The blockchain must evolve to be competitive. Here is the technological track of a major player in the field

Many industrial, economic or societal sectors, such as banking, logistics, agri-food or health, see blockchain as a major innovation for securing and streamlining their digital transactions.

Sometimes described as revolutionary, this technology, initiated by Bitcoin in 2008, often remains misunderstood and subject to justified doubts as to its mastery, in particular its economic and environmental impacts. On September 15, 2022, the Ethereum blockchain, one of the main players in the field, carried out a major evolution, called “The Merge”, by modifying its internal validation mechanism, moving from “proof of work” to “proof of challenges “. Far from being a technical anecdote, this development removes an important obstacle which will make it possible to produce more efficient, reliable and durable solutions on an industrial scale.

The goal is to certify transactions, secure information systems and help establish true digital trust in a world where the digital modality of individual interactions has become essential and predominant. For example, the world of logistics and international transport in major port areas is awaiting the deployment of truly effective solutions which, combined with the digitization of the tracking of goods and containers, will make it possible to significantly secure and streamline port passage in a context of smart port – a subject on which we are working a lot in collaboration with the port of Le Havre.

But at present, the blockchain does not allow high transaction rates (compared to payment networks by credit card for example), because it requires long calculations… which are also very energy-intensive.

But what exactly is a “blockchain”?

A blockchain, or “block chain”, is a decentralized digital ledger where transactions are notarized. A network of validators acts as digital notaries: they each maintain a copy of the transaction log, thus preventing one of them from modifying it without the agreement of the others. New transactions are aggregated into chained blocks (see figure below).

diagram explaining how blockchains work

Creation of a new block.
Cyrille Bertelle and Claude Duvallet, Provided by the author

Each new block to be chained contains a “digital fingerprint” of the previous one, thus preventing any attempt to modify a block: by modifying the fingerprint, it would break the chain.

diagram explaining how blockchains work

Added a new block.
Cyrille Bertelle and Claude Duvallet, Provided by the author

The blockchain is qualified as tamper-proof thanks to the two mechanisms previously described: the chaining technique and the duplication on the network of validators.

Two questions then arise: first, how does the registration of a new block in the chain work so that it is accepted by all the validators? Then, how to encourage these validators to work for the proper functioning of the blockchain?

The first question is based on a “consensus mechanism” between all the validators – the recent mutation of Ethereum concerns this mechanism. The second question leads to remunerating the validator selected to register a new block with a cryptocurrency, associated with the blockchain.

[Près de 80 000 lecteurs font confiance à la newsletter de The Conversation pour mieux comprendre les grands enjeux du monde. Abonnez-vous aujourd’hui]

The never-ending growth of resources needed for “proof-of-work” consensus

The first blockchain is Bitcoin, set up in 2008 by Satoshi Nakamoto. Its design is based on a consensus mechanism between the validators of the network, called “proof of work”, which makes it possible to collectively validate each new block to be registered and to remunerate the selected validator for doing so. This one is selected because it is the first to solve a cryptographic problem requiring significant computing resources (computers, time, energy) which increase with the development of cryptocurrency.

At the beginning of Bitcoin, this “proof of work” mechanism was carried out thanks to the work of a few dozen validators using microcomputers. Today, it mobilizes several tens of thousands of validators who work simultaneously (doing the same calculations to solve the same problem) on powerful computing resources called mining farms. the energy cost of these mining farms in the world is estimated in 2022 at an energy consumption close to 75% of that of French households.

However, the use of Bitcoin is still relatively confidential compared to the regulations made by a banking network such as Visa or Mastercard. Its extension would lead to a ecological disaster before running out of steam and then dying naturallyexcept to stay at a anecdotal level of use. In addition, which is related to the cost of calculation, the transaction rates are very low (several minutes to perform and validate each transaction) compared to those of banking networks such as Visa (thousands of transactions per second).

Ethereum, launched in 2015 based on a new concept, that of “smart contract”, aims to secure and automate operations that are more sophisticated than simple exchanges of monetary values. This new concept thus aims to revolutionize the management of transactions for all the industrial, economic and societal players mentioned above. In its early days, Ethereum used Bitcoin’s proven consensus mechanism (the “proof of work”), while heralding a transition to other more energetically virtuous validation mechanisms.

Alternatives to “proof of work”

Consensus mechanisms have been the subject ofimportant research work before the appearance of the blockchain. Indeed, peer-to-peer networks that store and share data cannot function without these mechanisms, which validate the shared information.

Many conceptual models of consensus exist: proof of work (that of Bitcoin), proof of stake (at the origin of the evolution “The Merge” of Ethereum), proof of capacity, proof of delegated stake, proof of service, proof of authority, proof of trust to name a few. These consensuses are characterized in particular by the method of selection of validators and the validation mechanism itself.

The proof of stake, used for the evolution of Ethereum, is not based on the selection of a validator, following an expensive calculation carried out concurrently by all the validators (as in Bitcoin). The selection will be made by a random draw proportional to its “stake”, which corresponds to a quantity of tokens representative of the quality of its activity. Only the selected validator will build the new block – without solving costly cryptographic problems – and submit it for everyone else’s approval. Thus, the cost of the operation becomes almost negligible compared to the proof of work.

A limitation is that the choice of consensus technique used must not lead to situations of monopoly of certain validators (possibly supported by organizations or states) in an open and public system, thanks to their ability to calculate or challenges. At the scale of a global network spanning many industries, Ethereum needed to ensure that it maintained the trust of the system when introducing its new consensus. Even though the “proof of stake” mechanism has been widely studied, it had never been deployed on such a large scale as that aimed by Ethereum.

To conclude, public blockchains based on proof of work are doomed to failure for a real sustainable deployment at industrial scales. Bitcoin is one example.

The migration to proof of stake (or another more virtuous mechanism in energy cost) is essential for the blockchain to respond to the major economic, industrial and societal challenges on which it is expected.

But its deployment remains conditional on the need to remunerate validators on a public blockchain with a cryptocurrency which is inevitably linked to speculative appetites. You have to know controlling this “side effect” in the engineering of new blockchain-based information systems.

We would love to say thanks to the author of this write-up for this amazing web content

The blockchain must evolve to be competitive. Here is the technological track of a major player in the field

Our social media pages here and other related pages here