Kadena – Mining and private blockchains don t mix

Why you can’t use mining based overeenstemming for private blockchains

Bitcoin’s mining mechanism is a masterstroke of algorithmic vormgeving, enabling a scalable Byzantine Fault Tolerant overeenstemming by achieving a specific balance of incentives. Mining-based blockchains like Bitcoin are public: anyone can become a miner simply by downloading the software and firing it up. Permissioned, or private, blockchains seek to replicate the trustworthiness and robustness of public blockchains but with restricted memberships of known, approved participants, for regulatory reasons, for confidentiality, and with hopes of improved throughput and latency.

It is often assumed that if mining works for public blockchains then surely it voorwaarde also work for permissioned ones, perhaps even more robustly since access is locked down, reducing attack vectors. Mining, however, is not public by accident, and indeed is incompatible with permissioned settings. It is public by vormgeving, which is critical to the functioning of its incentive prototype.

Incentives ter Mining

The role of incentivization ter mining is spil goes after:

Incentives voorwaarde ensure that the act of mining the “latest block” and publishing it without delay is more profitable than mining a “fork” from a prior block, or delaying publication of the newly-mined block.

Ter Bitcoin wij see that this holds: the value (ter fresh coin and ter transaction fees) for mining and publishing the latest block exceeds the value of mining a fork or delaying the fresh block’s publication for even a 2nd. However te some alt-coins, we’ve seen this incentive fail leading to majority-mining attacks that result ter large swaths of the ledger being rewritten. Ter puny mining pools, attackers are incentivized to mine long forks and only publish them when they could supersede the primary blockchain’s history of transactions, thesis attacks can perform double-spends by invalidating transactions previously made for physical assets.

The need for incentivization at all is related to public blockchains’ scalability and anonymity requirements. By creating a overeenstemming mechanism where participants are incentivized to behave te a non-Byzantine way, wij eliminate the need for the mechanism to be auditable spil well spil the need for users to message every participant. Participants do the right thing because their interests are aligned with the interests of the system. Spil a result, the addition of a fresh pool of miners or a fresh group of users has effectively no influence on network blast and te fact enhances fault-tolerance.

Mining is thus private and non-auditable by vormgeving. It is only when a fresh latest block is mined that miners need to talk, so they may publish the block and eis their prize. However, this implies that the system vereiste correctly incentivize miners to behave ter non-Byzantine ways spil it has no capability to verify their deeds (beyond validating a freshly mined block).

Another form of fault-tolerance is the network’s capability to increase mining difficulty spil the hash rate increases. However, this can only take place when miners are incentivized to win the next block spil often spil they can. If the incentives fail, and securing that block yields little inherent value, then miners have little incentive to publish that block to the network once found. This is not much of an punt for public chains but is a giant kwestie for permissioned blockchains.

Permissioned Blockchains

Permissioned chains can take many forms, but overall they can be thought of spil a Bitcoin-like utility where only known participants can build up access and interact with the system. It can be seen spil a database collective amongst potentially adversarial firms.

The motivations for firms to agree to use such a system are:

  • Decrease mutual costs: resources and risk required to lodge assets, operational efficiencies te high availability and disaster recovery, etc.
  • Build up fresh capabilities: automated workflow via brainy contracts, a collective standard library of business logic, etc.

An significant distinction inbetween public and permissioned chains is that while every participant ter a public chain can choose to participate or not te overeenstemming (by mining), every participant te a permissioned chain necessarily participates te overeenstemming. Permissioned blockchains exist to serve essential business functionality for the firms themselves, tracking ownership, providing audit trails, and so forward. Since the overeenstemming mechanism determines what and when things get written to the blockchain, no rock-hard will be willing to let others “run consensus” for them: each rigid will necessarily participate ter overeenstemming. Thus, if mining is used for overeenstemming then every business will participate ter mining.

A Tale of Three Banks: Sneaky, Virtuous, and Unaware

The issues associated with mining permissioned chains are easiest to demonstrate through a thought proef. Imagine a permissioned blockchain that uses mining for overeenstemming, which three banks are using to trade high-value assets. The mining difficulty is set to target Ten minutes. We’ll call the banks Sneaky, Virtuous and Unaware and thesis banks are the only miners of the permissioned chain.

At 9am Virtuous asks if Sneaky will sell an asset for $90M. Sneaky only has one of thesis assets ter stock and, finding the price to be fair, agrees. The transaction is signed and submitted it to the blockchain for overeenstemming at 9:01am. At 9:02am, Unaware asks Sneaky to sell the same asset for $100M.

