Despite their massive popularity and continued influence on today’s emerging fields of blockchain and cryptocurrency, Bitcoin and Ethereum suffer from architectural flaws in their respective blockchains. And now, from the original developers of two of the world’s most used cryptocurrencies comes Skycoin, the blockchain that seeks to address these shortcomings.
Fault of our Fathers
When it first emerged, Bitcoin appealed to so many due to its promise of financial freedom from the disenfranchisement of the current traditional finance and banking system. For the first time, people saw the possibility of being in full ownership and control of their money, and thus the idea of cryptocurrency was born.
In the years following Bitcoin’s emergence, the very idea of cryptocurrency expanded rapidly, prompting hundreds of blockchain projects and cryptocurrency. Yet, while many sought to promote their own ideas of decentralization, the two major blockchains – Bitcoin and Ethereum -persisted with foundational faults at the very core of their architecture.
Both used the Proof-of-Work (PoW) consensus algorithm – requiring extremely complicated mathematical calculations to be made by machines to solve cryptographic puzzles. This meant that miners with more computational power were more likely to solve these puzzles, in the process verifying transactions and building blocks. As miners were rewarded with newly generated coins and their given transaction fees, the commercial incentive prompted a “processing power race” that continues to this day.
Why the Original Fault Must be Addressed
Skycoin believes that the economic incentive structure played out in the mining process was designed to be conducive to decentralization, yet fundamental miscalculations in early Bitcoin programming meant that its original purpose has not been achieved.
PoW algorithm has led to a hegemony of mining pools with cheap electricity and power-hungry machines at their disposal. Along with power has come influence, with these groups able to orchestrate sweeping network changes through hard forks. Bitcoin’s creator saw this as the largest non-cryptographic threat via so-called “51% attacks” – in which a majority of mining power is in the hands of a single controller.
Energy researcher Sebastiaan Deetman had once predicted that the ever-expanding network could require energy levels equivalent to the national consumption of Denmark by 2020:
“The continuous consumption of electricity through the processing power required by mining incurs monthly costs in the tens of millions. There is little sustainability in this over the long-term.”
Tackling the heart of the problem is Skycoin blockchain’s Obelisk consensus algorithm, which distributes network influence via a web of trust. Instead of miners, nodes will maintain the network. These will be significantly cheaper to produce, obtain and operate. Obelisk was designed to be completely scalable and computationally economic, with budget hardware capable of running it. When node access has low entry barriers, centralization becomes near-impossible.
Without a reliance on mining incentives, Skycoin is safe from 51% attacks. Since there is no chance to take over the network, there will be no industrial-scale mining farms with an army of computers. Even if a group somehow pools together enough resources for a disruption, this takeover attempt would be discovered immediately and shut down, with little to no user impact.
For now, operating an Obelisk node is as easy as purchasing a Skywire Miner, or building your own custom version. While operating nodes do not produce monetary value, this secures the Skycoin network. Operators can choose to contribute resources or bandwidth and earn Skycoin (SKY) in return. This mechanism of incentivization gives Skycoin its inherent value. Bitcoin’s value is currently a speculation of future network value. Skycoin’s value is here and now, with the launching of Skywire testnet.