Locus Chain, Harbinger of the Decentralized Credit Revolution

Locus Chain, Harbinger of the Decentralized Credit Revolution

<Introduction>

In 2018, the cryptocurrency market has experienced an unusual decline. All of the media simultaneously made warnings by comparing the cryptocurrency market to the IT bubble in the 90s. However, Bitcoin which has primarily opened the door of the cryptocurrency market was able to dispel the worries of the people who were afraid that the situation would not be recovered, and broke through the $10,000 wall once again.

On the other hand, many Altcoins that have been born along with the rapid growth of the cryptocurrency market are still experiencing difficulties without being able to resolve the bubble suspicion. Regarding this phenomenon, some say it is an obvious occurrence because in this market, the order is always that the price of Altcoin increases after the increase in the price of Bitcoin.

Nevertheless, we should not forget the fact that the value of Bitcoin, which has opened the door of the cryptocurrency market, was created by its World Changing Technology, that suggested the concept of the decentralization. It was very clear even before the intervention based on the logic of capitalism has occurred in the cryptocurrency market.

The current price of Bitcoin has not been created by or influenced by its financial power, but more reliant on the symbolic value represented by decentralization.

The value of Altcoins will only remain limited unless they create greater innovations than the representation of Bitcoin’s value. In the end, the majority of them will merely be one time competitors that will disappear due to other genuine innovative technology.

We believe that the current cryptocurrency market is at the stage where the logic of capitalism is at the dominant position compared to technology. Usually the capital only pays attention to things with fundamental value. However, as long as some profits guaranteed, it could chase things without the fundamental value. Accordingly, many of blockchain developers and users are taking care of the token price and marketing more for immediate profit instead of achieving the fundamental technical value. Nevertheless, we all understand the everlasting truth that the innovative technology will dominate the market at the end of the day, even if it cannot prove its competitive power as the price in the market at the early stage. For this reason, we have to gain greater understanding about the capacity of cryptocurrency, namely, ‘decentralized blockchain technology’. 

The decentralized public distributed ledger is operated under the P2P network. The P2P network is basically very vulnerable to hacking or errors. The transaction information transmitted from the opposing client might be manipulated information because there is no authentication or control from the server. P2P network cannot be used for important transactions because there is no way to figure out whether it has been tampered or not. Subsequently, the majority of the system that we use is the centralized Client-Server system, and the P2P network was being used as a subsidiary. Nonetheless, the value of the decentralized network(which used to be called P2P) has risen substantially as the blockchain technology has been developed significantly. The blockchain technology opens up the way to form the trust without the centralized system. All of the people who have made efforts to remove the disadvantages of the centralized system, while embracing the benefits of the centralized system, became enthusiastic about this digital transaction/ authentication system that is trustworthy even without the intermediary. Through the decentralized system, it has now become possible to objectively validate the data in a genuine manner, whereas in the centralized system, the validation of data would be executed subjectively, since the whole system is solely controlled by the certain groups or individuals, even though their authority is governed under the regulation, laws or societal process.

Because of these characteristics, there are some cases where some people misunderstand decentralization as the change of dominating structure. However, decentralization is a computing technological term, and the blockchain technology that are tied to decentralization act as a source to perfectly build the necessary credit among the many transaction relationships in an objective way, regardless of the individual and group or society and the system ruling structure. Resultantly, this resolves the procedural inefficiency that arise from guarantee and intermediation, and fairly increases the efficiency of all participants. 

Technologically, the decentralized blockchain platforms operate on the public network which allows anyone to participate in the network(Openness) in order to form the credit that does not have an intermediary. Also, once data have has been recorded on the ledger, itbecomes recorded in the ledger of all of the participants, so unless the network becomes dominated literally by 100%, nobody can randomly forge or manipulate the data(Immutability) Since the same data has been recorded in the ledgers of every member on the blockchain, nobody can prohibit the access to the data.(Traceability).  

