by Silver Xie, the Founder and CEO of IPSE
In 2019, Bitcoin turned 10 years old.
Among thousands of cryptocurrencies, which is the first challenger to Bitcoin? Is it Ethereum, the second generation of blockchain technology leader? or Bitcoin's fork coins like BCH,BSV? Despite the performances, none of them can be regarded as real Bitcoin challenger. The simple reason is that these coins are aimed at some of the shortcomings of Bitcoin,and begin to launch their networks but as an optimization programs.
First real challenger
The first project that truely prepared to challenge Bitcoin was BHD, which is also a new type of cryptocurrency based on Proof of Capacity (PoC) consensus algorithm. PoC appeared after PoW (Proof of Work),and it was designed to be a improved version of blockchain consensus mechanism. Certainly both PoW and PoC are simple enough consensus mechanisms. BHD believes that they have had the perfect economic model and consensus algorithm with PoC.
Compared with PoW's design of computing for win reward, PoC mining uses a new design of storage to win reward to save energy, and consumes much less power.
The network of Bitcoin blockchain was established, displaying its first-mover advantages. You may ask, why Bitcoin? It is mainly that Bitcoin creator,Satoshi Nakamoto had such a simple idea: It is more straightforward to computing for win to compete a mining process rather than scan the disk and store data.
As PoC based network,BHD was trying to improve the consensus with the original intention of Satoshi Nakamoto, Everyone Can Be A Miner. But is it true?
PoW vs PoC
Advantages of Bitcoin PoW
First-mover advantage. As we know, a pathfinder can find the way and often tolerate certain deficiencies. For example, HTTP as the basic protocol of the Internet has some shortcomings, but its first-mover advantage and subsequent path-dependent binding ensure that it can become an absolute mainstream.
At the same time, PoW can also promote the development of chips. Another great example is, TSMC has the most advanced 8-nanometer process to make chips for Apple's iPhone11, and also receives chip orders from Bitcoin miner manufacturers.
Bitcoin PoW also has a huge interest bundle, and exchanges can never refuse to provide Bitcoin trading services. Bitcoin has formed a complete industry chain, and the chain interest is linked together. In fact, this is the path binding brought by the first-mover advantage of Bitcoin.
PoW also has one final advantage that cannot be ignored, that is, Bitcoin's hash computing power has a wild competitive moat just like Apple. It is impossible for competitors to create another PoW based projects to divide Bitcoin's hash computing power. Technically speaking, it is possible to create a new network but the economic model will not work as good as Bitcoin. Because it is not cost-effective to switch from mining Bitcoin to mining new coins, and there is a possible 51% attack from Bitcoin if the new proect was built based on Bitcoin. Thesefore, it is impossible to form a strong consensus if the consensus is not secure.
Disadvantages of Bitcoin PoW
To be honest, the disadvantages of PoW are numerous.
First, huge energy consumption has been criticized. At the peak of Bitcoin mining, the power consumed was equivalent to that of a country in Italy.
Second, Bitcoin mining machines also require specific mining sites, and we can see that many bitcoin mining farms are built in wild mountain regions because of the heat machines generate as well as the huge noise and pollution.
Third, there is a large amount of hardware consumption. Basically, a Bitcoin mining machine will be scrapped and less than three years old.
Fourth, users are easily deceived by mining machine manufacturers, because Bitcoin chips have technical thresholds, and the manufacturers have had sell mining machines at high prices.
Fifth, Bitcoin PoW has a computing power monopoly, and mining pools have concentrated computing power. Thus, several large mining pools formed a monopoly interest group in computing power, which is a danger for the consensus network.
Sixth and finally, Bitcoin POW mining has a high threshold for participation, and Bitcoin is no longer a project that everyone can participate in. Which is the opposite of Satoshi Nakamoto's original intention of designing PoW to achieve an open system.
Unfortunately, the one-CPU-one-vote mechanism was later on the road to an arms race of custom chip GPUs.
The advantages of PoC
In fact, there are many of the disadvantages of PoW can be transformed into the advantages of PoC.
First, the PoC mining machine can run with low power consumption compared to Bitcoin with 99% decrease ratio. Second, the hardware consumption is limited,and PoC mining machines can easily run within 5-10 years. So that miners can purchase with fair price to avoid unnecessary loss. Third, there is no technical threshold for PoC's mining machines, and personal computers can participate in mining. The mining site is arbitrary, so the threshold for participation is also low. Whether it is a garage, an office or a warehouse, it can be transformed into a minning farm.
In addition, the PoC allows that everyone can participate in mining, which restores the Satoshi Nakamoto's original intention. Finally, PoC mining has late-mover advantage, it can promote the development of storage technology.
Even though PoC consensus algorithm has a few advantages, there are disadvantages we can not ignore.
