Introduction to Lisk (LSK) Part 4

Delegated Proof of Stake.


The biggest disadvantage of the Bitcoin distribution system and the proof of work consensus algorithm is that while they do make the Bitcoin network secure, they also make miners spend a lot of money on electricity and hardware. In a way, the miners exchange this money into the value on the Bitcoin network and make the network secure, but other than that, the money and all the resources do not do the society or the planet any good.

According to an article in The Guardian, by some estimates Bitcoin miners in 2017 have burned more electricity than the entire country of Ireland during the same year, which is a lot of electricity.

In essence, miners on the Bitcoin network are playing a lottery that consists of randomly picking a winning nonce that helps obtain a winning hash. While the lottery does make the Bitcoin network secure, the lottery is completely transparent and honest, and the chances of winning are not a zero (which, statistically speaking, is the case with most conventional lotteries), it is still a lottery.


Introduction to proof-of-stake

The Lisk network uses a delegated proof-of-stake algorithm. With proof-of-stake, miners on a network do not burn tons of electricity. The members of a proof-of-stake ecosystem or the network itself decide who is going to create blocks of the blockchain based on the stake of users in the blockchain. This means that the higher the stake of a user in the network, the higher the chances that the user will get to create a block of the blockchain.

From the security standpoint, users that have a high stake in a network are interested for the network to have a high value and are not interested in the price of the network token going down. However, when there is an attack on a network, the price of its token almost always goes down. Because of this, giving the token holders the right to create new blocks also makes a blockchain network secure.


Delegated proof-of-stake algorithm on the Lisk blockchain

Delegated proof-of-stake means that the creation of the blocks on the Lisk blockchain happens in two steps. During the first step, the holders of the Lisk LSK token vote for one of the delegates that will later create a block of the blockchain. The ecosystem can only have 101 active delegates and only the active delegates can be earning the rewards for the creation of the blocks on the network, which means that members of the network have a high incentive to become and stay an active delegate. Every other delegate on the network becomes a delegate in the standby mode, which means waiting to be elected an active delegate.


Blockchain services on the Lisk platform

One of the great things about the Lisk ecosystem is that it has a number of services available to developers by default. These services include identity as a service (meaning that a person could sign into various websites and accounts directly), decentralized hosting as a service (a hosting that works like a regular cloud, but stores files in a decentralized manner), smart contract execution as a service (similar to executing smart contracts on the Ethereum network with Ethereum Virtual Machine), and oracles as a service (oracles on blockchain networks are tools that submit external information to the networks, such as stock prices or weather forecasts).

In the Lisk ecosystem, these services are open-source decentralized services that have their own side chains. This means that once the Lisk ecosystem has a service like the ones named above, any developer of any app on the ecosystem can use the service and can be sure that nothing will happen to the service or the integration because the services are open-source and decentralized. For instance, if a developer wants to create a new decentralized blockchain network and wants to store images in a decentralized manner, the developer can use the existing service to do that.

All of this means that the Lisk ecosystem can have a large network effect and the more popular the ecosystem becomes, the more decentralized apps it will have. Because the apps will be available to developers, developers would be able to make their own apps more feature-rich, which, in turn, would enable future developers to have even more features and even more complexity in their applications.

All of these services can use the Lisk token to protect themselves from spam and attacks, yet they will still remain on the side chains and be completely independent, meaning that if something happens to one of them, all the other services will keep working as intended.