Cointelegraph is tracking the development of a brand new blockchain from the beginning to the mainnet through its “In the minds of blockchain developers” series. In the previous part, Andrew Levine Discussion of Koinos Group Some challenges Since identifying the key issues they intend to solve, the team has faced problems and outlined three “crises” that hindered blockchain adoption: Upgradability, Scalability and Governance. This series focuses on the consensus algorithm: The first part is about proof of work, The second part is about the proof of equity The third part is about the burning certificate.

In the first article of this series, I explored Proof of Work (PoW)-the OG consensus algorithm-and explained how it leads to decentralization and why it is inefficient. In the second article, I discussed Proof of Stake (PoS) and how it reduces the operating costs of decentralized networks compared to Proof of Work, and why it further consolidates miners, requires complex and ethically questionable reduction conditions and There is no way to prevent “exchange attacks”.

In this article, I will explain the third consensus algorithm proposed about a year after the proof of stake, but for reasons that should be clear, it has never really been implemented as a consensus algorithm on a general blockchain. At least, not until now.

Proof of work

As I explained in the first article, from a game theory perspective, blockchain is a game in which players compete for verification by grouping transactions into blocks that match those created by other players trade. Bitcoin (BitcoinThe working principle of) is to assign more weight to the blocks produced by those who may sacrifice more capital, and they “prove” these through “work”.

Since these people have spent money to buy hardware and run it to produce blocks, their punishment is easy because they have already been punished. However, proof-of-stake operates in a fundamentally different way and has important game-theoretic consequences.

Proof of equity

In proof of equity, token holders only need to sacrifice the liquidity of their capital to obtain block rewards, instead of forcing block producers to sacrifice capital to acquire and operate hardware to obtain the ability to obtain block rewards. The problem is that it reduces network security, because an attacker only needs to obtain 51% of the platform’s base currency and mortgage it to control the network.

In order to prevent such attacks, the PoS system must implement a complex system aimed at “cutting” the block rewards of user accounts. This increases the computational cost of the network and raises legal ethical issues, and only if the attacker fails to obtain 51% Token supply. The implementation of these reductions is by no means trivial, which is why proof-of-stake projects like Solana, which they admit, have launched a centralized solution, and why many other projects like Ethereum 2.0 (Eth2) take a long time to implement PoS . The typical solution is to give the foundation a large enough stake so that it can determine who the malicious actors are and cut their rewards.

This is especially problematic in the world of centralized exchanges. These exchanges have custodial collateral, which means it can find that it can control more than 51% of the supply of a given token without incurring any risk, thus making the attack costly. Minimal. In fact, this has occurred in one of the most commonly used blockchains in the world in recent history, once worth nearly 2 billion U.S. dollars: Steem.

related: Proof of Equity and Proof of Work: Explaining the Difference

Holy Grail Consensus

As I said at the end of the previous article, what we will discuss in this article is a hypothetical question of whether there is a “best of both worlds” solution to provide the decentralization and security of the proof of work with the efficiency of the proof of stake . Today, we are pleased to announce the release of a white paper on Proof of Burn. In this white paper, we believe that Proof of Burn is the best of both worlds solution.

Iain Stewart (Iain Stewart) proposed the burning proof in 2012 (the year after the proof of stake) as a thought experiment to compare the difference between proof of work and proof of stake. We believe that he unknowingly discovered the “Holy Grail” of the consensus algorithm, which was mainly due to historical accidents and lost his way in the passage of time.As Ian Stewart famous:

“I think it would be interesting to invent an absolute, naked and unambiguous example of the contrast between the two viewpoints. Yes, there is one: burning money!”

Exchange attack

As the former core development team behind the Steem blockchain, we have deep experience in exchange attacks. This is why mitigating this attack vector is the most important, and it inspired Steve Gerbino, a blockchain architect, to explore alternative consensus algorithms to find a solution that can still provide us with the performance and performance required for high-performance world computers. Efficiency while mitigating the attack vector of this important issue.

Proof of combustion is very simple as a consensus algorithm, and its unique value is easy to understand. Like proof of work, it requires “upfront” payment of the cost of attacking the network. As with the proof of stake, there is no need to purchase and run any actual hardware other than the hardware required to produce the block. Like proof of work, exchange attacks are thwarted because the block producers have lost their money because they are just trying to get it back by maintaining the correct ledger.

