03_Staking

Question 1

What is sybil attack on a blockchain?
What problems can sybil attack casue?

Answer 1

• sybil attack uses single node to operate many active fake identites simultaneously in a distributed network in order to gain control of it

Problems
- block users from network through out-voting honest nodes and refusing to transmit or receive blocks

• carry out 51% attack that enables one threat actor to control over half of a network’s total hash rate or computing power -> damaging integrity of blockchain system and causing network disruptions
• e.g. 51% attack can modify order or transactions, enable double-spending, prevent confirmation of transactions

Question 2

Consensus vs Anti Sybil Mechanism

Answer 2

Consensus Mechanism
- defines the way to reach agreement
- e.g. winner of block is the one with 50+ % of votes

Anti Sybil mechanism
- defines the rules
- e.g. who is allowed to vote? how often can they vote? where do they have to vote?

Question 3

Byzantine generals / fault problem

Answer 3

-tamper-proof communication in a potentially fraudulent / malicious environment
- describes the difficulty decentralized systems have in agreeing on a single truth
->consensus mechanism is required:
- to come to an agreement in a network where parties don’t necessarily trust or know each other
- to come to an agreement without the need for a centralized watchdog

Question 4

Anti Sybil mechanism

2 overarching items

Answer 4

Network layer
- P2P Network
- Transmission Mechanism
- Authentication Mechanism

Data Layer
- Data Block
- Chain structure
- hash Function
- Merkle Tree
- Time Stamp
- Asymetric enecryption

Question 5

Contract Layer

Blockchain basics

Answer 5

• Script Code
• Alogrithm Mechanism
• Intelligent Contract

Question 6

Incentive Layer

Blockchain basics

Answer 6

• Release Mechanism
• Allocation mechanism

Question 7

Pros and Cons
Proof of Work

Answer 7

Pros
- high security, 51% of minign power needed to create malicious yet valid blocks
- tested for many years
- easy to implement

Cons
- high energy usage to keep network safe
- geographical advantages / disadvantages
- high entrance barriers (hardware investments)
- centralization through increased needed computation power
- **scalability **

Question 8

Proof of Stake

Answer 8

• native currency of blockchain needed as a stake
• pseudorandomly selected who gets to mint new blocks through smart contract-> size of stake increases likelihood of selection
• if validators act maliciously, their stake can get slashed
• validators need significantly less energy
• validators **optimize for uptime & availability **

Question 9

Economies of Scale in PoW vs PoS

Answer 9

• PoW: resources don’t scale linearly -> favor the rich
• PoS: price to acquire stake doesn’t favor the rich

Question 10

PoS rights conferred through tokens

Answer 10

• right to add blocks
• right to validate transactions
• right to participate in governance

Question 11

Pros and Cons of PoS

Answer 11

Pros
- energy efficiency
- accessibility
- node decentralization
- incentive alignment
- scalability

Cons
- complexity & novelty
- centralization through stake
- initial coin distribution
- security

Question 12

Delegate Proof of Stake [DPoS]

Answer 12

• any token holder can participate in financially securing the blockchain
• validators/ delegates provide infrastructure and set a fee for their service
• network users vote to delegate the block validation rights to delegates
• token holders can delegate their voting power without physically transferring their assets
• users choose delegates by pooling their tokens into a staking pool and linking those to a particular delegate
• validators compete for stake through their fee, set up & values
• theoreticlally more efficient, less validators, but therefore more qualified

e.g. Solana, Polkadot, Cardano

Question 13

DPoS in the future

Answer 13

• if not natively implemented, it will be build and will take of
• already 43% of deposits in staking pools