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by Sadie Williamson, Aug 14, 2018

Consensus Protocols and Overcoming Blockchain Scalability Issues


Green Nodes

It seems that as the speculative bubble around blockchain projects is nearing its end, public focus is shifting away from speculative investments in crypto projects to interest in the underlying technology.

Blockchain technology is very much about the trustless exchange of value in day-to-day life, which means that it must gain mass adoption for it to truly reach its potential. But in order to do so, the technology must prove to be better than available options in all respects.

While blockchains have given us ways to exchange value without intermediaries, they have failed to beat the traditional options regarding scalability. In fact, most available blockchain solutions today have low transaction speeds and high transaction fees.

However, scalability may soon be an issue of the past with the latest disruptive solutions.

The Proof-of-Work Approach

In order to understand what is needed to successfully scale blockchain solutions, we first need to have a clear picture of the issues that exist with the major blockchain consensus protocols.

Proof of work is the validation protocol used by many cryptocurrencies such as bitcoin, where mining devices verify transactions by competing to solve cryptographic puzzles.

The process gets harder with increasing transactions and requires a lot of computing power, as well as large amounts of memory space. This is why Bitcoin transaction speeds are slowing and fees keep rising with increasing adoption. In the proof-of-work approach, transactions are stored in blocks that have a size limit of 1 megabyte. As the number of transactions keeps growing, the block tends to fill up, reducing transaction speeds.

Some believe that simply increasing the block size offers a solution. But because transactions on the Bitcoin blockchain are expected to grow exponentially, increasing the block size only provides a short-term reprieve. As the world continues to adopt this blockchain, it is possible that there will come a time when a block cannot be expanded anymore. Increasing the block size means increasing the amount of data needing to be validated within a short amount of time in which a new block is created. This means using enormous amounts of computing power that can only be affordable to big mining pools, which can then potentially gang up and take control of the blockchain, locking small miners out and defeating the Bitcoin blockchain’s primary purpose of decentralization.

The block size increase debate has been going on for a long time in the community with some proponents breaking off to form the likes of Bitcoin Cash.

The Proof-of-Stake Approach

Proof of stake addresses the computing power need by introducing a mechanism where validation is done through the random selection of a node. The chances of a node being selected increases with the amount of stake in the project that a user holds.

When a node is selected, its stake acts as a collateral of trust to validate the block — meaning that if a node validates a false transaction, it risks losing its stake. The approach is less energy intensive than the proof-of-work mechanism and, therefore, it incurs fewer transaction fees.

The problem with proof of stake is that it does not address blockchain growth. Also, by selecting block validators by their stake, the process compromises decentralization because the rich control the validation and they keep getting richer as they validate more blocks.

The Proof-of-Assignment Approach

Proof of assignment, a mining method developed by the IOTW team, tackles some of the scalability challenges associated with proof of work and proof of stake through what is known as “micromining.” The process involves a random selection of a limited number of candidates to solve cryptographic problems.

In the proof-of-assignment method, the ledger is not stored in the mining devices and therefore takes up very little memory space on a user’s device.

Less computing power and memory requirement make proof of assignment practical for unspecialized day-to-day use. The IOTW project is focusing on incorporating its blockchain in IoT devices and will facilitate fast transactions between IoT devices, also enabling them to participate in crypto mining.

The most efficient blockchain scalability approaches are those that address transaction fees and data storage simultaneously. While the POS mechanism has reduced transaction fees by lowering the costs of crypto mining, it compromises the main essence of blockchain technology, which is decentralization.

Even though the proof-of-assignment method is explicitly designed for IoT devices, it may open a way for others to follow in making blockchain technology useable in practical everyday use.