CSE446 Blockchain & Cryptocurrencies Lecture 11 PDF

CSE446: Blockchain & Cryptocurrencies Lecture – 11: Other Consensus Algorithms Revised Syllabus: theory Weeks (after mid) Revised syllabus Week – 1 Blockchain consensus algorithms, Ethereum – 1 Week – 2 Ethereum – 2...

CSE446: Blockchain & Cryptocurrencies Lecture – 11: Other Consensus Algorithms Revised Syllabus: theory Weeks (after mid) Revised syllabus Week – 1 Blockchain consensus algorithms, Ethereum – 1 Week – 2 Ethereum – 2 Week – 3 Fabric Blockchain properties, strengths and weaknesses, Security and privacy Week – 4 issues in Blockchain Revised Syllabus: lab Weeks (after mid) Revised syllabus Week – 1 Ethereum Dapp Week – 2 Ethereum Assessment - 1 Week – 3 Ethereum Assessment - 2 Week – 4 Hyperledger Fabric ( Fabcar ) Revised distribution of marks Theory – 75% Quiz: 15% Assignment: 20% Final exam: 40% Lab – 25% Agenda PoW Limitations Other consensus algorithms Proof of Stake (PoS) Delegated Proof of Stake (DPoS) Pow Limitations There are a few major limitations of PoW Energy consumption Absence of penalty Delay in block finality (confirmation) Pow Limitations: energy consumption Each PoW algorithm needs to consume electricity to compute the hash As the difficulty of the network starts to increase, so does the energy consumption The amount of consumed energy is quite significant when calculated over the whole network consisting of ASIC/GPU mining rigs all around the world Pow Limitations: energy consumption https://digiconomist.net/bitcoin-energy-consumption Pow Limitations: energy consumption by country https://digiconomist.net/bitcoin-energy-consumption Pow Limitations: absence of penalty PoW algorithms are altruistic in nature in the sense that they reward behaving miners However, they do not penalise a misbehaving miner One example is that a miner can collude with a group of miners (a phenomenon known as selfish mining) to increase its profitability in an illegitimate way Pow Limitations: absence of penalty In addition, a miner can engage in Denial-of-Service attacks by just not forwarding any transaction or block within the network Furthermore, such malicious miners can join forces to engage in the spawn-camping attack Launching DoS attacks simultaneously over and over again to render the blockchain network useless A penalty mechanism would disincentivise any miner to engage in any type of malicious misbehaviour Pow Limitations: delay in finality Finality is the assurance or guarantee that crypto-currency transactions cannot be altered, reversed, or cancelled after they are completed Finality is used to measure the amount of time one has to wait for a reasonable guarantee for a transaction to be confirmed (included in a block) In blockchain technology, transactions are termed immutable due to its finality nature The latency level of a blockchain will ultimately affect the chain's finality rate https://academy.binance.com/en/glossary/finality Pow Limitations: delay in finality Finality is an essential feature for ventures accepting cryptocurrencies because waiting endlessly on a blockchain network can have a high adverse effect for businesses or enterprises that accept crypto as a means of payment When creating a payment system, to be effective, it is crucial to have low latency If you were to have to wait for 10 minutes every time you wished to purchase anything, it would quickly become very inconvenient to go shopping However, most PoW-based blockchain protocols only show a probabilistic transaction finality meaning that transactions are not automatically or instantly final but become "more and more final" over time (as more blocks are confirmed) For Bitcoin, it is estimated that one has to wait 6 blocks, around 1 hour, before we can say that a transaction is final with a reasonable guarantee https://academy.binance.com/en/glossary/finality Proof of Stake (PoS) In PoS, the nodes who would like to participate in the block creation process must prove that they own a certain number of coins at first Besides, they must lock a certain amount of its currencies, called stake, into an escrow account in order to participate in the block creation process The stake acts as a guarantee that it will behave as per the protocol rules The node escrows its stake in this manner is known as the stakeholder, staker, validator, leader, forger, or minter in PoS terminology The minter can lose the stake, in case it misbehaves Proof of Stake In essence, when a stakeholder escrows its stake, it implicitly becomes a