Op-ed: Consensus algorithms can be engineered to unlock blockchain for business

The following is a guest post by Venom Foundation CTO Christopher Louis Tsu.

Connecting blockchain to traditional businesses is not a simple process. So-called non-crypto industries, particularly finance, banking and insurance, are markedly disconnected because each possesses a general modus operandi that does not neatly fit into current blockchain solutions.

Concerns in these fields abound over security, compliance and cloud computing and how this fits into implementing on-chain technology. Here are two disjointed worlds, which can be brought together through fintech and blockchain innovations. But this is not a straightforward process.

The truth is it’s hard to create a layer one solution, a blockchain, which adheres to the principles of decentralization and transparency without sacrificing the important aspects of data privacy and regulatory compliance.

Those working to build the blockchain-based future need to pay close attention to these latter features. In the absence of proper data protocols, traditional finance executives are unlikely to adopt the technology — nor will the tangentially related banking and insurance industries — while careful consideration must be taken to avoid the ire of lawmakers.

The tempting solution for hungry innovators is to abandon fundamental crypto principles. In the process, they would lose sight of what makes the technology so robust and inherently scalable. But it does not have to be this way.

Overcoming the Challenges

Moderating the hype around blockchain is important to create sustainable, versatile and pertinent solutions to the non-crypto industries which can actually be improved with the technology. Not all sectors need blockchain; this article mentions finance and banking as potential leaders of adoption, because these are examples where applications make a lot of sense.

Increased security and efficiency is a compelling case for the finance sector with the added benefit of more transparent governance, a lower risk of fraud, and reduction of counterparty risk. Insurance companies will look at smart contracts in order to streamline claims processes and enjoy stronger security. Meanwhile, clearance and settlement can be much cheaper and faster using distributed ledgers. Evidently tremendous amounts of money can be saved by large companies handling enormous volumes of capital flow.

As always, implementation presents challenges to innovators. But we can ascertain the major prerequisites for an adoptable blockchain network: it needs to offer complete data privacy and be compliant with legislation that hasn’t even been written and relevant existing legal structures. Businesses will only work with an unfailingly compliant solution and not a single major, public blockchain currently meets these standards. However, adroit engineering of new solutions promises much.

The key lies in iterative advances in technology as witnessed over the past two decades. A blockchain can work in enterprise without compromise, but it needs to be configured in a novel way.

The choice of consensus algorithm carries, of course, vital importance. Yet the steps taken to implement this into a blockchain and how the system is engineered are just as salient. The blockchain trilemma, and the aforementioned prerequisites for an enterprise blockchain, cannot be solved satisfactorily without a shrewdly designed system that makes clever use of multiple technologies.

Consensus is an ever-growing field of research pertaining to blockchain; there is no surprise in technical quarters that hundreds of layer one solutions are being prepared for market, in some cases with wildly different approaches.

One compelling technical solution lies in the Practical Byzantine Fault Tolerance (pBFT) consensus algorithm, a sustainability-led shift from Proof of Work. Yet the heavy lifting cannot be done by pBFT alone. If it could, companies would have done so already.

To unlock the immense potential of a blockchain with pBFT one may look towards a technology still heavily used in Web2 which, when integrated properly, provides enormous upside for businesses not yet convinced by existing chains.

Merging Two Evolution Cycles

pBFT proves to be a highly streamlined method for reaching consensus in a distributed environment while maintaining bulletproof robustness, demonstrable in huge ecosystems: examples include the Cosmos Blockchains on Tendermint consensus, Hyperledger and many others. There is no doubt that static and dynamic sharding are among the fastest approaches to consensus in production, which pBFT does.

But what we haven’t seen often is pBFT implemented with an asynchronous model. This is the golden ticket to both satisfying traditional enterprise needs and retaining ironclad crypto security, while leaving the door wide open for decentralized applications.

pBFT has evolved as an energy efficient way of smart contract execution in a trustless decentralized environment, at the same time the asynchronous model has grown to be favored by traditional enterprise architects, such as Kafka and Akka, as an efficient way to parallelize execution in a clustered environment.

