iamjvn (2)

A Consensus Algorithm Story

by @jvn_xyz, 9/30/2022

GM fren,

The IAMJVN report is your read-in. If you choose to continue, you’re proceeding at your own risk. The further you read, the clearer a path toward a decentralized lifestyle encompassing, among other things, the reclamation of your digital identity and the self-custody of your assets and money.

Further, into the series, there will be more subjects and opportunities to decentralize and protect your data and become what Lord William Rees-Mogg and James Dale Davidson termed — the Sovereign Individual. (NFA, DYOR)

A Starry Night

As above, so below. A phrase echoed across cultures for centuries, if not its exact phraseology, its embedded meaning. Why did man look up at the stars? For Fear? For purpose? For guidance? Or for something our ancestors tapped into, enabling civilization to flourish.

Since antiquity, humanity has wandered the Earth, searching for the three necessities of life food, clothing, and shelter. Along those travels across ancient Pangaea, the ever-present canopy above, sometimes beautiful, sometimes ferocious, but always on time. Over time, as the wandering tribes settled and built up communities, they began tracking the stars, learning to make calculations and predictions, but predicting the weather patterns was only the beginning.

Around 1040 BCE, the Duke of Zhou (Western Zhou dynasty) and his astronomer cum-mathematician Shang Gao wrote a book known as the Zhoubi Suanjing, a collection of geometric proofs, which later confirmed the Pythagorean Theorem and Euclid’s algo, improving humanity’s cognitive abilities. These early geometric algorithms not only solved their immediate contemporary problems but advanced the field of mathematics informing and inspiring generations of mathematicians.

Fast forward to the 21st century, humanity has continued its intellectual and cognitive ascent, reaching into the realm of computer science, which enabled a deconstruction of the overcrowded communities derived from antiquity, and a sense of decentralization had set into the modern mindset.

In 2009, an anonymous agent, Satoshi Nakamoto, reinvigorated the mathematical proofing traditions through cryptographic proofing methodologies, resulting in what’s known as a consensus algorithm. Through this methodology, Nakamoto solved the distributed computing system Byzantine fault, more commonly known as the Byzantine General’s Problem.

A Byzantine fault is a condition where components of a distributed computer system may fail or have imperfect information on whether a failure had occurred on the network. Because the Byzantine fault is a distributed computing systems problem reaching a consensus on validating a single random data point and thereby a workable solution had been elusive until Satoshi Nakamoto’s breakthrough. The breakthrough created a consensus algorithm called a Proof-of-Work, which used a cryptographic proofing methodology to reach a 51% consensus on a data block and thus verify its addition to the blockchain.

This Byzantine fault resolution was only the latest in a series of advancements enabling the arrival of distributed ledger technology. Before the mathematical and programming genius of Satoshi Nakamoto could change the world, the world, in particular, the computing world, had to first change.

Over the last few decades, a string of advancements in computing and telephony had to occur before the arrival of distributed ledger technology was possible. Those advancements arrived in stages: First, metered advancement in semiconductor technology as detailed by Moore’s Law. Second, global connectivity by advancements in fiber optic cable technologies and satellite relay deployments. And last, the revolutionary online payment company PayPal, allowed a Peer-to-Peer workflow to emerge and percolate among users before the arrival of the blockchain, as outlined in Nakamoto’s white paper published in January 2009: Bitcoin: A Peer-to-Peer Electronic Cash System.

A Moment of Creation

Revolutionizing a global monetary workflow wasn’t easy and had only happened several times in human history but embracing 21st-century technologies and unlocking services to a rising class of curious and underbanked, proved the truth of the road less traveled. From the white-collar executives of global urban centers to the “micro-financing” recipients in Africa, Southeast Asia, and India, coming full circle with the blue-collar workers of the Americas, the P2P system proved change mattered.

A key driver of that change was consensus algorithms used by mathematicians and computer scientists to validate information across a distributed computer system. Distributed systems need solutions that can validate values with a consensus of 51% before the data can be confirmed and added to the Bitcoin blockchain.

The Bitcoin blockchain is a Layer 1 blockchain protocol (L1) created to facilitate a Peer-to-Peer electronic cash transaction. It is the first and largest public blockchain pioneering the distributed ledger technology powered by consensus algorithms. Although there are now several consensus algorithms, the Proof-of-Work (PoW) mechanism anchored the entire industry for several years until critical energy consumption prompted developers to search for new methodologies.

Although Ethereum is also a Layer 1 (L1) blockchain protocol, its primary mission is scale, while Bitcoin’s primary mission is decentralized and immutable electronic cash. According to Ethereum, a simple blockchain has three core properties decentralization, security, and scalability, but no blockchain can have all three.