Since these features(Openness, Immutability, Traceability) are realized by the accurate computing algorithm on the decentralized blockchain, the system, where people can fully trust the transactions, can be accomplished. There are considerable number of people who question if the Openness must be strictly maintained even though they fully understand about Immutability and Traceability. Even if the Immutability and the Traceability become maintained, if the decentralization becomes weakened by restricting the Openness regarding the consensus participation, the entire credibility of the system will decrease because the participators will suspect that random intervention based on certain groups is possible. Consequently, openness can be considered as important just as much as the other elements. This is the reason the majority of the blockchain developers are carrying on with this difficult challenge in order to make it possible for the blockchains to reach the practical performance and also retain all of these elements at the same time. 

Credit is the most important basis that makes people decide on certain actions. If the extremely powerful credit generally settles down, it can be predicted that the inefficiency in the overall society substantially will decrease and disappear, and that more active and positive interactions will occur. For example, embezzlement, illegal dumping, and fraud become more difficult to commit, micro transactions (If we all donate 10 cents each, the donation will be enormous, but as of the current system, the donation intermediary is highly distrusted, and a lot of costs get spent on the fund-raising/remittance, so it is impossible for this kind of case to occur. However, if the fees that become paid to the donator become confirmed along with the donation, then it can develop into a totally different direction than the current path it is going in.) become more activated, and the efficiency will greatly increase according to the increase in the transparency regarding all of the transactions. Apart from this, a lot of change is expected to happen, and we recommend you to look into these areas on your own since the space for this article is limited. Nonetheless, all of these will not happen smoothly immediately. This is because this period is indeed the time of experiment where the practical level of technology has not yet emerged. However, if a platform happens to be released which has all of the required technologies at any time in the future, the changes this platform can bring to the world will be beyond imagination.

<The current status of the Decentralized Platforms(Blockchains)>

As people already know, blockchain, which has started off from the decentralized platform Bitcoin, now became one of the essential keywords for the current and future society. Each individual’s opinion about cryptocurrency may be different, but people will at least come to think of blockchain technology as something absolutely necessary without having different views. When people hear the news such as how large corporations are planning on issuing their cryptocurrency just like the currently announced Facebook’s cryptocurrency Libra, or hear that these corporations will adopt the blockchain system, it comes to their mind to think that cryptocurrency will become used in real life immediately similar to how the internet and smart phone have settled into our lives as necessities. However, it has not been achieved in reality. There are still many problems to resolve and as of yet, it seems there are no projects that have resolved these issues simultaneously.

The current blockchain projects can be divided into mainly two types of projects. The first type is a type that claims to support the traditional route in order to resolve the performance and scalability issue while maintaining the decentralization, and the second type is a type that gives up on decentralization to a certain extent and attempts to achieve the practical speed by allowing the limited numbers of the approved nodes to participate in the consensus. These types of projects resemble the centralized system, that admit the authority is given to the certain group for the performance. Out of these types, the second type has gained fame unexpectedly. EOS and Libra are key examples. It is doubtful if these platforms will be able to lead genuine innovation since they are in reality, not decentralized platforms but closer to transformation of centralized platforms.

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Then let’s see what kind of goals there are that the decentralized platforms and blockchains have to achieve.

1. Decentralization – Complete public network, easy participating condition and low consensus fee

Ironically, Bitcoin and Ethereum that pursue perfect decentralization have experienced the occurrence where the ones with enormous computing power have monopolized the consensus because of the validation participating condition called PoW(Proof-of-Work). It seems they did not expect the advancement of the hardware to happen this rapidly during the period of development. From then on, it has become the trend for many projects to use the alternative method such as PoS(Proof-of-Stake) instead of PoW. PoS is a method where the nodes with greater stakes participate more in validation. There is the benefit that the participating cost and fee may not increase because this method does not require separate computing power. The easier it becomes to participate, the stronger the decentralization. Decentralization is the essential condition that must be secured regardless of the enhancement of performance or the security increase. This is because the fundamental essence of blockchain system lies within the decentralized transaction without an intermediary.

