Mass adoption of cryptocurrencies is impossible without a means of achieving both transactional scalability and price stability - Radix is designed to solve these issues.
Cryptocurrencies such as Bitcoin and Ethereum are beginning to attract the attention of mainstream media thanks largely to their massive rise in value over the past year. The world is starting to realize the potential of blockchains. It has become increasingly evident that decentralized networks, running on distributed ledgers and token economics, will radically change industries over the coming decades.
In particular, it will disrupt three key areas;
Despite these innovations, the low scalability of the current breed of technology, and the high volatility of their value have delayed adoption, either for mainstream applications or as a useful currency.
We discuss how the Radix platform is designed to address these critical issues below:
Present blockchain based distributed ledgers do not scale well under load. This is because they are vertical architectures where all nodes participating in the network are required to have the complete global state of the system. The global state requires that all events are delivered and replicated on all nodes - this global requirement to always stay in sync gives an upper limit to the total throughput possible - often referred to as the CAP Theorem limit - of around 500 transactions per second, assuming no other limits.
Proposals to address these issues include: sharding blockchains; creating side chains; or using alternative architectures such as Directed Acyclic Graphs (DAG). Here is a short summary of the drawbacks of each of these methods:
Blockchain Sharding - you still need a coordination layer across all shards to stop double spends. This coordination layer has the same CAP Theorem limit that the sub shards do - you do gain throughput, but still, have an upper scalability limit and it comes at the cost of much greater complexity.
Side Chains - such as the lightning network (Bitcoin) or Plasma (Ethereum) are interesting developments for situations where two (or more) parties need do a stream of payments or actions between each other and aims to take some types of transactions off the chain. It is fast, efficient and trustless. It does not, however, address the core problem of blockchain scalability, and is merely a hack around the central issue, especially where innovations such as Crypto Kittys are happening, and causing problems, directly on a chain.
Directed Acyclic Graphs (also called a Tangle or Block-lattice) - an architecture with a much better base level of scalability than Blockchain, expected to reach in excess of 2,500 transactions per second per DAG instance (depending on consensus system used).
Unfortunately, once this limit is reached, sharding a DAG to increase throughput is very difficult without causing a massive degree of centralisation.
This is because; to prevent a double spend between several DAGs, a node would need to maintain all the DAGs simultaneously. At scale, these super nodes would be very large and very costly to maintain.
Radix provides a solution for reaching consensus, across a distributed ledger, that can scale limitlessly in an efficient, unbounded, linear fashion, without consuming a huge amount of computer resources or capital to secure it. It has a semi-structured, shareable architecture that limits state transfer information to only members of the network that need it, reducing overhead and increasing performance.
For a trustless, public network, security is a core issue. Central to this security is the consensus method used, as well as the way in which the platform rewards the nodes that do useful work for the network.
We discuss how the Radix platform is designed to improve upon and prevent these security issues below:
Every ten minutes, bitcoin miners compete with each other to mine the next block of transactions. The first miner to do so wins and gets all of the block rewards. Work done by every other miner is wasted. In a winner takes all (block reward + transaction fees) race each period, there is only one way to improve your chances of being successful: increase your hash power. This competitive nature of the Hashcash Proof of Work(PoW) algorithm leads to three results:
This eventually leads to the re-centralization of the network, where only very large miners have any chance of earning mining rewards. At the extreme end, this leaves the possibility of collusion, abuse, and censorship.
While success in Proof of Work is determined by who has the most hashing power, Proof of Stake is determined by whoever holds the most coins.
This essentially means that the network is available to be purchased by the highest bidder. With a very small group already holding a majority of coins on many Proof of Stake networks, this puts the control of the network immediately into the hands of a small, rich elite. Not massively dissimilar to banking.
The alternative would be for smaller stakeholders to pool together and move all of their wallets to a central service to share running costs reducing the per unit cost of the operation.This introduces significant security risk not only to hacking but to outside jurisdictional forces such as censorship, regulation, and taxation.
One way or the other, PoS will lead to centralization the same way PoW does due to economies of scale where the rich get richer, faster. Although PoS reduces the energy cost to run the network to a fraction of what PoW requires, it does not solve the centralization problem.
Some cryptocurrency architectures introduce the requirement for trust in a trustless network by using coordinator nodes.
A coordinator node has three principle problems:
This addition of trusted parties can give a significant performance boost, but at the cost of making the network far more vulnerable than it would otherwise be.
Proof of Work is an incredibly expensive and inefficient way of reaching consensus and creating security in a trustless network. This is because hashing to find the largest number of leading zeros before anyone else (“mining”) ends up consuming an ever-increasing amount of electrical power as more and more computers compete to mine the next block.
This process already consumes more electricity than the entire power consumption of Ireland. It is wasteful, and at a time when we are looking for ways to save energy and decrease the environmental impact we have on the world, it is a definite step in the wrong direction.
Smart Contract Execution on an un-sharded DLT (such as the current Ethereum network) becomes more expensive as the network gets bigger. This is because each Node on the network is required to execute every line of code in every Smart Contract submitted with sufficient gas.
As more Nodes join the network the lower the chances any given Node has to be rewarded with the gas fee for executing a Smart Contract. This means that each Node must anticipate needing to run a larger and larger number of Smart Contract before successfully earning a reward. As a result, it is likely that as the network grows, the higher the gas fee is likely to become once the mining rewards are taken into account.
For an object to become a currency, it has to fulfill three roles: a medium of exchange; a unit of account; a store of value. Although DLT technology has enabled trustless transactions over the internet, volatility has delayed their adoption as a medium of exchange and a unit of account. For cryptocurrencies to be adopted widely, they must equal or better the certainty of future purchasing power that fiat currently offers. A low-volatility coin is an asset designed to be price stable over time. This makes it suitable for short-term and medium-term use as a unit of account, a medium of exchange and, a store of value.
The Radix Stable Token is a proposed relatively price stable cryptocurrency currently in R&D. It will sit as a module on top of the Radix Tempo protocol and will be controlled by an algorithmic monetary policy of expanding and contracting coin supply. Full details will follow in a future white paper.