Introduction of Blockchain
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It has been more than a decade since a visionary named Satoshi Nakamoto gifted us with Bitcoin. A new asset type that enabled everyone the capacity to exchange value without having to rely on any centralized authority. Bitcoin is programmable money whose transactions are immutable, irreversible and final. This was made possible through the power of blockchain, a revolutionary technology that serves as a “trust layer” to allow peer-to-peer transactions without intermediaries. By leveraging blockchain, Bitcoin has become an unstoppable force of social, political, economic and financial change.
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Not long after, other visionaries saw the potential of blockchain technology beyond the financial sector. One of which is Vitalik Buterin who created Ethereum after the bitcoin community turned down his idea of integrating smart contracts functionality. The creation of Ethereum started the next evolutionary step of this emerging technology. Blockchain 2.0 is “programmable blockchain” that opened the floodgates of innovation, providing developers with the necessary platform to create decentralized applications that goes beyond the financial realm. These include supply chain, identity, entertainment, and governance to name a few.
Unfortunately, the immense popularity of Bitcoin and Ethereum proved to be their greatest weakness as both blockchains failed to scale to accommodate user demand. Bitcoin has a theoretical limit of seven transactions per second (7 TPS). On the other hand, Ethereum has a maximum transaction bandwidth of fifteen transactions per second (15 TPS). This problem persists due to the inherent difficulty of implementing scalable technology while maintaining decentralization and security. This is a state identified by Vitalik Buterin coining the word Blockchain Trilemma.
The Blockchain Scalability Trilemma
A Blockchain’s value emanates from these three attributes— Decentralization, Security, and Scalability, without one of these attributes, make a dysfunctional blockchain. Decentralization is important because it is the primary factor that elevates blockchain from regular databases. It is the blockchain’s main characteristic that enables it to act as a “trust layer.” Security is another key attribute that is vital to any blockchain ecosystem. It is essential to make the blockchain safe to use and resistant to any kind of threat. Finally, it should be scalable enough to accommodate present and future users on its platform. A blockchain cannot be useful if no one can use it.
The value and cost of Blockchain Decentralization
The importance of decentralization can never be overemphasized. However, to fully understand the value of decentralization we first need to know how blockchain works.
How does blockchain work?
In simple terms, a blockchain is just a network of a distributed ledger. Each of these participating ledgers (commonly called nodes) has an exact copy of data which usually consists of addresses and balances. Whenever a transaction is executed in this network, changes are recorded in each of these nodes, making sure that each of the nodes has the same set of data. This is made possible through the use of Proof of Work (PoW) consensus mechanism that ensures that there is only one version of the “truth” exists within the network. Participants in the PoW consensus protocol are called “miners.”
Miners are high-powered computers that solve complex computational math problems. The more computing power these computers have the faster they can solve the mathematical cryptographic problem and get more chances to write the next block. The act of writing the next block is often described as “mining the next block.” To ensure that there is only one version of the “truth” only one “miner” is allowed to write the next set of data or block in a blockchain. This block is then confirmed by other miners and transmitted through the whole network so that all nodes will have the same record of data, therefore, achieving consensus.
The miner who writes the block is then rewarded with freshly minted coins which we call the block reward which currently stands at 12.5 BTC for Bitcoin. This is on top of the transaction fees paid by users when they want to send their cryptocurrencies. The competitive nature of mining ensures the decentralization of the creation of new blocks through the random selection of miners. Furthermore, the newly updated blockchain record is then transmitted to the different nodes in the network ensuring they all have the same data. Blocks that have been written in the blockchain can never be erased, changed or reversed.
Value of Decentralized Blockchain
Decentralization of blockchain results in Immutability, transparency, and redundancy. This makes the blockchain secure, safe and unstoppable. More importantly, it enables blockchain to function as a trust layer, as users are guaranteed their transactions are final and irreversible. This means transactions can’t be stopped, no risky centralized databases, and no single authority that decides who can use the network. Furthermore, blockchain-based applications cannot be weaponized or used as a medium of oppression, collusion or coercion.
Decentralized blockchains empower true ownership. Money in banks can be frozen, debits cards can be denied, payment processors can stop payments and countries can restrict the outflow of capital. With bitcoin, there is no way for others to freeze, deny or stop payments. Even governments cannot stop it. There is no centralized infrastructure that can be targeted, no central authority that can be coerced and no single point of failure that can be exploited. Moreover, true ownership does not only applies to money it can also be applied to other digital assets such as identity, data, digital items, and any other digital ownerships.
