There are fewer topics in blockchain hotter than consensus protocols. Consensus protocols keep blockchain nodes in agreement about the state of the transaction ledger. Without a consensus protocol, blockchain nodes would have no way of proving to each other that a token belonged to one address and not another, in other words, the “double spend” problem that kept digital currencies a cyberpunk fantasy long after the internet had experienced explosive innovation in other sectors. With a consensus protocol, blockchain networks become digital ledgers with unprecedented power and resilience, able to maintain a shared network state without relying on a centralized authority.
There are few decisions more critical than the consensus mechanism for blockchain projects–and that’s doubly true for projects like Amplify, which need consensus-aided decentralization to function. That is why we’re implementing a unique proof-of-stake consensus protocol called Popularis; this protocol, much like Amplify Exchange itself, is a hybrid (contains decentralized and centralized elements), that balances multiple models to achieve a consensus protocol that maintains safety, rewards robust network participation, and resists sovereignty. Here’s an explanation of why we chose Popularis and how it works:
Proof-of-Work and Proof-of-Stake: Two Imperfect Options
The first blockchain, conceptualized in Satoshi Nakomoto’s groundbreaking 2008 paper, utilized a Proof-of-Work mining structure. Bitcoin miners compete to solve complicated math problems, and the first to find the answer is rewarded with the right to add a new block to the chain. Proof-of-Work ingeniously solved the double-spend problem, making any attempt to tamper with the blockchain virtually impossible thanks to the massive processing power needed to “undo” each miner’s work.
But here at Amplify, we’ve come to believe that Proof-of-Work won’t be the leading consensus protocol in blockchain’s future–and we’re not alone. A recent study found that Bitcoin consumes almost as much energy as the nation of Ireland thanks to its Proof-of-Work mining algorithm–hardly a sustainable model if we want greater blockchain adoption. Bitcoin and other Proof-of-Work networks have experienced crippling bottlenecks with slow and expensive transactions during periods of popularity. And since a miner’s success is directly correlated with their processing power, Proof-of-Work networks tend to centralize the majority of the hash power on among a handful of participants, and this puts Proof-of-Work systems at risk of 51% attacks.
That is why a growing number of blockchain networks–most prominently Ethereum, the base protocol for our phase I ERC20 token AMPX–are switching to a Proof-of-Stake consensus algorithm. In Proof-of-Stake, nodes win the right to produce the next block by staking tokens; this system is not only significantly less energy-intensive–and thus less susceptible to bottleneck–but also wards off 51% attacks because token holders would need to own a majority of the wealth on the network to carry out such an attack–a rather infeasible, let alone, expensive feat.
So why hasn’t Proof-of-Stake taken the crypto world by storm? One reason looms large: fear of plutocracy–governance by the wealthy. A wealthy member of a Proof-of-Stake system who owns 40% of the current market cap will be selected to mine the next block about 40% of the time, causing their holdings to grow far faster than an individual with only a 5% of the current market cap. Because this is the case, centralization can begin to materialize as smaller members of the community become inactive or drop out–after all, who wants to join a blockchain network where their mining power and the comparative value of their holdings will only decrease over time?
Why Decentralization is Crucial
We take the challenge of decentralization seriously at Amplify; that’s because all three members of the projects within our ecosystem–Substratum, CryptoPay, and Amplify Exchange– are best suited in a decentralized environment.
Substratum currently provides censorship-resistant, peer-to-peer internet through a network of SubstratumNodes. And after Amplify’s phase two launches–the Amplify Bridgechain–SubstratumNode operators can opt to process Amplify transactions, and receive SUB (for processing Substratum routing requests) and AMPX (for processing Amplify transactions).
The Bridgechain will sync the decentralized and distributed versions of the Amplify Exchange and allows Amplify to operate a hybrid (centralized/decentralized) exchange that combines the security and censorship resistance of a decentralized exchange with the speed, accessibility, and user-friendliness of a centralized one.
Therefore, the Substratum and Amplify node operator community must be large and diverse for either project to remain functional and resilient. That’s why we’ve put a lot of thought into the tokenomics of AMPX–the Amplify Exchange’s internal token used to pay Amplify Exchange fees and drive the Bridgechain.
We wanted a consensus protocol, and a token economy that would reward node operators and community members for their stake in Amplify, without encouraging concentration of wealth and centralization of power–and the Popularis protocol is our solution to that problem.
The Popularis Protocol
Popularis is a Proof-of-Stake consensus mechanism that adds new blocks to the Bridgechain, a process hosted by a broad network of Amplify Node operators. Nodes must stake AMPX tokens for a chance to receive more AMPX as mining rewards; but unlike most Proof-of-Stake systems, the Popularis protocol alters reward mechanisms between odd and even blocks.
Odd blocks split mining rewards based on percentage stakes held in the mining pool. That means token holders with more wealth will earn more mining rewards–a good thing in moderation because it rewards the network participates that are relatively more active.
And even blocks will split the block’s mining reward evenly among a set of nodes, regardless of stake. Even blocks counteract income divides among token-holders while incentivizing new participants, who have a good chance at winning mining rewards even with minuscule holdings. A checks and balances system further encourages participation regardless of stake by increasing a nodes’ chances of winning a block reward (provided they validate blocks correctly); these checks and balances ensure that no one goes unrewarded for too long.
Consensus is what makes blockchain one of the most revolutionary technologies of the past decade–but it can also kill projects and communities when deployed incorrectly. We hope the Popularis protocol opens a new era of blockchain consensus–one that protects blockchain projects, the environment, and democratically rewards network participants.