The proof of trust (PoT) consensus protocol is a method for selecting validators in a decentralized network. Rather than selecting validators according to their investment in machinery or stake, PoT consensus selects them according to their contribution to a network. By successfully validating transactions, network participants can earn a trust score that enables them to validate higher-value transactions and, therefore, earn more favorable rewards. As an alternative to traditional consensus mechanisms, such as proof-of-work (PoW) and proof-of-stake (PoS), PoT makes it easy to create dynamic peer-to-peer payments channels that can scale to meet enterprise needs.
In this article, we’re going to explore the proof of trust consensus protocol. We’ll discuss the differences between PoT and other consensus mechanisms such as proof-of-work (PoW) and proof-of-stake (PoS). Also, we’ll take a look at one of the most successful applications of the proof of trust consensus protocol.
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What is Consensus?
For a blockchain network to agree on the validity of cryptocurrency transactions, there needs to be a framework or mechanism in place that allows network participants to agree or disagree on the validity of data entering a ledger. A consensus mechanism is a set of rules that enables a blockchain network to agree on data values and network states that ultimately determine the legitimacy of every transaction.
For example, if Bob has one BTC and tries to send two BTC to Alice, the network must reach a consensus about the transaction for it to be successful. Every validator must declare if they believe the transaction to be fit for validation. If a malicious validator is in on the fraudulent transaction, it is immediately identifiable by the rest of the network. Also, the rouge validator could lose any income they were earning as a result.
Moreover, consensus mechanisms facilitate trust, agreement, and security throughout a blockchain network. Centralized systems entrust a small group or individual with the task of adding and removing data from a database or ledger. Conversely, public blockchains use a distributed network of nodes that must all agree on any amendments to the ledger. Accordingly, a consensus mechanism helps to prevent fraud and manipulation and ensure all transactions are genuine.
What’s the Difference Between Proof-of-Stake and Proof-of-Work?
Before we look at the proof of trust (PoT) consensus mechanism, let’s first take a look at the two most common consensus mechanisms. Below, we’ll break down proof-of-work (PoW) and proof-of-stake (PoS) consensus.
Bitcoin introduced PoW as a way to validate transactions on a decentralized network without intermediaries. PoW requires participants to expend substantial amounts of computational energy (work) in a competition to solve a complex math puzzle. The first miner to expend the computational energy and solve the math problem wins the right to append a block of transactions to the blockchain and earn the subsequent block rewards.
One advantage of PoW is that it enables networks to become more secure the larger they grow. This is because larger PoW networks require more computational energy to attack. However, this means that smaller blockchain networks may not be as secure using PoW as larger networks such as Bitcoin. Also, this practicality comes at the cost of being energy-intensive. Bitcoin PoW mining requires expensive, specialized machinery and can cost a lot of money in electricity. In addition, these energy requirements can be prohibitive when it comes to scaling a blockchain network without compromising on decentralization or security.
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Proof-of-stake (PoS) takes a less energy-intensive approach to consensus. Pioneered by Cardano and embellished by several other prominent crypto projects, PoS takes a less energy-intensive approach to consensus. Accordingly, PoS enables smaller projects to scale without risk to security or decentralization. This is particularly useful for smart contract blockchains that process high volumes of complex transactions as it helps to reduce fees and improve speed. As such, the Ethereum blockchain is transitioning from PoW to PoS in the rollout of Ethereum 2.0.
PoS is far less resource-intensive than PoW. PoS requires validators to lock up (stake) an amount of native cryptocurrency to be selected for validating transactions and earning block rewards. In many cases, validators are selected according to the size and duration of their stake. This means that validators who stake the most for the longest time are more likely to be selected. Furthermore, block rewards are proportional to the size of a stake, meaning the more you stake, the more you earn.
PoW vs PoS
PoW requires expensive hardware and substantial amounts of energy. Despite the many advancements in green mining and renewable energy, many argue that PoW is not sustainable for the modern Web3 landscape. Also, the upfront and ongoing costs can be prohibitive, allowing only those with a lot of starting capital to participate.
PoS lowers the barrier to entry for validators by reducing energy and hardware costs. Also, the economic incentive for PoW validators to act honestly is the threat of wasting time and energy on a fraudulent block for which they will not be rewarded. Conversely, PoS validators have an economic incentive – to tell the truth because they could lose all or part of their stake if they attempt to defraud the network.
What is a Proof of Trust Consensus Protocol?
The proof of trust (PoT) consensus protocol is an accountability mechanism used by blockchain networks. PoT selects validators according to their service to the network. By validating transactions promptly and correctly, validators earn a trust score. PoT optimizes the directed acyclic graph (DAG) structure and helps to prevent spam throughout the network.
