How could blockchain technology achieve scale while remaining decentralized?

Lets discuss about fundamentals of Blockchain Technologies:

Blockchain is a decentralized shared ledger of digital information that is distributed across many different computers.

Cryptocurrency is a digital currency which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central authority.

Node can be any electronic device able to connect to the network & job is at a minimum to support the network by maintaining a copy of the blockchain.

Miner is a specific node which computes transactions to secure the blockchain. They are incentivized by calculating and processing the data in a block.

Consensus based Proof of Work (PoW) secures a blockchain network by creating a random math problem where miners are in a compete to solve. Winner’s job to validating then other miners are confirm that the winner had correctly solved and downloaded the information on the previous block. Whole process required huge energy consumption with computing power. Over the time it will be worst which will influence from decentralized to centralized blockchain, because most of datacenter will not able to participate and few nodes are able to process a block as Miner for lack of enough computing power, storage, bandwidth, & energy.

I think centralized blockchain undermine the technology’s purpose as a shared public ledger:

Centralized blockchain will violate the DNA of Blockchain & Distributed Ledger Technology. Redundancy, Immutable storage & Encryption and create issues like Lack of Innovation, efficiency, security, control, slow process & expensive:

·      Centralized blockchain will be less secure than decentralized blockchain since the data will not be so spread and distributed.

·      Verification and inspection process will be more challenging like any organization or corporation wants to verify own data or want to inspect by 3rd party that will be very difficult.

·      The organization or corporation will capture value will be beneficiary who has control on centralized blockchain.

·      Centralized blockchain will create greater risk of single point failure but distributed systems mitigate risk and keeps the system’s availability and reliability in balance.

·      Centralized blockchain will lose its economic innovation where competition will be eliminated, and all financial incentives will be driven by a single entity & will not allow the power of creativity to be placed in the hands of everyone.

·      Centralizing Blockchain will lead the entire system in the risk of a single authority like a public or private organization. It could create opportunity to bring hidden agendas and lack of trust as single entity responsible for the largest data ledger system and too much power under the single entity.

It’s really challenges for blockchain technology to achieve scale while remaining decentralized.

In PoW approach the decentralize blockchain requires to run consensus protocol to extend the Blocks where all transactions need to pass through and processed by all of the nodes and each participant requires to validate & store the chain hence lot of computational effort needed from the miners which subsequent high energy consumption and very highly expensive. Often mining pools are not in agreement, alternative chains could emerge which called fork. In this condition users cannot rely on a new block when it appears, need to wait until the block is deep enough in the chain, significantly very high latency. This is the main scalability problem of blockchain.

Transaction processing and validation is the bottleneck but it’s tradeoff between low transaction throughput and high degree of centralization. The blockchain protocol must figure out a mechanism or approach to limit the number of participating nodes needed to validate each transaction, without losing the network’s trust. There are several mechanisms or approaches which would help blockchain technology to achieve scalability:

Off-Chain State channels: It’s a mechanism where blockchain get interacted and conducted off of the blockchain instead of normal on chain process. In this approach the main chain is the anchor, but most of transactions are processed off chain among a smaller group of operating under a verified set of rules utilizing a smart contract. Later on, it re-join the chain and close the off state channel contract. Hence transactional capacity will increase and provide increased speed and lower fees.

Sharding: Database sharding is similar with traditional software systems, where spread processing and storage load across different servers on the network. Transactions are focused to different nodes depending on which shards they affect and the network shares workload for different sets of activates in parallel and communicates with each other by message-passing mechanism. The sharding the blockchain requires to create a network where every node only processes a small portion of all transactions and validated those very securely, security is one of the challenges.

Plasma: Plasma is an Ethereum mechanism with layer two Off-Chain scaling solutions. It’s a framework that allowing to creation of ‘child’ blockchains and using the main Ethereum chain as a trust and arbitration layer. The root blockchain enforces the validity of the state in the Plasma chains using “fraud proofs”. Fraud proofs are a mechanism by which nodes can determine if a block is invalid using mathematical proofs. The root chain validates the flow chart of child chains, and the child chains validate the transactions which is executed within themselves. Decentralized applications that force users to incur high transaction fees are much better suited to run on Plasma. Off-Chain activity reduces the number of transactions the main chain needs to process, and the transactions of the child chains are confirmed via the proof in a distributed way, creating chains within a chain. Ethereum network and child chains are tied together through ‘root contracts. Root contracts are performed as the bridge that allow users move assets between Ethereum and the child chains.

Proof of stake: The proof of stake was created as an alternative of the proof of work. It’s a type of consensus algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus which reinforces security by preventing double spending. PoS seeks to address the issue by attributing mining power to the proportion of coins held by a miner. Instead of utilizing energy to answer PoW puzzles, a PoS miner is limited to mining a percentage of transactions that is reflective of ownership stake. In this mechanism the creator of the next block is chosen via various combinations of random selection; stakeholders vote with their “dollars” instead of compute power. Blockchain keeps tracking the validating nodes, called “validators”, who must place a security deposit as “bonding” to validating the blocks. If a validator produces anything that the algorithm considers “invalid” in a crypto-graphically provable manner, their deposit and the privilege of participating in the consensus process is lost. If they bet correctly, they reward their deposit back along with transaction fees.

#Blockchain #cryptocurrency #MIT #Plasma #PoW #Sharding #PoS #DLT