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Exclusive: How to Ensure Random Numbers in Public Blockchain?

Following Part 1 of our interview, Jing Chen of Algorand further teaches our readers on how to ensure the randomness of a number in public blockchain! She also evaluates the existing Proof-of-Stake (POS) protocols: Delegated VS Bonded VS Pure POS!

Regarding the white paper “Digital Signatures for Consensus” published on March 9, 2019, it states that the signature equation contains a random value r. How do you ensure a random number is really random in the public blockchain?

Randomness is used to select committee members for block generation in Algorand’s pure proof-of-stake consensus protocol. This is done through Verifiable Random Functions (VRF).

The seed of the VRF is generated by block proposers and may depend on the state of the blockchain thus far. The adversary cannot predict the randomness before seeing the block proposer’s message, thus cannot pre-strategize based on it. The randomness used in the protocol is updated every round, and seeing the randomness for the current round does not help an adversary predict the randomness used in future rounds. Similar schemes can be used to generate randomness for other purposes, including digital signatures.

What are the problems of delegated proof-of-stake (DPOS) and bonded proof-of-stake?

While delegated and bonded proof-of-stake approaches are more environmentally conscious – as they do not require the large computation power as found in a proof-of-work system in order to mine a block – they are still centralized by design.

In delegated proof-of-stake, a fixed number of selected entities, or delegates, are selected to generate blocks. Delegates are voted into power by the users of the network, who each get a number of votes proportional to the number of tokens they own on the network (i.e., their stake). However, once delegates are selected, they remain in position for a long time, which inherently makes the system more centralized. Further, there is no guarantee that all delegates will remain honest. And even if their honesty was certain, because their identities are known, they become obvious targets for attackers.

In bonded proof-of-stake, a user’s voting power is proportional to the number of tokens he is willing to “lock-up” —that is, put aside without touching for a long time. If he is caught taking malicious actions within the system, then these tokens may be confiscated. This inherently puts “small” users at a disadvantage, as they may need their tokens frequently and can’t afford to lock a large amount up for a long time. Users with a large total stake, on the other hand, are often more willing to do so, causing the voting power in the system to skew disproportionately towards them.

In comparison, Algorand’s Pure Proof-of-Stake (PPoS) approach randomly selects users in charge of block generation. The randomized selection happens not only per block but actually along every step of the Byzantine agreement per block. Every user may be chosen to propose and vote on blocks. The selection probability is directly proportional to a user’s total stake rather than the stake he is willing to lock up. The protocol does not ask a user to lock up any stake in order to participate, neither does it confiscate a user’s stake.

Why Dutch auction is adopted to determine the token price of Algorand?

The Algorand Foundation is responsible for the distribution of Algos—the native token of the Algorand platform. Algos will initially enter circulation through a sequence of Dutch auctions due to three main benefits they specifically provide – fairness, transparency, and convenience.

A Dutch auction lets the market determines the fair price of tokens rather than having the price set by any specific entity. Also, in a Dutch auction, the token price is the same for all participants who have won any amount of tokens, treating participants fairly.

A Dutch auction is convenient for the users to participate in online. Indeed, during such an auction a user does not need to remain online the entire time. They can make a bid and then move offline, and even return online to make another bid later on.

Finally, auctions are conducted on the Algorand blockchain for transparency. All bids are placed on the blockchain, so everybody can verify that the auction has been conducted properly.

Knowing that most of the dApps in public blockchains related to gaming, how Algorand can attract blockchain developers from existing leaders such as EOS and Tron?

Algorand’s technology stands out in decentralization, scalability, and security. We are committed to building a truly permissionless and decentralized public blockchain; a vision shared by many blockchain developers. The Algorand blockchain offers and will continue to offer many unique features where true technology plays. I invite readers to look at our blog posts on Algorand’s roadmap.

For example, as the Algorand blockchain doesn’t fork, it provides immediate transaction finality. After seeing a newly generated block containing a specific transaction, a user doesn’t need to wait for several other blocks to be generated following it before he can safely rely on that transaction. This is critical for time-sensitive applications, as there is no need to make a tradeoff between having a short confirmation time for transactions and risking certain transactions disappearing from the chain.

In Blockchain We Trust? New Paths to Religious Consensus

Religion and technological advancement are concepts that often find themselves in conflict with each other. Those who believe in superiority by higher powers tend to dismiss the more rational and scientific explanations for the grandest issues in human life, and vice-versa. The mere suggestion of using technology for purely religious affairs triggers a strong backlash. For instance, the Ghanaian Interior Minister recently suggested using WhatsApp to issue the Muslim call to prayer, instead of broadcasting the call over loudspeakers. The idea proved rather unpopular, however. Religious groups took deep offense for several reasons, including the comparison of such holy act as a call to prayer with noise pollution.

