Nodes and Consensus

April 21, 2020

Dedicated nodes as a service

The number of blockchain networks is constantly growing, which means that more and more companies are looking to create their own decentralized applications to deploy them on the blockchain. And in this case, companies often encounter the first difficulties, and sometimes even problems, especially if their projects are quite large and resource-intensive. The point is that to implement the company’s project, it requires high speed of network nodes, good scalability, maximum reliability and security. And these are not all the requirements that need to be implemented in order for companies to receive maximum benefits from their projects. Firstly, hosting must provide a server that not only has constant access to the Internet, but also does not slow down in case of maximum load. Secondly, the nodes themselves require constant maintenance, configuration, synchronization and updating, which, of course, requires considerable expenses from the company and extensive experience and knowledge of its specialists. Those companies that are not ready to incur significant costs of time and resources to manage node infrastructure on their own can easily create cooperation with the provider’s team

It is known that the task of the nodes of any blockchain network is to ensure the functioning of this network. This is reflected in the fact that nodes verify transactions, blocks and the history of block changes, interact with other network nodes, participate in data encryption and in the consensus algorithm. These are their main, but not complete, functions, since there are many special nodes for implementing special tasks.

Proof of Work consensus algorithm

It makes sense now to discuss one of the main tasks of nodes – their participation in the consensus algorithm. We are starting to review a certain blockchain network, for example, Bitcoin, nodes of which engage in transactions and exchange information. At the same time, in each node that have never been included in blocks a list of transactions is formed that is, these transactions in the list have not yet been confirmed. Due to the fact that the speed of information dissemination through the network is different, the lists of transactions in the nodes may not coincide with each other. It follows that before a new block is formed, it is necessary that the node that will issue this block must first be determined. The method for determining such a node is called “pseudo-random”.

In practice, this happens in such a way that first all nodes with lists of unconfirmed transactions try to form a new block at the same time. Each node begins to perform actions to verify transactions from its list and determine the hash of the block. Since the speeds of the nodes’ machines are different, the transaction lists of each node are also different, hashing will give different results. The node that finds the hash first will form a block of transactions and distribute it among all network nodes. Having received a new block, nodes check it for correctness and if everything is in order, they confirm it, stop their hash calculations and begin processing the next block. Based on the above, we can conclude that the faster the node’s machine, the higher the likelihood that this node will calculate the hash function and generate a new block faster than other nodes. This mechanism for hashing and creating new blocks is the basis of the Proof of Work (PoW) consensus algorithm.

Proof of Work Consensus problem

The PoW consensus algorithm leads those blockchain networks that use it to the so-called 51% problem. The point is that, hypothetically, one node or a group of nodes that are in collusion with each other can generate a power of their equipment that will be 1% greater than the power of all remaining nodes in the network. The result may be their usurpation of power in the network. This will lead to a violation of the principle of decentralization and to dictatorship regarding the order and correctness of transactions, the formation of blocks and interference in the history of block changes.

In principle, there is no protection against the 51% problem. That is, no one will be able to influence any node or group of nodes in order to force them to reduce power. However, blockchain experts have recently been talking about reputational protection. In this context, we are not talking about the reputation of the node as such, but about the reputation of the node as a network participant who is interested in seeing this network develop. And the motivator for this should be the economic component of the database. And we are not talking about the assets that participate in blockchain transactions, but about the economic component that is directed to the people generating blocks. Participants receive a reward for forming blocks, and the value of this reward will decrease if they violate the rules of the blockchain network. Therefore, it can be argued that consensus in such networks is ensured not only through hashing, but also through the economic motivation of network participants.

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