In order to launch a 51% attack, malicious actors not only need to obtain 51% of the token supply, they also need to obtain virtual assets to prove their disposal Mining hardware. The only way to make up for the loss is to generate the winning block on the chain. This is a very simple and elegant solution to the problem. There is no need to cut conditions, because block producers effectively cut their own shares from the beginning.

Burning certificate

Iain Stewart (Iain Stewart) proposed the burning proof of Bitcoin, even a year before the universal blockchain was conceived Vitalik ButrinPerhaps this is why it took so long for people to realize that these two things can work well together. The general blockchain attaches great importance to efficiency, and at the same time allows the economic design of tokens without a maximum supply ceiling, which is a requirement for the implementation of proof-of-burn. Part of the problem may also be that several innovative concepts such as non-fungible tokens (NFT) and market makers, as well as solutions such as scalable smart contracts, are extremely beneficial to implementation and only appear after the proposal.

NFT miner

Tracking which accounts have destroyed how much and when and when may be a computationally demanding task, and this increased network load may be one of the reasons why people avoid this implementation.

Fortunately, Irreplaceable tokens Provide us with a powerful primitive that the system can use to effectively track all this information in order to distribute block rewards to effective block producers. The end result is an NFT that can effectively act as a virtual miner and can be customized infinitely and precisely.

Blockchain developers can precisely adjust the accessibility of their platform based on how they price miners’ NFTs. Pricing high prices for miners is like asking to buy ASICs (mining machines) to participate in block production. Setting a low price for miners is like allowing anyone to mine on commodity hardware. However, the best part is that no actual hardware is required either way.

Since Koinos is about accessibility, the price of miner NFT may be low, which is actually like having the ultimate GPU and ASIC resistant algorithm. However, this begs the question: “What if you choose the wrong number?” This highlights the importance of modular scalability. On Koinos, all business logic is implemented as smart contract modules, which can be upgraded separately without a hard fork. This means that, for example, if the price of KOIN soars to the point where the fixed cost of miners is no longer sufficient, governance can simply vote to reduce that cost and update the figure when consensus is reached.

Centralization resistance

Solving the cost of miners’ NFT is like building an algorithm that is as resistant to GPU and ASIC as possible, because no one can gain an advantage by acquiring specialized hardware. Even better, it makes the NFT of miners more unified and therefore easier to sell on decentralized exchanges (more fungible), which means that block producers take less risk because they can always liquidate Their miners.

The power of Proof of Burn ultimately stems from the fact that we are internalizing the mining hardware into the system. It is virtual hardware, which means that system designers can customize it infinitely to maximize network performance. One consequence of this is that the system can be designed to ensure that miners can recover their burned money and some additional tokens-a guarantee that the proof-of-work system cannot provide.

This customizability also allows us to design the system to mitigate 51% of attacks so that as the demand for miners increases, the payback period is extended.

Now, imagine someone (such as an exchange) wants to take over block production. First, they need to burn more tokens than everyone else combined. Even so, they will get nothing. They will need to start producing blocks on the winning chain to start winning back their rewards. During this period, other network participants will be able to see what is happening and respond accordingly. If they feel that the attacker is trying to control governance, they can simply buy more miners and delay the return window for malicious actors until they “queue”.

Token Economics

Proof of combustion also has interesting economic characteristics that distinguish it from PoW and PoS. For example, if you want to fix the rate of new token creation (aka “inflation”), then at a certain moment, if too many people participate in block production, then the token economy will turn into deflation, because the reward will be It is pushed back faster than creating new tokens. If necessary, this can provide performance advantages to the network.

Many people who produce blocks will have a negative impact on the delay. This deflationary component will help dynamically curb excessive block production, while also providing important economic leverage or deflation for the ecosystem.

The goal of my series is to give readers a very deep understanding of the topic of consensus algorithms in a way that is still accessible and hopefully interesting. We have introduced the historical trajectory of the main consensus algorithm, and what I think is the next evolution: Proof of Burn. I hope you are now able to evaluate different consensus implementations for yourself, and draw your own conclusions about what innovation is and what is not innovation.

The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.