The way the blockchain works is often confused. Because people are hesitant about how this system can replace banks. Because the banks receive a very high commission due to their transactions. These commission rates can range from 10 to 20 percent for both banks and third parties such as PayPal.
However, with blockchain technology, this ratio is almost one thousandth. When we exchange cryptocurrencies on the blockchain, someone needs to help make these transactions happen. In this way, we pay a commission to the witnesses who make these transactions happen.
The difference between the bank and the witnesses is the speed and reliability of the transaction as well as the difference between the commission they receive. Blockchain is much faster, reliable and cheap compared to banks. So how do these witnesses gain awards by approving these transactions?
So far there were 2 methods. The first is the PoW system that Satoshi Nakamato proposes in his famous article. The second is the PoS system that emerged through discussion in a forum in 2013. And finally, Fleta’s PoF (U.S.P-United States Patent-Application Number : 62717695) system, a Korean project.
Let’s take a closer look at these consensus models.
Proof-of-work: The first to solve the puzzle wins a prize.
Followers: Ethereum, Monero, Ripple, EOS, Stellar, Cardano etc.
Creating the proof of work protocol for succeeding consensus between devices on a distributed plexus is arguably the crowning accomplishment of Bitcoin founder Satoshi Nakamoto. In doing so, he laid the groundwork for the revolutionist technology that is blockchain.
PoW (abbreviated of Proof of Work) is a consensus protocol introduced by pioneer, Bitcoin and used widely by many other blockchain projects.. This process is mostly known as “mining” and as such the nodes on the network are known as “miners”. The PoW comes in the form of an answer to a mathematical problem, one that needs considerable work to arrive at, but is easily verified to be correct once the answer has been reached.
Backtracking a bit, let’s talk about “nodes.” A node is a powerful computer that runs the bitcoin software and helps to keep bitcoin running by participating in the relay of information. Anyone can run a node, you just download the bitcoin software (free) and leave a certain port open (the drawback is that it consumes energy and storage space — the network at time of writing takes up about 145GB). Nodes spread bitcoin transactions around the network. One node will send information to a few nodes that it knows, who will relay the information to nodes that they know, etc. That way it ends up getting around the whole network pretty quickly.
Some nodes are mining nodes (usually referred to as “miners”). These group outstanding transactions into blocks and add them to the blockchain. How do they do this? By solving a complex mathematical puzzle that is part of the bitcoin program, and including the answer in the block. The puzzle that needs solving is to find a number that, when combined with the data in the block and passed through a hash function, produces a result that is within a certain range. This is much harder than it sounds.
The process involves ensuring every confirmed block in the chain rewards the miner in the cryptocurrency that they are mining through the transaction fees collected for sending currency across the network, as well as any predetermined reward. It ensures that miners are incentivized to continue maintaining a blockchain, as they are being rewarded for doing so.
These rewards are especially important due to the complexity of the riddles that are being solved since the process is extremely costly, both in the terms of time taken and the computing power required to do so. Keeping these miners incentivized is a key function of a protocol as they are in a sense the foundation that keep the system running. Systems such as proof of work are employed so transactions cannot be counterfeited, as the data required to do so is extremely difficult to produce, yet easily verified.
Proof-of-Stake: You’ve got to be in it to win it
Followers: Dash, NEO, Pivx etc.
A one sentence description tends to be a good starting to point when trying to explain complex ideas. So in short:
Proof-of-Stake algorithms achieve consensus by requiring users to stake an amount of their tokens so as to have a chance of being selected to validate blocks of transactions, and get rewarded for doing so.
Unlike the proof of work system, in which the user validates transactions and creates new blocks by performing a certain amount of computational work, a proof of stake system requires the user to show ownership of a certain number of cryptocurrency units.
The creator of a new block is chosen in a pseudo-random way, depending on the user’s wealth, also defined as ‘stake’. In the proof of stake system, blocks are said to be ‘forged’ or ‘minted’, not mined. Users who validate transactions and create new blocks in this system are referred to as forgers.
Proof of stake protocol is effective in not only encouraging individuals to partake in the system but also preventing any individual from controlling the network. In order to carry out a 51% attack an individual or group would need to own the majority of coins on the network.
I believe proof-of-stake (PoS) is better than proof-of-work (PoW) in a number of ways:
- PoS is energy efficient. You don’t need as much computational power to create new blocks for the reasons above, so PoS is therefore better for the environment.
- PoS is considered cheaper because it requires less computational power or electricity.
- PoS seems more decentralized because there’s no advantage to collusion. However, PoS does favor larger stakeholders.
- PoS should neutralize the 51% attack risk posed by PoW. If you want 51% control, you need to buy lots of cryptocurrency.
Nevertheless, PoS isn’t perfect.
