Cointelegraph follows the development of a new blockchain, from inception to mainnet, and beyond, through its series “Inside the Blockchain Developer’s Mind”. In previous parts, Andrew Levine of Koinos Group discussed some of the challenges the team has faced since identifying the key issues they intend to solve and outlined three of the “crises” that are holding back blockchain adoption: upgradeabilityscalability, and governance. This series is all about the consensus algorithm. Part one is about proof of work, part two about proofs-of stake and part third is about proofs-of -burn.
This article will use my unique perspective to help readers gain a deeper understanding and appreciation of a widely used concept in blockchain technology. However, it is also one that is often misunderstood.
To gain a deeper understanding of this part of a blockchain, I recommend that you take a step back and look at the whole picture. The consensus algorithm is only one component of a larger system.
Blockchains allow players to compete in a game where they must validate transactions by grouping them in blocks that match other players’ transactions. To hide data that could be used to cheat, cryptography is used. Random processes are used to distribute digital tokens to those who follow the rules and create blocks that match other people’s submitted blocks. These blocks are then linked together to create a record of all transactions ever made on the network.
We call it a “fork” when people create new blocks that have different transactions. This is because the chain is now forking in two different directions. This is exactly the opposite of what we want. Blockchains are valuable because everyone agrees — or has reached a consensus — about what transactions occurred when. Consensus algorithms are designed to solve forks.
Satoshi’s true innovation
What determines if everyone updates their databases to match each other? It all boils down to the punishment they receive when they don’t. Protocols contain rules that order transactions correctly, but they won’t be effective if there are no consequences for breaking them. Satoshi Nakamoto’s white paper on Bitcoin (BTC), was a true innovation. It was his clever use of economic incentives.
Satoshi Nakamoto didn’t invent the concept of an “electronic currency.” Instead, he created a system that combined cryptography and economics to create electronic coins. These coins are now known as cryptocurrencies. They can be used to provide incentives for solving problems that algorithms alone cannot. To mine blocks of transactions, people had to give up their money. This would require people to give up their money to play by the system’s rules. They would then have to try to arrange transactions into blocks that were accepted by all members of the network. They would be rewarded with the platform’s currency if they kept doing this for long enough.
The blockchain cannot know that money has been spent in USD, yen or euro. This is why he used proxy work. He made mining blocks extremely difficult so that everyone who succeeded in mining a block must have spent money on both hardware and energy. Every block that is successfully mined has been backed by money that was spent not only on hardware but also on the energy to run the hardware and create that block. Proof-of-work consensus algorithms (PoW), which are automated systems that determine the “right” fork from a set of forks are used whenever there are forks.
Similar: Proof-ofstake vs proof-of work: Understanding the differences
This means that anyone who produces blocks on this fork will continue to receive rewards, and that those who produce blocks on the other fork won’t be rewarded. Because they have already been penalized monetarily for spending their money on hardware, this punishment is very easy. They have already spent their money, so they can continue to produce blocks on the wrong chains. They will not be rewarded and they won’t get their money back. They will have given up their money. They won’t be able to get their blocks accepted by the network, and they won’t receive tokens.
This proof-of work system makes it clear that a person who doesn’t want to follow the rules (a malicious actor) can only acquire and run more hardware then everyone else. For example, by mounting an attack of 51%.
This is proof-of-work’s elegance. Without sacrificing increasing amounts of capital, the system can’t work. Satoshi combined cryptography with economics to create a trusted ledger of transactions. It is almost trustless.
However, there are many consensus algorithms that work in different ways. One of the most popular is proof-ofstake (PoS), and I will be discussing it in the next article. Then, I will be discussing the Koinos algorithm which is a first of its kind in a general-purpose blockchain.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Andrew Levine, the CEO of Koinos Group is the former Steem development team member. They create blockchain-based solutions that allow people to own and manage their digital lives. Koinos is their foundational product. It’s a high-performance, blockchain built on a completely new framework that allows developers to access the features they need to provide the best user experiences to help spread blockchain adoption.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.