Decentralized systems like digital currencies rely on consensus. This enables the network to agree that certain events – transactions, in the case of bitcoin – have taken place.
Miners are certainly needed to generate new bitcoins. Yet, their role is far more critical in confirming that bitcoins were actually sent from one place to another, thus maintaining an agreed-upon 'truth' in the network. This keeps the block chain reliable and, arguably, underpins its very existence.
However, maintaining consensus in a decentralized network isn’t simple. The risk of bad actors disrupting transactions or fabricating new ones is an old problem and the subject of much debate and study. Some, though, argue that the bitcoin network’s size and compensation mechanisms account for this possibility.
A recently released white paper from Ripple Labs examines how decentralized mechanisms can prevent bad actors in a block chain payments system from creating fake transactions. The Ripple Protocol consensus algorithm (RPCA) uses a node election system to establish the veracity of new transactions, adding them to a continuous chain of closed transactions that are considered absolute.
David Schwartz, chief cryptographer for Ripple, told CoinDesk that the RPCA is another step in the long evolution of digital money and transaction systems.
“Satoshi [Nakamoto], with bitcoin, came up with the first solution to the double spending problem that didn’t require central authority. And that scheme worked, and it allowed bitcoin to be so phenomenally successful. But, it was the first such scheme, and it’s probably not going to be best such scheme and there’s going to be innovation in that area.”
Schwartz suggested that next-generation consensus mechanisms, such as those introduced by Ripple, are pushing bitcoin creator Satoshi Nakamoto’s work even further.
Finding truth faster
The goal of the RPCA is to make it possible for a globally disconnected network to agree without relying on proof-of-work infrastructure.
Each server in the Ripple network is tasked with voting on a new batch of candidate transactions during rounds that take place every few seconds. Transactions agreed upon by the network are confirmed and made permanent once the round closes.
This approach is different from bitcoin’s, for which several confirmations by the mining network are often needed before bitcoins can be used or re-spent. Election node systems have been utilized in other block chain applications in the past, including projects like darkcoin that mix transactions through a network of master nodes.
Trusting the generals
The underlying concept – maintaining truth in a network where the potential for fraud exists – has been discussed for decades.
First labeled as the “Byzantine Generals Problem” in a 1982 study, the problem of keeping a group of connected but separate parts honest is akin to an army attacking a city suffering from an infiltration of spies. Because the couriers carrying messages between generals can’t be trusted, a way must be found to ensure that information coming from the different parts to the army is true.
How does this apply to decentralized payment systems like bitcoin and Ripple? In order to maintain network integrity, a majority of participants must be accepted as truthful. Should someone or a group of bad actors gain control of the network, they have the potential to disrupt it. At the very least, this risk threatens the overall legitimacy of the system itself.
Bitcoin solves this problem by creating a reward incentive, thus promoting good behavior among network participants. The application of incentive to the transaction confirmation process makes miners want to contribute to a successful – and public – ledger.
Accessing global money
As Schwartz explained, the existing infrastructure for sending payments around the world is too onerous and costly for many to utilize. The result is that many are locked out of affordable money and are forced to rely on expensive services.
Finding a way to quickly establish the truth for transactions, then, would enable new methods of sending money abroad to be established. By giving servers the ability to establish transaction veracity without crunching memory-intensive calculations, he said, Ripple opens the door to lower-cost avenues for worldwide money access.
Schwartz told CoinDesk:
“I think everybody in the industry knows that international remittances are broken, there’s no good technical reason for why someone shouldn't have access to wholesale foreign exchange rates. It’s just the way the system developed.”
Decentralized network image via Shutterstock