As you may know, a distributed ledger platform is a type of software that enables multiple parties to maintain a shared, decentralized database in a secure and transparent way. One key thing those parties need is consensus. They must agree about the state of the ledger and its data. That’s why we have miners (in PoW blockchains), validators / forgers/ bakers/ etc. (in PoS blockchains), and Order Providers (in a DAG).
Proof-of-Work (PoW) blockchains, such as Bitcoin, solved the consensus problem with mining. In this case, “special” users are in charge of mining (producing) new blocks of transactions. They do so by using their computer power and following strict cryptographic rules. The more computer power they have, the more blocks they can mine, and the more coins they’ll receive for it.
On Proof-of-Stake (PoS) blockchains, miners are replaced by validators (a misleading name since what they do is much more than just checking the validity of transactions). Instead of using their computing power, validators buy the right to produce blocks.
They have to either lock away a certain number of coins in a special crypto address, or just own them, or have them delegated by others, so they can create blocks and obtain transaction fees in return. The more coins they buy, lock, or are delegated with, the more rights and benefits they have.
The system is more decentralized in a Directed Acyclic Graph (DAG) distributed ledger, like Obyte. There’s no need for computing power or buying coins. Instead, it is users who build the ledger.
Order in a DAG
A DAG system operates differently from a blockchain system. It doesn’t have blocks, but just transactions, directly connected to each other. They’re recorded without the assistance of miners or block producers. The graph is constructed only by users with each transaction they add. The new transactions link to the previous ones, creating a directed acyclic graph (DAG).
To prevent double-spending (spending the same coins twice or more), the order of transactions is critical. A DAG provides partial ordering through parent-child relationships, but full ordering is established through "Order Providers." These providers, who are typically well-respected individuals or companies, create transactions like everyone else and these transactions serve as waypoints for ordering all other transactions.
In other words, their transactions are like guides or small headlights for the rest of operations to follow a single path. In return, they get a portion of the transaction fees, but that shouldn’t be the main purpose of an Order Provider. They should be respectable members of the community, with great interest in its well-being. And they can’t do a lot of things that miners and validators can.
What miners and validators can do?
Anyone with the proper hardware, energy, or monetary resources could be a miner or a validator in a blockchain. That’s not necessarily a good thing, since the more resources they have, the more power they get. It could lead to centralization, where only a few powerful parties control the entire network.
Blockchains aren’t supposed to be modified or censored in any way, but they could be if those powerful parties join forces, or are coerced to do something together by someone even more powerful, such as a government.
A 51% attack in PoW networks is a great example. In theory, if 51% of the miners collude, they could change the blockchain in their favor. Double-spending, temporarily freezing the network, censorship of users, all of it would be possible. They wouldn’t be able to directly steal funds from personal wallets, but they could censor any address, slow transactions, and increase the fees.
Threats for PoS
The 51% attack is much less probable in PoS networks. Or, at least, it doesn’t have the same name because there’s no computing power involved. But other attacks are possible. Ethereum, the most prominent PoS network so far, published a document about it. According to its website, a validator would need at least 33% of the total stake (locked coins) to succeed in several types of attacks.
Besides, with over 66% of the total stake, they’d be able to do almost anything. Reset the network, double-spend, censor transactions, discriminate valid blocks, etc. And the only defense is the cost that would take.
“By purchasing additional ether to control 66% rather than 51%, the attacker is effectively buying the ability to do ex post reorgs and finality reversions (i.e. change the past as well as control the future). The only real defenses here are the enormous cost of 66% of the total staked ether, and the option to fall back to the social layer to coordinate adoption of an alternative fork.”
Some more bad news here? Allegedly, 64% of the total staked ETH is controlled by only 5 entities. And 50% of the Bitcoin hashrate is controlled by two mining pools. There is a centralization problem there. However, acquiring so much computing power or total stake just to attack these networks would be absurdly expensive and counterproductive for the attacker (not the same story for small-market-cap altcoins, though).