Unware has no idea that Sneaky just signed a transaction with Virtuous, and Sneaky has no reason to inform him. Witnessing an chance, Sneaky agrees to the transaction with Unware, signs the transaction but makes sure that the fresh transaction references the same asset Sneaky used with Virtuous, and submits it to the blockchain at 9:03am. There are now two conflicting transactions out for overeenstemming.

Sneaky now has a $10M incentive to invalidate the Sneaky-Virtuous transaction by making sure the Sneaky-Unaware transaction is mined very first. Sneaky already knew that any coins and/or fees received from mining are insignificant te comparison to the value of the transactions Sneaky would be conducting. Moreover, Sneaky knows that so long spil they publish mined blocks with the expected frequency distribution their cluster size will emerge to be ter line with the chain’s 10min difficulty level.

For just thesis scripts, Sneaky has a large, on-demand mining cluster hidden te reserve. It is leased from a bitcoin mining farm at the rate of $1M for two blocks and is overheen several thousand times larger than the size of the cluster the permissioned blockchain is tuned for. Sneaky, te effect, can win any block for $1M, which is lightly covered by the $10M potential profit. Sneaky switches it on and mines a block with the Sneaky-Unaware transaction ter it. The block invalidating the Sneaky-Virtuous transaction is mined by 9:04am and a subsequent block is built off of it is mined at 9:05am. The 9:04am block is not published until 9:09am so spil to keep up the appearance of a smaller cluster and the 9:05am block is kept te reserve, only to be published if a fork occurs when the 9:04am block is published. Sneaky has the incentive to run an Eighteen block long fork before the cost of forking matches the $10M incentive.

It is interesting to consider what possible equilibrium would result from this type of system, something like each handelsbank continually generating a portfolio of possible next blocks on large, hidden clusters, allocating mining resources based on risk. However, no matter what the equilibrium is, it is clear that mining ter a permissioned setting has substantially different incentives than those of a public chain. Without zindelijk incentive alignment, mining fails to fulfill its purpose of providing BFT overeenstemming.

That equilibrium could look much like mining’s equilibrium today, just on a much larger scale – imagine the mining cluster size if every fresh block wasgoed worth $10M. The thought proefneming suggests a rechtstreeks relationship inbetween the value of transactions on a private blockchain and the mining cluster size used for it. It seems that mining will always be inventive based, even if you eliminate its primary incentives. Furthermore, mining works because of incentives and it seems that the larger the incentives, the more resources are used to mine.

If it is the case that mined permissioned chains require very large clusters, then mined permissioned chains will never take off. They will simply be too expensive to operate when compared to traditional systems.

The question becomes: how to fix mining te such a way that wij keep mining clusters puny?

Imperfect Solutions

One solution to the issues described is to register all transactions with some central authority, so that the order of transactions is not determined by the miners. This centralizes the blockchain, at which point why bother with mining and a blockchain at all, the central registration authority is more than capable of ordering and replicating transactions with more familiar technologies. Indeed, this is how many of current systems work, with public-private institutions treating the settlement synchronization.

Another solution is a legal agreement that thresholds mining resources and bans invalidating transactions. This solution however misses the point. Permissioned blockchains are meant to enable adversaries to work together without trusting each other, instead trusting the system. If wij have to rely on the courts for a BFT algorithm to function, then the algorithm is not BFT.

A bit of market research

Fortunately, most large enterprise institutions do not want a permissioned blockchain that requires mining for other reasons:

  • Mining is wasteful: cycles voorwaarde be burned to mine the next block which enterprise users see spil inefficient.
  • Mining is probabilistic te nature: enterprise adopters tend to dislike that a transaction’s success if a probability, worrying about the zonderling but possible event of informing a client of a successful transaction only to have the transaction zometeen be invalidated.
  • Mining is slow: being partly a function of time, mining is necessarily slow and cannot be sped up. For most enterprise applications, 7-14 transactions vanaf 2nd with 1-10 minute latencies is far too slow.

NB: the costs of mining mentioned above are well worth the mechanism’s utility when it comes to public chains – te comeback you get anonymous participation, massive robustness, and near infinite scalability.


Public blockchains herald a fundamentally fresh treatment to solving many real world problems, and the ideas they illustrate hold substantial benefits for te industrial settings. Adoption by industry requests a sturdy, performant and fault-tolerant vormgeving that can provide BFT overeenstemming ter a private, permissioned setting. Spil wij have shown, mining cannot provide this, spil it needs the public setting for its incentives to function, and would be inefficient and slow.

Providing a solution to this challenge is a core reason wij founded Kadena. Our solution is ScalableBFT, the very first scalable high-performance permissioned BFT overeenstemming mechanism. If you’re interested te learning more about it, please see our Overeenstemming White Paper or .

Related movie: Bitcoin Difficulty Zakjapanner for Bitcoin Mining te the Cloud and with GPU

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