The disadvantages of PoC
PoC has no first-mover advantage and needs to face a strong Bitcoin consensus. This is the key to determining whether PoC can challenge the PoW. The moat of computing power can and has to be cleverly designed and improved while the first-mover advantage loss.
However, from the actual performance, BHD's trading is not optimistic, and its role in challenging Bitcoin is generally not very successful. The reason is that it has a fatal flaw, and BHD's own computing power lacks a moat. As more PoC based projects adopt more aggressive rebate strategies, they will be able to share the computing power of BHD network. As long as the computing power of BHD enters the down channel, its coin (token) price will follow, which ultimately leads to the BHD consensus being unable to become stronger.
The collateral scheme is necessary for the maintaince for BHD PoC consensus algorithm. And PoC-based coins also need to increase collateral to resist hash power attacks, so other coins can share BHD's hash power without worrying about BHD's attacks. Therefore, the computing power of BHD network loses the moat and barriers.
Build the moat for PoC
So how to build a moat for PoC computing power? In an open source, decentralized system, computing power is easily imitated. As long as it is designed for the storage unit, other projects can also use the same design and use the corresponding storage computing power. If it is not possible to start the 51% attack for other PoC based projects, there is only one way to ensure that they do not share computing power.
l Give more benefits for miners to avoid switching to other PoC based networks.
l Build and issue a new token on original blockchain rather than building a new blockchain.
In the first half of 2019, there was literally one new PoC project every month. Many of them were released by changing the names and code parameters of the Burst network. These projects have no computing power moat, but because of this, each project relies on early dividends and high return rebates to compete. Through our in-depth investigation, the PoC consensus algorithm for hard disk storage mining is tried and tested like PoW. In addition, after the practical cases, we know that a 12-slots storage server is used as a mining machine to store valid data, and it is unsatisfactory for 1 to 2 years. If the remaining space and disk slots are not used enough, they can be a big waste. So we think that if PoC can strengthen consensus and create a path from weak consensus to strong consensus, it will achieve a better solution for us.
The current solution from us is called Conjugate PoC.
Conjugation is a concept in chemistry, the energy will be released when new conjugate bonds are formed between the atoms of two elements and then breaking each other. In the conjugate PoC ecosystem, one share of computing power can mine multiple tokens on the same blockchain. Among them, there is a native token in the network, and other teams can issue their own tokens on this blockchain. As long as the miners pledged the collateral, they can mine multiple tokens. The basic rules are as follows:
1. Sufficient collateral means full reward.But for insufficient collateral, it can gain 30% of reward, and the remaining 70% goes to the treasury pool.
2. Miners can double mining. Miners can choose 2 tokens for conjugation, and then they can give an additional 10% bonus that will be allocated from the treasury pool until it is zero.
3. If other teams want to issue new tokens, they need to lock up 10% of native token for 2 years, and those tokens will be gradually released in two years.
The first version of conjugate PoC we designed also has the function of Proof of Staking (PoS), but PoS is only used to supervise the auxiliary block nodes to maintain the security of the network consensus. As we have began to use Substrate framework to build the project, the conjugate PoC has the function of supporting Turing complete smart contracts, which means that it is easy to build a landing application ecology with the underlying mining logic based on PoC.
Conjugate PoC has two basic advantages:
l Native token can drive new tokens through conjugate mining, allowing miners to purchase new coins to pledge to start conjugate mining, it brings power to new tokens.
l The issuance of new tokens requires the lockup of native token, balancing the circulation of native token and improving its secondary market performance.
Beyond the Bitcoin are many opportunities. Yet the rise of blockchain iteration brings problems, many novel achievements await. To resume the path of Bitcoin from weak consensus to strong consensus, it is necessary to continuously balance the token circulation ratio. As for the conjugate PoC, let's see how it works?
l 1. Mining requires collateral, users need equipments(mining machines,router,etc..), and token holders sell or give tokens, they can cooperate to mine.
l 2. As for new toke issuance, it is necessary to lock a part of native token. Each token will be locked at least 10%.
l 3. With the PoS design support, the token holders have the opportunity to pledge and earn new revenue, and it will not be continuously diluted by newly mined tokens.
l 4. The application and governance system (initiating proposals, voting, etc) need to use native token.
In general, compared with PoW's advantages and disadvantages, PoC has many advantages that can make BHD dare to challenge Bitcoin, but BHD without a moat would eventually be difficult to succeed. How to build a moat is the key to the development of the blockchain. Conjugate PoC is an interesting way to build a moat for computing power while trying to balance the circulation of native token.
Finally, the conjugate PoC also has an iterative upgrade function that will never fork, and will also access Polkadot's cross-chain ecology, which is a great start to future blockchain and cryptocurrency ecosystem. As for Substrate and Polkadot, we would like to share more in the upcoming articles.