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2. Scalability – To maintain the stable performance, the amount of the entire network to be processed should increase proportionally according to the increase in the number of nodes and the amount of transaction. Ultimately the amount of network processing shall increase proportionally even when the numbers of transactions keep increasing without limitation. 

3. Security – Even if the level of decentralization or scalability is high, the level of security should not decrease. As an example, in the case of Bitcoin, there is the danger of the security rapidly weakening at the time when the rewards (consensus participation) become smaller than the required costs. It can happen when the required computing power for PoW increases due to the steep learning curve. To secure the Security, one shall design the structure of network to evade such kind of issues. 

Many teams are going through the processes of developing and integrating the technologies each individually in order to reach the goals mentioned above. The teams say that they need extremely high level of technology and creative ideas in order to resolve all of the issues that need to be resolved to achieve the goals. We will look further into this more in detail.

<The Current Issues and Resolutions of the Decentralized Platforms(Blockchains)> 

1. Performance Issue

The centralized client server system is the widely used familiar network system, which depends on the strong server hardware with broad network bandwidth. In this system, transaction is completed through one on one communication.  

On the contrary, the blockchain which is the decentralized platform, uses the mathematical hash function to bind the data in the form of chain. All of the nodes that participate in the network get to share the data, and then the transactions become processed through the consensus among the nodes that participate in the network. This kind of method gives the benefit of becoming free from the problems including service shut down due to data forging and manipulation or the instability of certain nodes, but the processing speed and the processing amount inevitably become decreased compared to the centralized system due to the time that becomes consumed for the consensus of among the nodes. The system stability strengthens as the number of participating nodes in the network increases, but the performance(processing speed, processing amount, etc.) decreases as the number of consensus nodes that need to be shared increases. 

Resolve through the Ledger Structure

There are various technological approaches for resolving the performance issues as such. First of all, as the form of the blockchain ledger structure that the first generation Bitcoin and second generation Ethereum possess are linear blockchain structures, and since it has been recognized that the high speed processing is difficult due to the transaction processing that has to happen consecutively, the method uses the nonlinear structure represented as the DAG(Directed Acyclic Graph) on the ledger structure. IOTA uses the DAG structure called Tangle with the goal of creating its use on Internet of Things(IoT), and Nano uses the structure known as Block lattice for the fast transaction processing. The Block lattice structure is especially specialized for the fast processing speed among the DAG. In the case of Locus Chain, it also uses a method similar to the Block lattice which is the AWTC(Account-Wise Transaction Chain) parallel structure. 

In this kind of structure, collision does not occur at the moment of recording on the ledger because the spot where the transactions can be recorded increases proportionally to the number of accounts. In addition, the transaction becomes confirmed immediately if the user is not malicious, so there is an advantage that the processing performance becomes greatly enhanced. In the linear ledger structure, the transaction(block) needs to be recorded on one spot, and the waiting line for recording is inevitable. The transactions need to be processedin consecutive order, which makes it difficult to improve the performance of transactions. Thus, more cases are arising where the projects are adopting the nonlinear ledger structure that relatively holds more potential in the next generation blockchain.

Improvement of Consensus Algorithm

It is well known that Bitcoin and Ethereum use the PoW and the Nakamoto consensus, but the current blockchain projects are more inclined to using the PoS and BFT(Byzantine Fault Tolerance) consensus. As for the Nakamoto consensus, there is a possibility that the consensus result can be changed even after some time has passed because the determinacy is not guaranteed. For this reason, PoW is implemented intentionally to delay the generating time for blocks, but it causes difficulties to enhance the performance of the transactions. 

Contrarily, in the case of BFT consensus, it is stable because the result of consensus is fixed and irreversible, but the performance of network can be stable only when the number of nodes participating in the consensus are limited to two digits.