Positioned as the programmable blockchain, Ethereum saw its daily trading volumes spike to historical highs, with creators launching project after project chasing that crypto millionaire status, which exacerbated energy usage. With the minting and transactional gas prices spiking through the roof and mainstream media decrying the crypto industry for its impact on climate change, Ethereum hard forked and moved to the PoS consensus mechanism, rewarding large validator pools and “recentralizing” the Ethereum main net.

Cryptocurrency traders are a cliquish bunch, while some are Bitcoin Maxis (purists), others are Ethereum Maxis, but both “purists” despise NFTs altogether, so they rarely agree on things, each blaming the other when government regulators start pontificating about the hacking and thievery among the crypto community. That said, the move by Ethereum onto a PoS consensus mechanism has united their voices, bellowing about the “recentralization” of their digital assets.

During my journey to understand the different consensus mechanisms underpinning the two largest blockchains, I read across articles about the path to self-sovereignty and true decentralization. Of course, this lead me further down a rabbit hole that entangled me at every turn, but in the end was a fantastic vision.

A review of my notes highlights the rigidity of the PoW-powered Bitcoin blockchain versus the endless programmability of the Ethereum network. On a Bitcoin network, its few Layer 2 applications are limited in scale, while Ethereum Layer 2 applications reach for the stars through its smart contract deployment, creating more and more layers. With smart contracts deployed as tokens, the tokenization of the digital economy is rampant but not necessarily the only option; enter Decentralized Web Nodes (DWNs).

A Crossroads: Nodification, Tokenization… or Both?

As ideation reaches a fever pitch across global blockchain communities, a crossroads lies ahead, down one road is the land of tokenization on Earth, and down the other road is the ultimate control of your data, the land of milk and honey, self-sovereignty. There’s no right answer, it’s a personal choice, but there’s also a third option — both.

Reading through the message boards and Twitter threads in chronological order, you see a shift in mindset. In the beginning, finding a crowd of like-minded people to share ideas with and build out communities was contagious and exciting. Whether it was the focus on decentralization and reclamation of your data or the opportunity for creators to earn royalties in perpetuity, there was something for everyone.

More than a burnout or lack of new money coming into the space, there has been an overwhelming impact from the macroeconomic level as well as the end of free money and spare time. With everything trying to return to pre-pandemic attitudes, the shift toward “recentralization” will exacerbate the problem.

Currently, Bitcoin has a U$560 billion market capitalization while Ether is the second largest cryptocurrency with US$165 billion in market cap, which is down from the crypto industry’s combined peak of US$3 trillion. Heading into a deeper bear market, these numbers will continue to shrink until the loose projects and altcoins are shaken out of the system. This takes us back to the forked road. What travelers will the space more likely see coming back and building on the rigid Bitcoin protocol or the programmable Ethereum protocol?

Moving forward the choices are simple, choose the Bitcoin maxi path and its push towards a Web5 decentralized and self-sovereign blockchain, but understand limited applications or embrace the Web3 efforts around the commercialization and tokenization of all asset classes into smart contracts that are actively tradable.

From a layman’s perspective, the world needs both. While we need the blockchain to push the boundaries on tokenization and reveal the digital society of the Metaverse to the masses, we also need the diehard self-sovereignty crowd keeping an eye on the changes and slippage in Web3, so a truly self-sovereign state happens in our lifetime.

Aside from the payment services that both blockchains already have, the Lightning Network (LN) is building out an L3 application that will facilitate “streaming money” on the Bitcoin network. Meanwhile, both networks also have applications that are testing the most talked about topic of decentralized identity (DID). On the Ethereum network, a Decentralized Oracle Network called Chainlink has locked in a substantial following and services and landed SWIFT as a client, which is the TradeFi world’s current backbone of the global payment system. Equally as exciting is the work done by ION building out Decentralized Web Nodes (DWNs) that interact with Decentralized Web Apps (DWSA) all atop the “rigid” Bitcoin protocol.

Upon arrival in the Metaverse, the first thing a newbie hears is a phrase echoed by everyone on Twitter and Discords around the world, “We’re so early. We’re so early,” and they’re not wrong. The evolution from a barter-based system to a medium of exchange took thousands of years, but that was before the Internet Age, where everything is condensed.

Conclusion

As above, so below. This simple sentence tells volumes. Reaching into the story of humanity’s rise from single huts scattered across Pangaea into the vast interoperability of the multi-chained Metaverse. Pattern recognition and the framing of an algorithmic process evidenced in the Zhoubi Suanjing, Pythagorean Theorem, and Euclid’s algo squared the circle hitherto thought an impossible task.