MEV and censorship
For now, most 51%/33%/66% attacks are just theoretical for the stronger cryptocurrencies. But there are some other ways that these intermediaries (miners and validators) can harm the average users. One of them is the Miner Extractable Value (MEV) of every block.
Like everyone else in this world, block producers are constantly looking to maximize their profits. MEV is one of those ways. It refers to the value that can be extracted from a given set of transactions in a blockchain network, beyond the transaction fees. Block producers can cherry-pick which transaction to approve first to increase their gains, or insert their own before the user’s, even at the expense of others.
This kind of activity could lead to increased transaction costs and reduced trust in the network. It could even lead to rewriting of the blockchain. As Binance described it:
“On a fundamental level, if the value from reordering transactions in a previous block is greater than the rewards and fees of the next block, MEV could make it economically rational for a block producer to commit to blockchain reorganization. This would then threaten the consensus and integrity of the network.”
Censorship is another realistic possibility —some Bitcoin mining companies have already tried it. They can filter transactions (not validate them) if the origin doesn’t meet their requirements, like Know-Your-Customer (KYC) measures. And they are free to impose any requirements they like, while the governments are free to impose any requirements they like on the block producers. This could restrict the rights of the end-user, and effectively prevent them from transacting.
The worst part about censorship is that it can be applied selectively to a small minority of users while the network continues to operate normally for everybody else. This way, it can take hold without any significant pushback (other than verbal) and creepingly spread further without much resistance either.
What Order Providers can do?
The rewards to act maliciously in a DAG aren’t a lot, while the price could be higher. Order Providers can collude, as much as miners and validators. But they have fewer reasons to do so, in the first place. Being companies, organizations, and reputable users, they could lose their reputation and/or businesses if they misbehave. Anyway, if we imagine a scenario where they do misbehave and collude, they can’t earn much from it.
It’s not possible to rewrite the DAG history and insert a double-spend (spend the same money several times). It’s also impossible to steal funds from users since they don’t have access to private keys. They can’t apply selective censorship either, or discriminate against transactions. For that, they’d need to censor ALL transactions, starting from the single transaction they want to censor.
Basically, the only thing they can do is stop the network, until a new network with a new set of Order Providers is restarted from the point where the old network stopped. They were selected by the community itself to begin with, so, the same community can take the role away. No one can buy their right to control a decentralized DAG.
Order Providers in Obyte
Obyte counts with twelve Order Provider addresses (previously known as Witnesses). Five of them are still controlled by the founder (Tony Churyumoff), in the absence of adequate candidates. The other seven are controlled by independent parties. They were mostly selected by community voting through their wallets, using the Poll chatbot. They also expressed their interest to be OPs in previous years, while complying with the requirements:
- Not anonymous: have a publicly known real name.
- To be well-known and trusted in the community.
- Having a lot to lose (material and/or nonmaterial) in case of misbehavior. The loss is the business (outside Obyte) and/or reputation.
- Offer enough technical expertise to ensure uninterrupted operation 24/7 and security of their private keys (they must not be stolen and used to post on their behalf).
- Adapt their own OP list when the community wants to change it in some way and the new candidate satisfies the above rules. That includes removing themselves from the list.
After being accepted by the community, every OP installs a code that periodically posts from a constant address. Currently, we can consult them from our wallets, by just going to the section “Settings (Global Preferences) > Trusted Nodes.” Everything is transparent there: they appear with their Obyte address, real name, and links to more information.
Five + Seven
The five addresses of the founder that serve as OPs also work as Bitcoin oracle, Flight Delays Oracle, Real Name Attestor, Sports Oracle, and Price Oracle. Aside from them, we can find seven entities and individuals here.
They’re the Bosch Connectory Stuttgart (an IoT community hub), the Dutch entrepreneur Rogier Eijkelhof, the charity platform PolloPollo (run by Casper Niebe), the design studio Bind Creative, Fabien Marino (co-founder of Busy.org and SteemConnect), the Chinese community CryptoShare Studio, and the Institute for the Future at the University of Nicosia.
Anyone can join the OPs if they meet the requirements and the community accepts them by voting. The more headlights on our way to a decentralized future, the better.