A higher trust score increases a validator’s chances of selection for validating cryptocurrency transactions. Accordingly, validators with a higher trust score have a better chance of earning a passive income by participating in consensus. In addition, validators have an incentive not to defraud the network as their trust score (and earning potential) would drop.
By avoiding the resource-intensive aspects of the PoW consensus, PoT facilitates extremely high throughput. As such, PoT is highly scalable. To participate in PoT consensus, users “stake” the virtual value known as “trust” that they earn throughout the network.
Proof of Trust Use Case: COTI
COTI (“currency of the internet”) is an enterprise-grade decentralized payments network that implements a proof of trust consensus protocol as part of a DAG (directed acyclic graph)-based consensus model. A DAG is a type of data structure that forms a scalable distributed ledger technology (DLT) alternative to blockchains. Validators can process transactions of a value equal to or below their trust score. The more transactions a validator processes, the higher value transactions the network trusts them with in the future.
Furthermore, COTI’s DAG structure aims to disrupt the legacy payments industry by facilitating frictionless, permissionless asset transfers without intermediaries. The novel “Trustchain” structure allocates trust to every network participant. If a validator attempts to defraud the COTI network, they lose an amount of trust that reflects the value of any fraudulent transactions they attempt to make. Also, this process is immutably recorded on-chain.
In addition, the victim of a fraudulent transaction receives compensation from the converted trust value lost by the malicious validator. Although this is the primary economic incentive for network participants, the COTI proof of trust consensus protocol implements elements of PoW to ensure that a minimum amount of work is achieved by validators. Moreover, the conversion of trust into value enables COTI to scale substantially without the need for validators to consume significant amounts of energy. Also, users can create their own whitelist networks of trusted payees.
The COTI network can process up to 100,000 transactions per second (TPS) with minimal fees. The DAG architecture of the network addresses the perceived shortcomings of traditional blockchain networks that fail to scale securely. At the time of writing, the native COTI token is trading at around $0.23, with a market cap of $245 million, According to CoinGecko.
The COTI Trustchain Algorithm
The COTI Trustchain algorithm enables transacting parties to achieve consensus in a decentralized way using a DAG-based data structure. Every transaction that passes through the Trustchain algorithm receives a trust score matching the score of the sending wallet address.
For every new transaction, two previous transactions must first be validated. These previous transactions will usually be of a similar trust score to the primary transaction. Accordingly, highly trusted validators benefit from fast transaction confirmations.
The transaction confirmation process begins with a “trust score” request sent to a trust score node. After the allocation of a trust score to the relevant transaction and wallet address, the transaction moves to a full node for verification. The full node selects other network sources to validate the transaction before performing proof of trust (PoT) and adding the transaction to the DAG. From here, the transaction filters through two “double-spend prevention nodes” to eliminate fraudulent activity. After the transaction successfully passes through the double-spend nodes, the transaction is broadcast back to the entire network of double-spend nodes for final verification.
The COTI network uses a trust scoring mechanism to facilitate transaction processing, network structuring, and risk mitigation. Trust score nodes calculate these scores using various metrics and statistics relating to different on-chain events. As network participants accrue a greater trust score, they gain the right to process higher volumes of more transactions.
Proof of Trust: Benefits
Although the COTI proof of trust (PoT) model uses elements of proof-of-work (PoW), the computational requirements for transaction validation are relatively small. Also, payments can be verified between trusted parties without a significant stake, making it more practical than proof-of-stake (PoS) for many high-frequency payments applications.
Furthermore, PoT consensus removes many of the barriers to scaling distributed systems. Not only does it reduce upfront and ongoing energy costs, but it also minimizes transaction fees and the need for expensive equipment.
What is a Proof of Trust Consensus Protocol? – Summary
Proof of trust (PoT) is a novel alternative to traditional consensus mechanisms. Compared with traditional proof-of-work (PoW) consensus mechanisms, PoT significantly reduces energy expenditure. By allocating a trust score to each node within the network and selecting validators according to their trust score, the PoT consensus protocol incentivizes participants to act honestly.
If a PoT node attempts to defraud the system, its trust score is impaired. This limits the ability to earn by restricting the ability to validate transactions of a high trust value. Moreover, PoT enables multiple parties to transact in a trustless, decentralized manner by incentivizing honest behavior throughout the network.
Although this technology is still relatively young, proof of trust provides an energy-efficient and scalable consensus solution for the modern Web3 and decentralized finance (DeFi) landscape. Check out the Ethereum 101 course at Moralis Academy to learn more about the foundations of DeFi and smart contracts. Here, we teach students about the history of programmable money and the differences between the two most prominent blockchain networks. Start your crypto journey today and become blockchain certified with Moralis Academy!
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