In the first article, we discussed PoW, PoS, other consensus mechanisms and the Blockchain Trilemma. While the problem seems unsolvable (by CAP Theorem), DELEGATED PROOF OF REPUTATION (DPoR) comes up with a new approach, that balances among high security, achieving necessary scalability and preserving sufficient decentralization.
DPoR considers each blockchain as a mini Internet architecture and each node as a website. Obviously, the Internet is a perfect decentralized environment. How do we search for information contained in millions of websites. PageRank is a well-known algorithm that Google uses for its Search Engine. The rationale behind ranking is that connection and linkages make value of any network. A node within a network is important somehow if there are linkages that refer to it. More referring linkages, more important a node seems to be. Among millions of web-pages, relative importance of a page is evaluated by hyperlinks referring to it. PageRank mathematically models web pages as vertices and hyperlinks as edges of a directed graph, then applies an algorithm to score pages based on their edge graph, higher score, better importance. In general, the importance of a web-page is based on its content (its real value), and is fairly evaluated by PageRank. This is similar to a node in a blockchain, its value can be measured by its transactions.
DPoR introduces the concept of reputation, that combines the factor of work (or performance) and the stake. Formally, we have: Rep = xS + yR, where Rep is the final reputation score, S is staking score, R is ranking score, x and y are regularized (non-negative) parameters, x + y = 1.
Staking score is computed by the coin staked into the system, normalized by the total staked amount. For example, let’s consider 3 stakes, Stake1 = 100, Stake2 = 200, Stake3 = 300. Then the scores are S1=100/600=1/6, S2=200/600=2/6, S3=300/600=3/6.
Ranking score (normalized) is more complicated. There are several ranking algorithms available, including PageRank, NCDawareRank, HodgeRank. The idea is that based on the transactions of all nodes (addresses or accounts) in a blockchain network, a ranking algorithm will score the nodes to rate their importance. Technically, a node with more transactions should be more important. A transaction is weighted by the value (amount of coin) it carries. In-transfer to a node will increase its score while out-transfer cause a decrease. Readers can find details about ranking algorithms in the published research https://dl.acm.org/citation.cfm?id=3343160.
Our formula is a general setting and it becomes PoS if y = 0. More significantly, ranking score demonstrates a work (performance) factor on side with stake to make the honor score of a node. This is equivalent to social reality, a man owns a lot of money, then he has a reputation, but his work is more essential for the credit.
Now, instead of stake voting in DPoS, DPoR uses reputation voting. That is using reputation score to vote for witnesses who confirm transactions and produce blocks. We mean purely staking is not the only way to become a block producer. Application developers are important contributors to the value of a blockchain, since they run their business on its top. They deserve to have a chance of becoming network operators.
It is clear that application developers create the major value of a network via their business and transactions. Therefore, in DPoR, they are granted a right of controlling the blockchain network powering their apps. That’s why we invent Delegated Proof of Reputation as a sophisticated balance between the three most important groups: application developers (value makers), coin holders (value owners) and block producers (network operators). Here, there is no conflict as happened on PoW or PoS based systems. In long-term perspective, we suggest a greater parameter for ranking score, i.e. y > x. It will incentivize developers to build and expand their business on the network and helps preventing malicious whales.
Furthermore, we also believe that running a business is more important than holding money. DPoR consensus helps reducing the staking vs cash flow conflict. Cash flow measures the health of an economy and should be promoted. In contrast, PoS requires a vast amount for staking, so reduces coin circulation. In Delegated Proof of Reputation, staking is not the dominant factor, hence it doesn’t affect negatively to cash flow. Transaction-based rating, on the other side, is an incentive for coin flows to move more actively, then improves liquidity of the economy.
NEM (XEM) proposed Proof of Importance with a ranking idea similarly to ours. However, its implemented algorithm is complex and not efficient. We will discuss more technical advantages of Delegated Proof of Reputation in comparison with other consensus mechanisms in the last article of this series. (to be continued)