Cost of Decentralized
Decentralized blockchain comes at a huge cost. In fact, it can be said that today’s most popular blockchains are accelerating the existential risk of climate change to mankind. The ever increasing power requirements of mining equipment that help secure blockchains have reached a point that it consumes as much energy as Austria as shown in the graph below.
The highly inefficient consensus protocol of two of the most dominant blockchains in the world brings us to question if the advantages of these blockchains are enough justifications to risk a monumental environmental disaster that could kill off most of the population of the world. However, some may argue that most crypto mining activities now use renewable energy and heat generated by mining equipment is recovered and converted to other purposes. Those are indeed great developments, however, these energy sources could have been of better use reducing dependency on fossil fuel energy.
Blockchain 3.0
Blockchain 1.0 brought us “programmable money” Bitcoin; Blockchain 2.0 brought us “programmable blockchain” Ethereum with its smart contract platform; Blockchain 3.0 brings “scalable and power-efficient blockchain 2.0.” This was made possible by introducing a new consensus mechanism called Proof of Stake (PoS) consensus protocol. This is now widely considered a more cost-effective and power-efficient alternative to Proof of Work (PoW). Unlike PoW, PoS does not require expensive high-powered computers that are not only hard to setup but easily get outdated.
Proof of Stake (PoS) achieves consensus through the process of “Staking” and the selection of “validators” that takes on the role of “miners.” If the miner’s chance of being selected to write the next block is relative to the computing power of their mining equipment, the chance of validator being selected is the amount of Cryptocurrency they Stake. Like miners, these validators are rewarded with newly minted coins. To make PoS consensus protocol more scalable a variant of PoS was created. It was dubbed Delegated Proof of Stake, invented by American computer scientist Daniel Larimer, founder of EOS.
Delegated Proof of Stake (DPoS)
In DPoS, token holders are not directly involved in the consensus mechanism, instead, they elect delegates that act as validators. There are only a limited number of slots available for elected delegates and this defers from one DPoS blockchain to another. All DPoS token holders can participate in elections by staking their tokens. Staked tokens in DPoS become the token holders voting weight. 1 staked token is equivalent to one vote. This means if 100 token holders with 1 staked token in their account voted, this is just equivalent to 1 token holder voting with 100 Tokens staked.
Having a limited number of participants in the consensus mechanism enables DPoS-based blockchains to scale better. One of the most successful DPoS blockchains is EOSIO which purportedly scales several orders of magnitude better than Ethereum. However, the strong affinity of EOS towards scalability and lesser focus on decentralization has been a major pain point for decentralized application (dApps) developers. As a result, many developers still prefer Ethereum as their go-to smart contract platform because of its superior decentralization features and the prospect of it to scale in the future.
The prevalence of higher quality dApps in the Ethereum network despite the presence of a popular alternative just proves our case that decentralization takes front and center in the blockchain trilemma. Blockchain 3.0 might be more scalable and less power-hungry than the previous blockchains generations, but without a comparable degree of decentralization, it just does not make the cut.
IOST next-generation blockchain
Before we explore IOST’s blockchain let us review the previous generations of blockchain. They will be represented by the most popular and most liquid market. Bitcoin for Blockchain 1.0, Ethereum for Blockchain 2.0 and EOS for Blockchain 3.0. We will highlight their weaknesses and later on explain how IOST solved these issues.
Problems of previous-gen blockchains
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Scalability and transaction fees
Blockchain 1.0 and blockchain 2.0 share the basic problem. They just don’t scale and when they are operating beyond their capacity, their transaction fees shoot off the roof. Transactions take hours or even days to confirm. In addition to this, transaction fees are often several times more than expensive than the transaction itself. There had been cases where users are charged a $10 transaction fee for a $1 transaction. This is the result of the Highest-Fee-First-Serve (HFFS) transaction scheduling model used by the top two cryptocurrencies by market capitalization— Bitcoin and Ethereum.