Proof-of-Formulation: Prevents fork of blocks
Consensus refers to a common understanding of block generation, in particular, it signifies who generates the next block or who chooses the blocks out of the generated blocks in the chain process. The prior consensus used a method that disseminated blocks throughout the network for the arbitrary users to mine. However, this requires high recovery of confirmation or block time, as miners are able to generate subsequent blocks only when the new blocks are disseminated throughout the whole network. As a way to deal with this problem, only a select number of miners were picked in order to achieve lower block time.
FLETA has come up with a PoF (Proof-of Formulator), allowing fast generation and dissemination of blocks by using Formulator reward sequence to designate the mining target and narrow down the dissemination range. Additionally, the existence of the observer node allows immediate authentication and prevents fork of blocks. Anyone can make the formulator, so the door is open to all. Low block time can be achieved as the mining sequence of the formulator is fixed, making the dissemination range of new blocks very small.
Two actors come to the fore when directing this consensus:
Formulators represent a very important part of the consensus created. Who will be selected as a formulator depends on a few algorithms. RankTable calculates the score on all FormulationAccount and ranks the scores. The authority to generate new blocks is given to the Formulator with the highest rank:
Score: uint64(Phase) << 32 + uint64(binary.LittenEndian.Uint32(hash[:4]))
“Hash” serves as the hash value of the previous block, and “Phase” is a time-related value which shows how many times the RankTable has “turned” or gone through all of the formulators for block generation.
The purpose of this is to make sure that each Formulator has at least one mining opportunity during each phase and so a different formulator sequence (or ranking) will be made for each phase of block generation. This prevents the potential for attacks and collusion by any malicious Formulators.
The main purpose of the observers is to help prevent DDoS attacks against the blockchain. In this way, the safety of the platform is ensured and certified.
To sustain the systematic sequence and process of the system, every formulator will access the observer node in order to conceal and hide their IPs. This prevents any form of targeted DDoS attacks on formulators. Additionally, the existence of observer node allows immediate authentication
and prevents fork of blocks. Anyone can make the formulator, so the door is open to all.
Prevents fork of blocks
When the highest rank formulator generates a block and receives the signatures of the observer nodes, the observer nodes sign and store the block. When the signature is signed by the synchronization group, it receives the block and the blockchain progresses so that if a fork block occurs, it cannot go past the observer node, preventing a fork from happening by design.
The concept is that when the formulator order is correctly configured, the 1st rank node only has the right to generate and sign the block, at which phase making two or more blocks to fork the blockchain will be stopped by the observer nodes. Therefore, if the formulator rank order is synchronized, it is possible to only receive blocks that are not forked, simply by verifying the block generator and observer node signatures.
The generated block therefore is decisive, and all transactions approved by the observer node are immediately confirmed.
Through the implementation of observer nodes, the attacker cannot create fork blocks to induce double payments. Furthermore, since the subject of block generation is a formulator, blockchain maintenance is also done by individuals who created the formulators, and since the observer nodes requires no compensation, the reward is solely given to the individuals in possession of the formulators.
Discarding Flawed Blocks
If a block generator sends an incorrect block, recipient nodes will discard the block and prepare to receive a new one. In this case, the generator has 1 second to produce a normal block, otherwise the second-ranked formulator will begin creating a new block that will be propagated after 3 seconds if the initial formulator still does not propose a new block.
The observer node will acknowledge that the initial generator failed to create a block within 3 seconds and thus proceeds with the signing process of the block from the second-ranked formulator.
The certain group for block validation is the Observer Nodes. If 3 out of 5 Observer Nodes confirms blocks, the blocks can be generated. In the beginning, the Observer Node is controlled by FLETA, but we will delegate these node operation to the 3rd party like Hyper Formulator validators.
The role of Observer Nodes is just to make sure double spending. So unlike PoW or PoS, everyone who owns operating mining nodes proposes to generate blocks, the ranks are designated to them as per algorithm — e.g. the duration of formulator operation — they will create blocks and get the block rewards based on the ranked order
Note: Besides that the Observer Nodes will be delegated to the third party called “Hyper Formulator Network”
Proof of Stake is undoubtedly an outdated consensus. And this is quite costly when the prices of projects, using this model, are low. Because it consumes a lot of electricity and time. The proof of stake system outstrips PoW as a much consuming less energy and efficient algorithm,
The PoF consensus is much safer and faster than the PoS consensus. Undoubtedly, as the blockchain develops, so does its technology. But our current impression is that the PoF system is leading the way for a very valuable purpose.
Unlike PoW consensus, PoF does not require excessive computing resources or depend on the amount of ‘stake’ that someone possesses. Because of this, it reduces the competition about who mines and creates blocks as everyone gets a turn. PoF also has built-in mechanisms to prevent the possibility of any kind of forks. You can learn more about PoF in FLETA’s whitepaper, tech paper, and Alpha Testnet Report.
Legal Disclaimer: This paper is for general guidance only and it does not constitute legal investment advice.
Disclosures: Im not a part of any cryptocurrency or Fleta. I have not been paid or otherwise hired by Fleta too. All risks are your responsibility when investing.