In order to resolve these problems, projects such as EOS and Libra that have been mentioned previously are assigning the dozens of nodes to participate in the consensus in advance. However, they are being criticized for damaging the prioritized value of decentralization from the basis.

We believe the reason for adopting this method is they lacked the skills to enhance the BFT consensus to a practical level to use it. They are essentially closer to the centralized system because certain nodes monopolize the responsibility and the rewards of the confirmation, and they undeniably become distrusted by the fact that the consensus of the network can be controlled by certain groups as it has been mentioned in the introduction, and thus, the entire network ends up with low level of credibility.

On the other hand, as for Algorand and Locus Chain, they adopt the method of sampling the nodes differently per each consensus without specifying the consensus nodes. They are attempting to overcome the limitation of scalability and the problem with performance without damaging the major value of decentralization.

2. CPU and Network Load Issue

The blockchain system, which is a decentralized platform, has the assignment to resolve besides the performance issue, which is to minimize the CPU and network load that the network participating nodes must handle. In the case of Bitcoin and Ethereum, the exclusive mining device based on ASIC has even appeared on top of mobilizing the CPU and GPU, and they have been criticized for heavily consuming the electric resource globally.

Due to this reason, the majority of the current blockchain projects are not choosing to use PoW, and as of Ethereum, it has announced that it will launch Ethereum2.0 that implements PoS.

Let’s look into the network load next.

When it is assumed that there is a blockchain that can demonstrate the practical performance with the average processing amount of visa card of 4K TPS(Transaction Per Second) and that it is not a low speed blockchain or blockchain with small usage, the network bandwidth that one consensus node has to handle is as follows. When it is assumed that the size of one Tx is 0.5kB, 

0.5kB/Tx * 4kTx/sec = 2MB/sec 

If the network bandwidth that the general household uses is 100M bit/s, this value corresponds to 20% of the total bandwidth. Also, if the constant number of repeats required on the P2P network is considered as well, it will unavoidably become an obstacle for an ordinary person to participate in the consensus through the home PC. Not only this, but also in the case of the IoT system and automatic self-driving system, it becomes impossible to implement the blockchain due to the network load in the end, and the smartphone user also cannot participate as the consensus node.

The technology that can be implemented in order to resolve the network load and performance issue as mentioned above is the Sharding technology. As for Locus Chain which is a new technology, it has been announced that it will implement Dynamic Sharding(the number and structure of shards are variable) to resolve the network load issue. In the case of Ethereum which is the existing technology, it has been announced that Sharding will be implemented for performance improvement in its version 2.0. Considering that deterministic consensus is the prerequisite for Sharding to be implemented, it will be important to observe up to which level the Sharding of Ethereum 2.0 will be able to reach. 

3. Issue of Ledger Storage Capacity

In the case of a blockchain that can handle the processing speed of 4K TPS as mentioned as an example earlier, the ledger size of the corresponding blockchain will increase every day as shown below.

0.5kB/Tx * 4kTx/sec * 3.6ksec/hour * 24hour/day = 172.9GB

If around 170GB of data becomes stored every day, the cost burden that general users need to take for participating as nodes will increase enormously. Such cost burden will discourage the general users from participating as nodes and will weaken the stability of the network due to the damaged decentralization. 

For example, as for Ethereum, the ledger size of Ethereum has exceeded over 2.38TB by April 22nd, 2019. When the size of the ledger keeps accumulating and increasing in such way, it becomes difficult to achieve genuine decentralization if this problem does not become resolved in the end. Especially in the the field of IoT, self-driving, which seems to be most appropriate areas to adopt Blockchain, there is a high possibility that the implementation of blockchain will become limited due to the constraint of storage capacity of the devices.