member of an exclusive group Only a member of this exclusive group can participate in the block creation process How much block a minter can generate depends on their size of stakes The stakeholder who produces blocks are rewarded in one of the two different ways Either it can collect the transaction fees within the block, or It is provided a certain amount of currencies that act as a type of interest against their stake Proof of Stake Escrow Account Set of Users Set of Validators Proof of Stake Staked amount Escrow Account Set of Users Set of Validators Proof of Stake Escrow Account Set of Users Set of Validators Proof of Stake 0 1 0 1 Staker 2 Staker 5 0 1 Staker Selection Algorithm 0 1 Staker 1 0 1 0 1 Staker 6 Staker 3 Staker 4 Proof of Stake 0 1 0 1 Staker 2 Staker 5 0 1 Staker Selection Algorithm 0 1 Staker 1 0 1 0 1 Staker 6 Staker 3 Staker 4 Proof of Stake 0 1 2 0 1 Staker 2 Staker 5 0 1 Staker Selection Algorithm 0 1 Staker 1 0 1 0 1 Staker 6 Staker 3 Staker 4 Proof of Stake 0 1 2 0 1 2 Staker 2 Staker 5 Verify 2 0 1 2 Staker Selection Algorithm 0 1 Staker 1 Verify 2 2 0 1 0 1 Verify 2 Staker 6 2 2 Verify 2 Staker 3 Staker 4 Verify 2 Proof of Stake 0 1 2 0 1 2 Staker 2 Staker 5 0 1 2 Staker Selection Algorithm 0 1 2 Staker 1 0 1 2 0 1 2 Staker 6 Staker 3 Staker 4 PoS: Bootstrapping issue One of the major barriers in a PoS algorithm is how to generate the initial coins A fair distribution of coins among the stakeholders are essential to ensure a secure PoS algorithm This is known as the bootstrapping problem There are two ways to solve the bootstrap issue: Pre-mining PoW to PoS transition PoS: Bootstrapping issue Pre-mining: A set of coins are pre-mined, which are then sold before the launch of the system in an IPO (Initial Public Offering) or ICO (Initial Coin Offering) PoW-PoS transition The system starts with a PoW system to fairly distribute the coins among the stakeholders Then, it slowly transitions towards the PoS system Ethereum took this approach DPoS Delegated Proof of Stake (or DPoS in short) is a form of consensus algorithm in which reputation scores or other mechanisms are used to select the set of (delegated) validators Even though it has the name Proof of Stake associated with it, it is quite different from other PoS algorithms In DPoS, users of the network vote to select a group of delegates (or witnesses) who are responsible for creating blocks Delegates are the only entities who can propose new blocks DPoS For each round, a leader is selected from the set of delegates who can propose a block How such a leader is chosen depends on the respective blockchain system The leader gets rewards for creating a new block, and is penalised and de-listed from the set of validators if it misbehaves DPoS The delegates themselves compete with each other to get included in the validator list In such, each validator might offer different levels of incentives for the voters who vote for it For example, if a delegate is selected to propose a block, it might distribute a certain fraction of its reward among the users who have voted for the delegate Since the number of validators is small, the consensus finality (confirmation) can be fast DPoS Wishing to be Validators Set of Validators Set of Users DPoS Wishing to be Validators Set of Validators Set of Users DPoS: EOS EOS is the first and the most widely known DPoS crypto-currency and smart-contract platform The DPoS consensus algorithm of EOS utilises 21 validators, also known as Block Producers (BPs) These 21 validators are selected with votes from EOS token (currency) holders The number of times a particular BP is selected to produce a block is proportional to the total votes received from the token holders DPoS: EOS Blocks in EOS are produced in rounds where each round consists of 21 blocks At the beginning of each round, 21 BPs are selected Next, each of them gets a chance to create a block in pseudo-random fashion within that particular round Once a BP produces a block, other BPs must validate the block and reach into a consensus A block is confirmed only when the (+2/3) majority of the BPs reach the consensus regarding the validity of the block Once this happens, the block and the associated transactions are regarded as confirmed or final, so no fork can happen Finality: Bitcoin vs EOS Blockchain Consensus Avg. time per block Avg. time to finality 60 minutes Bitcoin PoW 10 minutes (6 confirmations) 2-3 seconds (2-3 EOS DPoS 0.5 - 1 second commitments) https://academy.binance.com/en/glossary/finality