We’ve been waiting nearly 2 years for today to disclose what we think is the next evolution of consensus algorithms along with a whitepaper which you can find at koinos.io.
Koinos is already set to be the most accessible blockchain in the world thanks to its revolutionary fee-less mana system and infinite upgradeability, two innovations for which we’ve already released whitepapers, but the consensus algorithm is also designed with maximum accessibility in mind.
As one of the most experienced blockchain development teams in the world, we’ve been thinking about the problem of consensus for a long time, but the most formative event in our history was when our previous project, the Steem blockchain, a proof-of-stake chain, famously experienced a 51% attack.
After leaving that project, we became obsessed with solving all the biggest challenges we had experienced as blockchain developers, like how difficult blockchains are to upgrade through hard forks and how all of the consensus algorithms in use tend to centralize power by making block production inaccessible to ordinary people. The result is a predominance of blockchains that look very different than the egalitarian vision presented in the Bitcoin whitepaper. It is that vision that we seek to revive, and we believe this consensus algorithm is the very key to accomplishing that.
To solve the problem of hard forks, we started from scratch and built the world’s simplest blockchain framework, which puts all the complicated features people typically associate with blockchains (like the consensus algorithm) into WASM smart contracts so that they can be upgraded without a hard fork.
This design alone motivates block producers, regardless of the specific consensus algorithm, to focus on efficiently producing blocks and keeping the blockchain clean and efficient. In other words, this design empowers block producers to focus on what they are good at (optimizing infrastructure) while staying out of political battles that are happening at a higher and more adaptive level (the VM).
But the consensus algorithm is still critical, and our experience with Steem inspired blockchain architect Steve Gerbino to do a deep dive into the entire history of consensus algorithms in search of a solution that would give us the performance and efficiency necessary for the ultimate world computer while mitigating against the scenario where the tokens held on exchanges are used to mount a 51% attack.
He first proposed his solution to us nearly 2 years ago now, and since that time, we have only become more impressed by its unique properties and more certain that it is the perfect choice for general purpose blockchains. This algorithm doesn’t just mitigate that one attack; it delivers greater decentralization than proof-of-work and greater efficiency than proof-of-stake, making it nothing less than the “holy grail” of consensus algorithms.
That algorithm is…
Proof-of-burn was originally proposed way back in 2012 by Iain Stewart, a year after proof-of-stake and about a year before Vitalik Buterin first proposed the idea of a general-purpose blockchain. Blockchains like Ethereum are only now getting to proof-of-stake, and the reasons they prefer this algorithm are pretty obvious; proof-of-stake lowers the cost and the risk of producing blocks. With proof-of-stake, miners no longer have to burn money up-front on hardware and then continue to burn money on fuel needed to run that hardware. By moving to proof-of-stake, they get to hold on to their tokens and acquire even more, simply by producing blocks.
But the decreased risk is part of what makes proof-of-stake less secure than proof-of-work. To address some of the security issues, proof-of-stake chains introduce slashing conditions which are complicated systems designed to “claw back” block rewards from user accounts which makes the network less efficient while raising legitimate, ethical concerns, like “Is it my money if it can be slashed?” Designing these slashing conditions is extremely challenging and consumes engineering resources that could be spent improving the protocol, which is why projects like Solana, simply launch without them and use centralization to deal with attacks.
Proof-of-burn is similar to proof-of-stake in that the block producer no longer has to burn money acquiring and running hardware; they simply need to BURN MONEY, specifically cryptocurrency tokens! Stewart’s revolutionary idea was that the burnt money itself could be interpreted as a “virtual miner.” The larger the burn, the more “virtual hash power” the user would be imagined to have, thereby entitling them to produce more blocks and earn more block rewards.
NFT Mining Rigs
In our implementation of proof-of-burn, we use modern developments like NFTs to increase the efficiency and flexibility of Stewart’s original proposal. To efficiently track virtual miners, the Koinos system will manufacture miner NFTs, which are acquired by aspiring block producers who submit proofs of their burns to a system-owned automated market maker contract.
These NFTs will store all the information that the blockchain needs to distribute rewards to block producers, making the system highly modular and efficient while at the same time giving block producers the option to sell their NFT miners at any time. This high degree of liquidity is a dramatic improvement for block producers over proof-of-work, and a robust secondary market for miner NFTs will help increase access to block production and the efficiency of the overall system.
Virtualizing the mining hardware in this way also makes the miners infinitely customizable because it’s all just code, and thanks to the infinite upgradeability of Koinos, the properties of these miners can be constantly refined to maximize the performance and efficiency of the network, thereby helping to make Koinos into the ultimate world computer.
By virtualizing the mining rig, we also solve the problem of GPU and ASIC resistance because there is no advantage to be had from hardware expertise or low-cost access to enterprise-grade hardware. Everyone has equal access to the miner NFTs. It is for this reason that we believe proof-of-burn is the first consensus algorithm to deliver the economics of proof-of-work AND is provably egalitarian.
People who already have mining hardware or live somewhere with cheap energy have very little advantage over anyone else, opening up block production to far more people and further maximizing decentralization. In our view, this delivers on Satoshi’s original vision of a truly peer-to-peer electronic cash that utilizes spare computational resources and does not require dedicated hardware.
We’re making bold claims, so if you’d like to go deeper into our designs, then be sure to check out the whitepaper at koinos.io; we value and welcome critical feedback.
Since Koinos is truly fee-less, block producers have to be incentivized through newly created tokens, which means there can’t be a fixed cap on the token supply like there is in Bitcoin. But that doesn’t mean the Koinos economy will always be inflationary.
To make up for the increased risk that block producers are taking on with proof-of-burn, it’s important for block producers to be able to earn back their burn plus some additional tokens if they produce blocks for a certain period of time, but we make this period a target which shifts back and forward in time based on demand for miner NFTs. The more demand, the more the payback period gets pushed into the future. The less demand, the shorter the payback period becomes. In addition to incentivizing ongoing decentralization and closely mimicking the experience of proof-of-work mining, which has this degree of uncertainty, it also means that if there is enough demand for miners (for example, if Koinos is exploding in usage), the amount of tokens being burned will outpace the new tokens being created, leading to a decreasing token supply — or deflation!
We hope you enjoyed learning about Koinos proof-of-burn and are as excited about this under-appreciated algorithm as we are! Over time we’ve only become more excited about the potential of this algorithm.
More to come!
We have a ton of exciting announcements and technical developments left to share, so be sure to head on over to koinos.io where you can learn more about proof-of-burn, our fee-less mana system, and join our newsletter to receive regular updates on the project.
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