Centralization challenges
Blockchain 3.0 seems to have solved most of the issues of the previous generations of blockchains. The most prominent 3rd gen blockchain is EOS which leverages Delegated Proof of Stake (DPoS) to scale better. It has done away with transaction fees by introducing an operating system-like resource abstraction and allocation which we will discuss later. However, despite providing a more scalable blockchain it is unable to surpass Ethereum as the premier smart contract platform due to reasons already mentioned above. Furthermore, resource availability fluctuates tremendously which renders EOS useless sometimes.
Resource Abstraction and Allocation
To make EOS fee-less its developers introduced an OS-like resource abstraction and allocation layer in the form of CPU, NET, and RAM. These represent computational, network and storage resources in the EOS blockchain. Instead of having to pay transaction fees, EOS uses these resources to execute transactions within its network. The amount of EOS coins you stake on the platform relative to the total EOS staked in the whole network represents your allocation of resources. This means if you have held and staked 1% of the total staked EOS coins you are allocated with 1% of the total resource in the network.
The DPoS and OS-like resources were a powerful combination that brought scalability and feeless-transactions. However, there is a major flaw in the implementation of the latter in EOS. The severe fluctuations in the availability of CPU resources make the network unstable, unusable and open to vulnerabilities. The existence of “Resource Exchange” aggravates this by allowing a small number of users to lease resources for a limited time, hogging much of the CPU resources effectively taking control of the network. Users with fewer CPU resources will not be able to use the network.
IOST- Blockchain Unleashed
IOST stands for Internet of Services Token, a new blockhain that recently launched its mainnet last February 25th, 2019 after a private token sale in December 2017. It was able to raise around $35MM via a private token sale. The main aim of the project is to provide a secure and scalable enterprise-level blockchain infrastructure for the internet of services. In order to achieve this, the IOST team plans to leverage its own proprietary consensus protocol that has the advantages of a scalable blockchain without sacrificing the decentralization, the most important and value-adding attribute of the blockchain.
IOST is a better implementation of a smart contract platform compared to Ethereum and EOS. It offers ultra-fast blockchain performance with an average throughput of 7,000-8,000 transactions per second. It does this without sacrificing decentralization through the utilization of the Proof-of-Believability (PoB) consensus algorithm. PoB offers a more decentralized voting and committee (group of validators) election process through the introduction of the Servi point system. This system guarantees increased variation of group validators as well as its faster rate of change, achieving a much higher degree of decentralization than EOS.
What is PoB and how does it help IOST decentralization?
Proof of Believability (PoB) is an innovative consensus technology that improves upon Proof of Stake consensus protocol proposed by Sunny King and Scott Nadal in 2012 as a more power-efficient consensus protocol to replace proof of work. It is somewhat similar to the Delegated Proof of Stake (DPoS) consensus mechanism but has a more decentralized mechanism for voting, participation and electing the committee that engages in block production and validation. However, unlike EOS, PoB has a mechanism to rotate committee members called the Servi Point system.
In PoB there are 17 block production committee seats. Each of these seats is occupied by an elected candidate with the highest number of votes which also serves as their Servi Points. Once the committee member selection is completed, each member takes turns to produce one block, while the others validate all blocks. This will continue for 10 minutes until a new set of committee members are elected. In the next round, the Servi Points of the 17th rank committee member will be deducted to all committee members of the previous round giving the unselected candidates from the previous round a greater chance of getting selected.
By utilizing this consensus mechanism there may be hundreds of different candidates selected for the committee each day. This lowers the barrier to become a selected candidate allowing more community members able to participate. Changing the composition of participating block producers and validators every 10 minutes increases IOST’s degree of decentralization. This is in contrast to EOS which has no mechanism to rotate committee members. This only means that it is highly likely that the existing 21 Block producers will stay in the committee and produce all blocks.
IOST Resource Abstraction and Allocation
IOST introduces a more effective and stable resource abstraction and allocation compared to previous iterations of the blockchain. IOST developers have struck a perfect balance between having too many separate resources to configure that unnecessarily complicates usage and oversimplified resource abstraction that lowers effective utilization.
EOS uses three blockchain resource abstraction which we have discussed earlier. On the other hand, Ethereum bundled all computation, network and storage resource abstraction into one which consumes ETHER Gas.
IOST blockchain resource abstraction is perfectly balanced at two. These two are the **[iGAS](https://medium.com/iost/what-are-igas-and-iram-learn-how-you-can-utiliz