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Review of Blockchain Consensus Mechanisms
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1. Proof of Work (PoW)

Proof of work is the first distributed consensus mechanism, pioneered by bitcoin’s pseudonymous creator, Satoshi Nakamoto. Many cryptocurrencies followed suit, including Ethereum. In PoW, all the computers in the network that are tasked with maintaining the security of the blockchain — known as Miners in bitcoin — work to solve a puzzle consisting of a mathematical function called a hash. This task is straightforward (for a computer) but extremely repetitive, and therefore computationally expensive. Computers compete to find a hash with specific properties. The computer that finds the answer first — the proof that they have done the necessary work — is allowed to add a new block of transactions to the blockchain. They are rewarded with a tranche of newly-minted bitcoins (currently 12.5 BTC per block, or roughly every 10 minutes), plus all of the small transaction fees users have paid to send coins.

PoW operates on the principle that it is expensive to add a tranche of new transactions to the blockchain, but very easy to check if the transactions are valid due to the transparent nature of the ledger. Miners collectively verify the entire blockchain, and transactions aren’t considered to be fully ‘confirmed’ until several new blocks have been added on top of them. If a malicious actor tries to spend coins fraudulently, those transactions will be ignored by the rest of the network. The only way that an attacker could commit such a fraud is to possess a huge amount of computational power, such that they could mine block after block, winning the proof of work competition time after time. This is known as a ‘51% attack’ due to the need to possess more than half of total network hashrate. The reality is that no miner has such a proportion of total hashing power. Thus attempting such a fraud is 1) extremely expensive (since it costs as much as the hardware and energy required, plus the opportunity cost of not supporting the valid version of the blockchain and receiving rewards in return) and 2) extremely unlikely to succeed. Consequently it is better (i.e. more profitable) for miners to remain honest.

2. Proof of Stake

Due to the amount of computational power required, PoW is costly and energy intensive. A whole industry has grown up around creating custom chips designed only for mining. Proof of stake (PoS) is an alternative approach that has gained popularity in recent years and that requires no specialist hardware. In PoW, hashrate determines how likely a participant is to add the next block of transactions to the blockchain. In PoS, the participant’s coin stake determines their likelihood. That is, each network node is linked to an address, and the more coins that address holds, the more likely it is that they will mine (or ‘stake’, in this instance) the next block. It is like a lottery: the winner is determined by chance, but the more coins (lottery tickets) they have, the greater the odds. An attacker who wants to make a fraudulent transaction would need over 50% of coins to process the required transactions reliably; buying these would push the price up and make such an endeavour prohibitively expensive.

Thus PoS systems are well suited to platforms where there is a static coin supply, without inflation from block rewards. Stakers’ rewards consist only of transaction fees. This is the approach taken by most crowdsale-funded platforms, where tokens are distributed based on investment, and diluting this with more coins would be viewed unfavourably.

Proof of stake is now a well-established consensus mechanism, but is not often used in its original form. Two variations, LPoS and DPoS, offer certain advantages.

3. Leased Proof of Stake (LPoS)

In classic PoS, holders with small balances are unlikely to stake a block — just as small miners with low hashrate are unlikely to mine a block in bitcoin. It may be many years before a small holder is lucky enough to generate a block. This means that many holders with low balances don’t run a node, and leave maintaining the network to a limited number of larger players. Since network security is better when there are more participants, it is important to incentivise these smaller holders to take part.

LPoS achieves this by allowing holders to lease their balances to staking nodes. The leased funds remain in the full control of the holder, and can be moved or spent at any time (at which point the lease ends). Leased coins increase the ‘weight’ of the staking node, increasing its chances of being allowed to add a block of transactions to the blockchain. Any rewards received are shared proportionally with the leasers.

4. Delegated Proof of Stake (DPoS)

DPoS — Delegated Proof of Stake — is one of the most popular consensus models that is directed at speeding up the transactions and block creation without compromising the decentralized structure of the blockchain.

Delegated Proof of Stake is the next generation consensus mechanism that builds on the original PoS (Proof of State) protocol, but utilizes more effective and democratic approach. The voting power that the token holder has, is determined by how many of the base token the account is holding. It is important that the delegates are chosen with the best interest of the network at heart as they keep the network running smoothly and safely. In essence, a DPoS network is self-governed and policed by all of its participants ensuring the best interests of the network remain the priority.

But as there always exists a room for improvement, Syntera team combines the DPoS technology with smart contracts and turns it into Smart Delegated Proof of Stake System.

5. Smart Delegated Proof of Stake (SDPoS)

Why is SDPoS system useful for Syntera community? How will it be realized in practice? This system combines all advantages of the DPoS mechanism, such as increased accessibility (no need to use specific expensive equipment for using the validating software), energy efficiency, and improved validation speed, with the security features of smart contracts. It enounces our team’s volition for establishing principles of democracy and decentralization throughout the whole Syntera ecosystem.

SSC tokens owned by SDPoS holders will be frozen with the smart contract technology for 12 months. After the expiration of the above mentioned period, the SSC token will unfreeze by 20% per quarter, giving the SDPoS holders the possibility to withdraw their investments in 24 months. Smart contracts also stipulate up to 7% of air drops for SDPoS token investors per month as well as the possibility to vote for the project development strategy.

How do you think the combination of smart contracts and DPoS can influence the Syntera ecosystem? Share your opinions, let us know your thoughts and ideas on the topic.

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