Asynchronous stateless communication, as opposed to stateful, is generally used by all traditional clustered databases, all distributed queues and even many app caches. Stateless is far less resource intensive because the system does not need to track session details and multiple links, and the asynchronous model itself ensures transaction throughput can remain high as nodes do not need to wait for other nodes to receive their messages.

In a stateless system, no information needs to be stored nor does it necessitate a response, tracking or the resending of requests in the absence of a response. Consider this protocol as a highly streamlined engine which eliminates bandwidth-hogging processes wherever possible.

Now when we talk of parallelizing execution, we can often take this to mean dynamic and static sharding — it’s the most popular method, especially within a blockchain context. Splitting and storing a dataset across multiplicitous databases and adding more machines allows vast volumes of data to be stored effectively to scale to manage ever-increasing data flows and rapid traffic growth.

A combination of pBFT and the asynchronous model shows a structure’s markings to create a blockchain that does the job rapidly, at scale, and to the high requirements of lawmakers and business leaders.

The Emerging Role of pBFT in Enterprise

pBFT is a consensus algorithm designed in the 1990s to solve problems in many available Byzantine Fault Tolerance solutions. Now it seems tailor-made for blockchain applications in non-crypto businesses, apt for those involving a consortium of enterprise organizations because each organization can represent a node on the network — with each of these nodes programmed to have clusters of instances and load balancers behind the node’s endpoint.

This means computational power can be massively scaled without compromising on a rapid response time. High levels of security are ensured without sacrificing an incredibly cost-effective communication overhead.

With a substantial majority required to confirm transactions, the system is set up to work even in situations where validators crash or maliciously broadcast incorrect information. And the crucial function of nodes here is underlaid by verification. Each network user must verify their identity so such a system passes KYC with flying colors.

pBFT is, in essence, designed to ensure robust data consistency with no danger of data loss in the event several nodes go offline or hardware failure occurs.

Yet data can be protected and kept private without compromising the transparency of transactions to those allowed access; any node without the user’s private key cannot forge its identity or the message’s signature. The system is inherently reliable because the cost of attempting such a forgery is astronomical.

Moreover, pBFT allows a distributed system to reach consensus despite an event where several nodes act to subvert the system. Every node performs computations for verifiability, security, and peace due to the inbuilt usage of cryptographic algorithms such as signature, signature verification, and hash.

The green light from lawmakers is plausible because imminent regulations can be considered, especially regarding the potential for fraud and money laundering. Traditional businesses will meanwhile need their operations to remain compliant without disposing of proper data protection — necessary in the EU with GDPR, but further desirable for many jurisdictions, businesses, and customers — and with no loss of data privacy.

Anti Money Laundering (AML), standard banking transactions, and clearing and settlement, once made possible on a blockchain without drawbacks or legal issues, could lead to a wave of adoption in finance and banking as a much better solution than those being used already.

And in terms of economic logic, a strong case for the asynchronous model here is wrapped in the parallelization aspect. While major blockchains grapple with the issue of scaling to handle high volumes of traffic, here lies an inbuilt sharding protocol that exponentially increases the limit without increasing costs.

A Feasible Path to Adoption

Common logic dictates companies will adopt a blockchain with a reliably high network speed and low transaction fees. Costs do come secondary to necessities regarding compliance and data protection, but it forms a crucial hinge upon which widespread adoption can happen. pBFT combined with an asynchronous model promises low fees, high speed and reliability, and data redundancy if implemented.

Using an asynchronous model bolsters network security as a limited number of nodes can behave unpredictably or arbitrarily without compromising the system’s safety. pBFT tolerates byzantine faults in an asynchronous network and uses the view-change protocol to guarantee liveness — which means the client finally receives the correct replies to their requests. This works exceptionally well in an asynchronous environment such as the Internet.

With pBFT ensuring a network attack is highly improbable. With the confidence that delays to consensus will not be indefinite, an asynchronous stateless model can create a blockchain that serves both the traditional and crypto worlds.

Enterprise demands are not broadly changing. Therefore, innovators must deliver a blockchain that meets these demands. Achieving this would open the gates to adoption.

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