Despite the push and pull of the competing consensus algorithms, which also includes the Proof-of-Authority in addition to the two more popular and widespread Proof-of-Work and Proof-of-Stake, the arrival of a global Metaverse is accelerating. The next quantum leap is most likely going to come once the governments of the world put structure around cryptocurrencies and their underlying blockchains.

Since ancient times, astronomers, mathematicians, and philosophers debated and pontificated about the ideal society. These actions pushed civilization forward, proving innovation and progress couldn’t exist in a vacuum. Experimentation and failure are the only ways to ensure that the result is the most infallible product possible and an essential step in the evolution of our civilization, and our Metaverse.

Proof-of-Work Workflow

A transaction is requested → A block that represents the transaction is created → The Block is sent to every node in the network → Nodes validate the transaction →Nodes receive a reward for the Proof of Work →The Block is added to the Blockchain → Transaction Complete (Insert graphic)

Interesting Article Links

1. Web 5: A Successor to Web3? https://www.realvision.com/blog/what-is-web5

2. What is Web5? https://developer.tbd.website/blog/what-is-web5/

3. Decentralized Wed Nodes https://identity.foundation/decentralized-web-node/spec/

Glossary

Byzantine Fault Tolerance — A system has Byzantine Fault Tolerance (BFT) when it can keep functioning correctly as long as two-thirds of the network agree or reaches consensus. BFT is a property or characteristic of a system that can resist up to one-third of the nodes failing or acting maliciously. (Source: https://decrypt.co/resources/byzantine-fault-tolerance-what-is-it-explained)

Chainlink Node — A Chainlink node connects smart contracts with external data using a decentralized oracle network. Chainlink nodes, which can be run as Docker containers, can act as an oracle data provider to any local or private Ethereum network or testnets, including Rinkeby, Kovan, and Mainnet. (Source: AWS)

Consensus in the world of computer science …A fundamental problem in distributed computing and multi-agent systems is to achieve overall system reliability in the presence of a number of faulty processes. This often requires coordinating processes to reach consensus, or agree on some data value that is needed during computation. (Source: Wiki)

Consensus Algorithms — are a decision-making process for a group, where individuals of the group construct and support the decision that works best for the rest of them (Source: 101blockchains).

dApps — A decentralized application (dapp) is an application built on a decentralized network that combines a smart contract and a frontend user interface. (Source: ethereum.org)

Decentralized Web Nodes (DWN) — A decentralized personal and application data storage and message relay node, as defined in the DIF Decentralized Web Node specification. Users may have multiple Nodes that replicate their data between them. (Source: DIF)

Decentralized Identifiers (DID) — Unique ID URI string and PKI metadata document format for describing the cryptographic keys and other fundamental PKI values linked to a unique, user-controlled, self-sovereign identifier in a target system (e.g., blockchain, distributed ledger). (Source:DIF)

Decentralized Web Apps (DWAs) — Web5 brings to DWAs what cloud and application servers bring to enterprise apps. It does the hard part. It brings decentralization. By building your apps on top of Web 5, you get decentralization and identity and data management as part of the platform. (Source: TBD) https://developer.tbd.website/blog/what-is-web5/

Everest- Everest is the world’s most vertically integrated blockchain and crypto platform, incorporating user-owned identity, electronic wallets, a fast, secure, cost-effective ledger, and regulated stablecoin. As a licensed custodian with global fiat-on/off ramps, portable eKYC and unified DeFi & CeFi, Everest delivers the next generation economy. (Source: https://www.chainlinkecosystem.com/ecosystem/everest)

Lightning Network (LN) — Lightning is a decentralized network using smart contract functionality in the blockchain to enable instant payments across a network of participants. (Source: https://lightning.network/)

Interplanetary Filing System (IPFS) —The InterPlanetary File System is a protocol, hypermedia and file sharing peer-to-peer network for storing and sharing data in a distributed file system. (Source: Wiki; https://ipfs.io/)

ION — ION is a Layer 2 open, permissionless network based on the purely deterministic Sidetree protocol, which requires no special tokens, trusted validators, or additional consensus mechanisms; the linear progression of Bitcoin’s timechain is all that’s required for its operation. (Source: https://identity.foundation/ion/)

Smart Contract — A “smart contract” is simply a program that runs on the Ethereum blockchain. It’s a collection of code (its functions) and data (its state) that resides at a specific address on the Ethereum blockchain. (eth.org)

Suggested Reading

1. Bostrom, Nick; Superintelligence: Path, Dangers and Strategies; (London); ©2014. https://nickbostrom.com

2. Cullen, Christopher; Astronomy and Mathematics in ancient China: the Zhou bi suan jing; (London); ©1996. https://www.jstor.org/stable/23729084

3. Singh, Simon; The Code Book: The Science of Secrecy from Ancient Egypt to Quantum Cryptography; (London); ©2000. https://simonsingh.net/