Currently, mainly Sharding and Pruning technology are on the rise as resolutions for the ledger storage capacity issue as stated above. The “Verfiable Pruning” mentioned in projects including Locus Chain and others is a cutting-edge technology that enables the validation of the data only through the tracks and traces of it, even if it becomes possible to delete the unnecessary data from the past. Such function seems to be a key advantage since it lowers the resource requirement of the nodes participating in the network which allows for the nodes to be operated in mobile and IoT devices. 

As a result, the most basic and representative characteristic of blockchain/cryptocurrency that led the sensational popularity of Bitcoin and Ethereum is ‘decentralization’. The decentralized cryptocurrency without the concern of technologically depending on or being controlled by a certain nation, corporation or individual has been suggested as the future of currency which has been evolved over several generations. Nevertheless, there still remains problems (problems including processing performance, scalability, ledger size, network load, etc.) that need to be resolved through technology, and many projects are creating various ideas in order to solve these issues.

The blockchain technology has value when it does not damage the philosophy of decentralization, and a good number of new businesses can be derived from this. Nonetheless, it is rare to find projects like Locus Chain that are proceeding with the development by resolving all of these technological issues that blockchain has all the while being devoted to decentralization. If all of these problems become resolved and if the practical level of decentralized blockchain platform becomes launched, the entire world will be able to receive a surprising gift.

<Conclusion>

Looking back on the history of humanity, there are periods where the technology that have been accumulated in the past generations have led tremendous change in a short period of time. The industrial revolution is the classic example of this. Moreover, next there was the information revolution which gave us the internet as a present. The change led by the decentralized blockchain technology will later be called the credit revolution. This is because the decentralized blockchain will grant the fundamental credit that has not existed in the past in all of the relationships (majority of the interactions) that need guarantee and intermediation.

A revolution makes the heritage of the previous generation innovatively valuable. The carriage evolved into the automobile during the industrial revolution, and the automobile is coming closer to being able to drive on its own without a driver through the information revolution. And shortly, through the “Credit Revolution”, a complete defensive system against the malicious attack from third parties, such as hacking and data abuse, can be formed through the Informatization. It is certain that the credit revolution will bloom splendidly in the high-tech field including IoT, AI, self- driving, and etc. All of the technology that are expected to take away the job positions of humans including autonomous transaction among AI devices, micro information sharing business, self-driving, and such will become the crucial technology that will pay back to the humans. The difference that exists between the value of general information and information that can be trusted is similar to the difference between trash and gold. Genuinely decentralized blockchain will be able to judge the validity of all of the information and transactions and assign their value by becoming executed in a complete parallel manner.

Accordingly, we will be able to receive many profits for the cost of providing the information and service made of the qualification of humans and each individual’s uniqueness by ruling the AI and robotics technology that have taken away our job positions in the peak of the credit revolution. Thus, we will be able to lead better lives than before through the service that will be formed newly from this information. This is the future that will arrive through the decentralized blockchain technology that includes the cryptocurrency which is currently being treated as speculation.

To be more concrete, this Credit Revolution will lead an enormous change in people’s lives. If micro transactions become popularized, each individual’s personal information will become anonymized and accessible through the high-performance decentralized blockchain, and this information can be charged per each transaction. People(at the same time AI) will be able to create additional profits by using and reprocessing these data, and entire humanity could enjoy the higher level of life compared to the labor efforts they make. The solid platform of the efficient distribution will be built up, and all of the economic agents including the public institutions, corporations, and individuals will become mutual clients to each other. Such interactions between economic agents will create an immense ecosystem that is closely connected. Also people can enjoy more prosperous lives with higher incomes, coming from the trade of personal data between the individual holders and various entities aided by the development of decentralized Blockchain Technology. And the undesirable tasks such as laborious or dangerous works will be handled by Robotics Technology/AI in the future. The Credit Revolution will bring a brighter future through the most advanced decentralized blockchain, which can resolve the inequality issues in distribution, although most of the blockchains are underestimated as the scams or speculations at the moment.