensus mechanism? We would love to hear from you!