The Ghanaian affair is only the latest skirmish in a centuries-old conflict. Religion and technology just cannot get along. Or can they?

From Flat Earthers to blockchain evangelists: History of an age-old quandary

There was a time when people were led to believe that the planet we live in is as flat as a sheet of paper, and no amount of scientific explanation would convince them otherwise. Such fallacy was popular in ancient Greece and Egypt for instance. Even today, there remain ‘secret’ societies that support and attempt to promote the idea that planet Earth is some sort of an oblong-shaped disk floating in space. A lot of these groups (usually just a few people who meet in the nearest pub once a month) are tongue-in-cheek. Others take it more seriously, and fuel their misguided beliefs through pseudoscience, conspiracy theories, or pure religious determination.

All this illustrates the fact that reaching a consensus between the sacred and the secular is far from easy. There just seems to be no middle ground where the two can meet.

But as it happens, achieving consensus is big on the blockchain. In fact, it’s blockchain’s very raison d’etre.

Blockchain is a decentralized, Peer-to-Peer (P2P) system, which means there is no central authority (‘middleman’) in control of the whole thing. While this is positive in many aspects, it also means that all the nodes in the network must be able to somehow agree that a given transaction is genuine, and can be added to the ever-growing chain as a new block.

This is where consensus mechanisms come in.

Consensus can be defined as an irrefutable system of agreement between all the devices across the network. Blockchain uses protocols (i.e., a set of rules that describe how the communication and transmission of data should work) to achieve consensus (‘agreement’). Once all nodes agree that a dataset is genuine, a new block is added to the chain. And so on.

Now, let’s extrapolate the concept of consensus to the thorny field of religion. Few would agree that agreement is a commonly used term between members of different faiths and beliefs. Christians think their God is the only one, Muslims have something to say about that, and Buddhists would add their own sacred flavor to the mix. In short, the world of religion is a swirling cauldron of misguided beliefs, obstinate faiths, and violent factions whose only agreeable cause would likely be the destruction of one another.

But what if blockchain, with its inherent ability to generate consensus, could become part of the solution for this ancient quandary?

Using blockchain as a basis for religious faith is by no means a new concept. A recent Forbes article recounted the tale of 0xΩ, a ‘blockchain-inspired’ religion initiated by former Augur founder and CEO Matt Liston.

Liston, whose departure from Augur is still the subject of a multi-million lawsuit, went on to become the founder of the world’s first religious movement based, or inspired by, blockchain technology.

Many were quick to dismiss 0xΩ (pronounced ‘zero ex omega’) as little more than a novelty, a pet project to pass time between real jobs. But Liston’s idea of using blockchain as the underlying framework for religion is sound. Why? Because of blockchain’s main strength, its ability to create consensus. Liston himself posted a tweet that appears to emphasize 0xΩ’s focus on achieving consensus, reaffirming the central idea and the role of blockchain in this enterprise.

What is a belief, and can we believe through technology?

All this raises some fundamental questions. What is a belief, and can people express their faiths and set of beliefs through technological means?

Anthony Levandowski is an ex-Google and ex-Google engineer who recently filed official papers describing himself as the Dean of the Way of The Future, the world’s first AI-based religion. According to Wired, the papers talk in detail about “the realization, acceptance, and worship of a Godhead based on Artificial Intelligence (AI) developed through computer hardware and software.”

The creation of an AI divinity, in other words.

Levandowski is, by all accounts, a very smart man. And he’s also a controversial individual. A hefty lawsuit over alleged industrial espionage hangs over his head. He’s pleaded not guilty to all 33 counts, but his fate will be decided inside a real, rather than a virtual courtroom.

Nevertheless, he has gone on record to say that humankind would be much better off if an AI entity was running the show, going as far as saying that such entity would favorably look upon those humans who facilitated its rise to absolute power. The implications and potential ramifications for this concept go well beyond the scope of this piece, so that’s a tale for another day.

And so we come full circle. Religion and technology meet yet again, breaking their uneasy truce for another go at the wheel of life.

Humans need to believe in something greater than themselves, and the realization of these beliefs is what makes us who and what we are. But who’s to say that believing and praying in a self-aware and sentient holographic representation of a deity, or storing and studying your prayer books on the blockchain, is in any way different to seeking solace in a white-robed man in the sky?

