05/18 - PAI Hybrid Consensus Updates
PAI Hybrid Consensus
What is a Voting Service Provider (VSP)?
Proof-of-Work (PoW)-based cryptocurrencies rely on the massive hashing power of miners’ hardware to regularly keep adding new blocks to the blockchain. PoW mining can be very expensive when it requires dedicated hardware like Application Specific Integrated Circuits (ASICs) or Graphics Processing Units (GPUs). These costs severely limit the access of low-budget entities, like individuals and small companies, to mining. To mitigate this, some cryptocurrencies use a Proof-of-Stake (PoS) mechanism, whereby a miner must stake some cryptocoins to receive a reward. This eliminates the need for special hardware and high electricity costs, but is itself sensitive to other kinds of attacks.
Combining PoW and PoS via a Hybrid Consensus protocol significantly reduces the individual drawbacks of PoW or PoS when used alone. In PAI Coin’s Hybrid solution, PoW miners must include votes for the previous block. These votes are cast by randomly selected entities that previously expressed their intention to participate by purchasing tickets. Since the process is automated, voters must have at least one computer permanently online and ready to vote. While this is not even close to the hardware requirements for PoW-only cryptocurrencies, it might still be an issue for individuals wanting to participate. Even if it might be acceptable for desktop users to leave their computer permanently online, it’s practically impossible for Mobile Wallet users.
This is where Voting Service Providers (VSPs) come into play. VSPs are third-party entities with high availability systems for voting on behalf of a ticket buyer. When buying a ticket, a participant can delegate the voting rights to a VSP.
Technically, the delegation of voting rights is done by creating a ticket purchase transaction with two contribution outputs: one having the participant’s address and one specifying a 1-of-2 multiple signature (multisig) address built from an address of the participant and an address of the VSP. When the ticket is selected to vote, the VSP creates the vote in such a way that the reward is split proportionally between the participant’s address and the multisig address. The VSP will then be able to spend its reward, while not touching the participant’s reward. The VSP reward is also known as the VSP fee. The correctness of the vote transaction is enforced by the consensus rules.
This approach is safe for both the participant and the VSP for several reasons. The participant has exclusive rights to the share of the reward that is contributed to with his/her address. The VSP cannot spend this part of the reward because it does not have access to the corresponding private keys. The VSP, however, has access to the share of the reward that is contributed to with the multisig address.
In the highly improbable case that the VSP does not vote when needed, the participant can redeem the entire initial stake, including the VSP fee, because he/she has one of the multisig address components. For the same reason, the user can even vote directly when the ticket is selected. The only funds that cannot be restored are the ticket purchase transaction fees.
In conclusion, VSPs are an important component of a Hybrid cryptocurrency ecosystem that facilitate the participation of virtually any user in the voting process and the reward sharing, with as little as a mobile wallet on a smartphone. They play an important role in the complete decentralization of cryptocurrency mining and reward sharing.
Here’s a snapshot of some of the commits / PRs by our developers last week: