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Since the invention of Bitcoin, we have seen computer science creativity explode in the open community. Despite the apparent success, Bitcoin there are some shortcomings. It’s too slow, it’s too expensive, the prices are too volatile, and the transactions are too public.
Much electronic money Projects in public spaces have attempted to address these challenges. There is a special interest in the community to address the scalability challenge. Bitcoin’s proof-of-work consensus algorithm only supports a throughput of seven transactions per second. Other blockchains like Ethereum 1.0, which is also based on a proof-of-work consensus algorithm, also show mediocre performance. This has an adverse effect on transaction fees. Transaction fees vary according to the amount of traffic on the network. Sometimes the fee can be less than $1 and other times higher than $50.
Proof-of-work blockchains are also very energy intensive. As of this writing, the process of generating Bitcoins takes about 91 terawatt-hours annual electricity. This is more energy used than Finland, which has a population of about 5.5 million people.
While there are a number of commentators who argue that this is a necessary cost to keep the entire financial system safe, rather than just the cost of operating a digital payment system, there are Another division argues that this cost can be addressed by developing proof-of-stake consensus protocols. Proof-of-stake consensus protocols also offer much higher throughput. Some blockchain projects are aiming to deliver over 100,000 transactions per second. At this level of performance, blockchain can compete with centralized payment processors like Visa.
The shift towards proof-of-stake consensus is quite substantial. Tendermint is a popular proof-of-stake consensus framework. Several projects like Binance DEX, Oasis Network, Secret Network, Provenance Blockchain and many more use the Tendermint framework. Ethereum is transitioning towards being a proof-of-stake network. Ethereum 2.0 is likely to launch in 2022 but the network already has over 300,000 validators. After Ethereum makes the switch, it is likely that several blockchains based on the Ethereum Virtual Machine (EVM) will follow. Additionally, there are several non-EVM blockchains such as Cardano, Solana, Algorand, Tezos, and Celo that use proof-of-stake consensus.
Proof-of-stake blockchains introduce new requirements
As proof-of-stake blockchains take hold, it’s important to dig deeper into the changes taking place.
First, there is no “mining” anymore. Instead, there are “bets”. Staking is a process of staking the native blockchain currency for the right to validate transactions. The staked cryptocurrency cannot be used for transactions, i.e. it cannot be used for payments or to interact with smart contracts. Validators staking cryptocurrencies and processing transactions earn a fraction of the fees paid by entities sending transactions to the blockchain. Stock yields typically range from 5% to 15%.
Second, unlike proof of work, proof of stake is a voting-based consensus protocol. After a validator bets on the cryptocurrency, it commits to staying online and voting on transactions. If for some reason a significant number of validators go offline, transaction processing will stop altogether. This is because a large number of votes are required to add new blocks to the blockchain. This is completely different from proof-of-work blockchains, where miners can come and go as they please and their long-term rewards will depend on the amount of work they did while participating in the coin protocol. favorable. In the proof-of-stake blockchain, validators are penalized and part of their stake is taken away if they are not online and vote on transactions.
Third, in a proof-of-work blockchain, if a miner misbehaves, such as by trying to fork the blockchain, it will hurt itself. Mining on top of a block is not exactly a waste of effort. This is not true in proof-of-stake blockchains. If there is a fork in the blockchain, then a validator node would in fact be incentivized to support both the main chain and the fork. This is because there is always some small chance for the fork chain to become the main chain in the long run.
Penalize misbehavior in the blockchain
The original proof-of-stake blockchains ignored this issue and relied on validating nodes that participate in consensus without misbehaving. But this is not a good assumption to make in the long run and so newer designs introduce a concept called “slashing”. In the event that a validator node observes another node misbehaving, for example by polling two separate blocks at the same height, the observer can sever the malicious node. The truncated node loses part of its staked cryptocurrency. The magnitude of a cryptocurrency cut depends on the specific blockchain. Each blockchain has its own rules.
Fourth, in proof-of-stake blockchains, misconfiguration can lead to hacks. A typical misconfiguration is one in which multiple validators, which may be owned or operated by the same entity, use the same key to authenticate a transaction. It is easy to see how this can lead to chopping.
Finally, early proof-of-stake blockchains have a hard limit on the number of validators that can participate in consensus. This is because each validator signs a block twice, once during the preparation phase of the protocol and once during the commit phase. These signatures add up and can take up quite a bit of space in the block. This means proof-of-stake blockchains are more centralized than proof-of-work blockchains. This is a serious problem for proponents of decentralization, and as a result, newer proof-of-stake blockchains are transitioning to newer cryptocurrency systems that support signature aggregation. For example, the Boneh-Lynn-Shacham (BLS) cryptosystem supports signature aggregation. Using the BLS cryptosystem, thousands of signatures can be synthesized in such a way that the composite signature takes up only the space of a single signature.
How a trusted execution environment can be integral to proof-of-stake blockchains
While the core philosophy of blockchain revolves around the concept of trustlessness, a trusted execution environment can be integral to proof-of-stake blockchains.
Securely manage long-lived validator keys
For proof-of-stake blockchains, authentication keys need to be securely managed. Ideally, such keys should never be available in clear text. They must be created and used inside trusted execution environments. In addition, trusted execution environments need to ensure disaster recovery and high availability. They need to stay online to meet the needs of validator nodes.
Secure execution of critical code
Today’s trusted execution environments are much more capable than secure key management. They can also be used to deploy critical code that operates with high integrity. In the case of proof-of-stake validators, it is important that conflicting messages are not signed. Signing conflicting messages can lead to economic penalties under some proof-of-stake blockchain protocols. Code that monitors blockchain state and ensures that validators do not sign conflicting messages should be executed with high integrity.
The blockchain ecosystem is changing in very fundamental ways. There is a big change to the use of proof-of-stake consensus as it offers higher performance and lower energy footprint than the proof-of-work consensus algorithm. This is not an insignificant change.
Validator nodes must remain online and are penalized for going offline. Managing keys securely and staying online is a challenge.
To make the protocol work at scale, some blockchains have introduced penalties for misconduct. Validator nodes continue to suffer these penalties because of misconfiguration or malicious attacks on them. To retain the large-scale distributed nature of blockchain, new cryptographic systems are being adopted. Trusted execution environments that provide disaster resilience, high availability, support for new cryptosystems such as BLS, and enable custom code execution with high integrity are likely to be an integral part of blockchains’ transition from proof of work to proof of stake.
Pralhad Deshpande, Ph.D., is a senior solutions architect at Fortanix.
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