Share your thoughts about decentralizing religion and iconic religious figures with us.

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Hedera Hashgraph’s Launches New Consensus Service Which Could Be Leveraged by IBM’s Hyperledger Fabric

Hedera Hashgraph released its Hedera consensus service (HCS), which can be used by external centralized applications, including IBM’s Hyperledger Fabric. Hedera Hashgraph’s governance board includes Boeing, Deutsche Telekom, IBM, Nomura, and recently, Google.

Hedera aims to have 39 governing council members and to be permissionless in the future. Currently, only 11 council members operate nodes with write permissions. Prior to the launch of the platform, the firm raised $124 million through a token sale. Its unique technical architecture makes it more efficient and scalable than most blockchains.

With the Hedera consensus service, external parities could also have access to the service and are open to developers on the Hedera mainnet. Hyperledger Fabric could also use the Hedera consensus service in determining the timestamp and order of transactions. As IBM is one of the members of Hedera’s governing council, the whitepaper was written with one of the members of the IBM Blockchain team.

Leemon Baird, the Co-founder of Chief Scientist of Hedera Hashgraph said, “Logging transactions in the exact order they occur is crucial to use cases across nearly every industry. HCS combines hashgraph’s fast, fair, and secure consensus algorithm with the trust and governance of Hedera’s public network.”

According to Hedera, the service can also be used for a private Corda or Ethereum network. The use of a public consensus is beneficial to most small private networks, given that in private blockchain networks, the lack of decentralization could lead to collusion. Hedera’s split of its consensus service from its smart contract service brings more of an advantage when it comes to efficiency.

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Finality: A Necessary Condition for Blockchain Applications in Finance

Settlement finality is critical in the world of traditional finance. The same applies to decentralized finance built on distributed ledger technologies (DLT). DLTs or blockchains are an innovative assembly of existing technology concepts, for example timestamping, chaining of data blocks (initially invented by IBM in 1976) as well as consensus algorithms.

The Proof of Work (PoW) consensus algorithm used by the Bitcoin blockchain is an insightful example of mechanism design to incentivize actors to behave well in the absence of regulation. But not all consensus algorithms are created equal. And this has implications on their usefulness in financial applications.

In this short article on finality, we discuss how the choice of a blockchain and its consensus algorithm is a critical decision when building financial services. What we present is relevant for applications in payments but also in the field of tokenization and financial markets, where transaction settlement constitutes an essential part of the value transfer process. But before we dive deeper into the topic, let us revisit the different types of consensus algorithms.

Probabilistic consensus algorithms

In the world of blockchain, consensus algorithms are in place to establish agreement amongst computer nodes. They, therefore, are an elegant solution to the famous “double-spending problem”. One cannot copy a coin to spend it more than once. This feature of blockchains is particularly crucial in the case of public blockchains where actors are unknown and legal enforceability may not be easy.

In the case of probabilistic consensus algorithms such as Proof of Work (PoW), sometimes nodes on a blockchain network propose diverging versions of the “truth” and create secondary chains. This means that when re-running the protocol with the same participants, one does not always get the same result. The longest chain that had the most significant computing effort associated with it is considered the correct one. During this period, a 51% attack could be conducted to superimpose alternate transactions. There is a window of time where it is not clear which chain is the longest and which transactions are part of the longest chain. And herein, the challenge lies. We can only be sure about the finality of our transaction when it is clear which chain is the longest. That is usually the case only when multiple blocks have been added to it. In the case of Bitcoin, six confirmations (or six new blocks) are required. The probability of transaction reversal decreases with each addition of a new block. At a block per 10 minutes, there is uncertainty about the finality of a transaction for ca. 60 minutes.

How about Proof of Stake?

A word about the famous Proof of Stake (PoS) algorithm: It achieves probabilistic finality through economic incentive design. Block producers are randomly chosen to enter a pool (for example, due to their wealth in tokens or how long they have had them or a combination of the two). Then they get selected to forge new blocks – their wealth being at stake. Block producers have an incentive to validate legitimate transactions only. If they do otherwise, they face the risk of “slashing”, or losing all or part of their wealth. If and when there are enough block producers on a network, the randomness of their selection counteracts possible adversary attacks.

Deterministic consensus algorithms

Deterministic consensus algorithms function differently. Blockchains based on such algorithms have a leader propose a new block of transactions. Once a certain percentage of validators approve the block, it is added to the blockchain and immediately final. An example of a deterministic consensus protocol is the Practical byzantine fault tolerance (pBFT) algorithms such as Tendermint. Blockchains based on this type of consensus mechanism can usually tolerate up to one-third of malicious nodes and still function adequately.

Finality in finance

Why is instant finality so crucial in the world of financial services? The short answer is that it is all about risk. “Finality of settlement ensures that transactions …will, at some point, be complete and not subject to reversal even if the parties to the transaction go bankrupt or fail” (DUSK Network 2019). Creating financial services platforms that cannot guarantee finality increases the systemic risk for all participants. Hence, traditional market standards and legal frameworks require settlement finality by so-called financial market infrastructure providers (FMIs).

A 2012 reference issued by the Bank of International Settlements (BIS) includes principle eight “An FMI should provide clear and certain final settlement … final settlement intraday or in real-time.”. The Depository Trust & Clearing Corporation (DTCC) emphasizes the importance of finality in a recent whitepaper: Transactions executed on platforms where finality is challenging to establish, are “susceptible to being unwound in connection with, among other things, the bankruptcy or insolvency of a counterparty”. Such risk is probably even more noteworthy in the anonymous/pseudonymous world of blockchains than it is in traditional finance where actors are known.

In a recently published draft law for digital securities in Germany states that “blockchain or DLT systems can only be used for maintaining a crypto securities register if they sufficiently ensure the finality of transactions by means of suitable technical measures”. It is not possible to know when precisely a transaction is final on a blockchain that uses a probabilistic consensus algorithm. If blockchains are to play a significant role in financial services, we cannot ignore settlement risk. If we could estimate the possible damage caused by probabilistic algorithms AND they, do not supersede the benefits of using such protocols in finance, the picture changes. But this quantification is complicated. Until such research is complete and can be credibly articulated, we advocate the use of blockchains with deterministic consensus algorithms for financial services applications.

Authors:

Daniel Liebau, Founder Lightbulb Capital, Adjunct Faculty at Singapore Management University

Anish Mohammed, Co-Founder R2 Labs, Head of Research at the Institute of Information Systems at SRH Hochschule Berlin Additional

References

https://arxiv.org/pdf/1711.03936.pdf

https://www.preethikasireddy.com/post/lets-take-a-crack-at-understanding-distributed-consensus

Ripple CTO: Why Ripple Ledger's Consensus Algorithm is More Reliable and Energy Efficient than PoW

Ripple CTO David Schwartz just contributed a post entitled “Beyond Proof of Work: the XRPL Consensus Solution”, in which he talks about reasons why Ripple Ledger (XRPL)’s consensus is more reliable and energy-efficient than Proof of Work (PoW) Consensus.

A Consensus is used to solve the double-spend problem. In bitcoin and Ethereum blockchain networks, they use Proof of work consensus. The proof-of-work chain is a probabilistic solution to the Byzantine Generals Problem, which bypasses the complexity of the traditional Byzantine fault tolerance (BFT) solution. As bitcoin founder Satoshi Nakamoto said,

The proof-of-work chain is how all the synchronization, distributed database and global view problems you’ve asked about are solved.

But PoW has drawbacks. Ripple CTO said:

While proof-of-work, with the massive electrical usage and transaction cost inefficiencies the approach entails, has proven to be a technological dead end, other consensus algorithms continue to innovate to provide better decentralization at lower cost and lower risk. Development continues on XRPL’s consensus algorithm to improve resilience. In this regard, the recently introduced “Negative UNL” feature is set to dramatically improve XRPL’s ability to tolerate validator outages while still making reliable forward progress.

Then comes the XRP Ledger (XRPL) Consensus Solution found by Ripple:

As the only enterprise blockchain company today with payment products in commercial use, Ripple has found that the digital asset XRP enables its users to rapidly and inexpensively source liquidity—while also offering greater scalability than any other digital asset.

In David’s view, the XRP Ledge solution is more reliable and energy-efficient than PoW. He further added:

The XRP Ledger (XRPL) has a fundamentally different design from proof-of-work based blockchains like Bitcoin and Ethereum. The consensus validation system XRPL uses follows an anti-robustness principle that elevates reliability. This provides the system with a built-in safety mechanism: when safe forward progress is not clearly possible, XRPL does not make forward progress.

But the XRPL’s consensus has not been peer-reviewed by industry leaders like Blockstream CEO Adam Back, who criticized Ripple XRP is a ridicuoulsly pre-mined scam with corp marketing.