Kadena and the Scalability Trilemma:
Tags: Cryptocurrency, Kadena, Bitcoin, Ethereum, Mining

The scalability trilemma coined by Vitalik Buterin, co-founder of Ethereum (ETH), describes that it is hard to maximize the three desirable attributes of a blockchain, decentralization, scalability, and security. Vitalik claims that blockchains can at most maximize two characteristics at the expense of the third attribute. The trilemma implies scalable blockchain systems require making these tradeoffs.

Bitcoin and Ethereum can be described as decentralized and secure but not scalable. They rolled out on the most resilient distributed application infrastructure in the history of computing, Proof-of-Work (PoW). However, little progress has been made to scale them for robust applications due to network politics and anti-competitive practices. As a result, we have long transaction times and high fees. Kadena created the world’s first scalable PoW blockchain by addressing the core issues that make it challenging to scale BTC and ETH. Kadena takes public blockchain and cryptocurrency to the next level by scaling BTC’s Nakamoto-PoW-Consensus and enhancing smart contracts with a revolutionary programming language, Pact. Kadena’s Chainweb is the only scalable base-layer-sharded-blockchain that runs on PoW. Chainweb innovates and efficiently delivers each desirable blockchain attribute; decentralization, security, and scalability.



Scalability:

The worst thing about current Bitcoin and Ethereum scalability for robust applications is not the speed. It’s the fact that a transaction might not even make it on a block due to congestion. There is a money risk and a time risk. We might never get our money, and that time we lose on failed transactions might cost us more money. You can only fit so many transactions into a block and there’s a limit to how low you can make the block time. Therefore, the only way to scale blockchains is to produce more blocks in parallel.

Kadena figured out that running chains in parallel, like previous attempts to scale BTC have done, creates two problems. Each of these completely standalone blockchains has an entirely different currency, and 51% attacks are much easier to carry out. Chainweb protocol solves both of these problems by braiding the chains together. For a simple two-chain configuration, in addition to making each block include the hash of the previous block on the same chain, you also have it include the hash of the last block on the other chain.

No matter how many Bitcoin clones appear the fundamental problem that prevents it from being scalable remains. At the bottom, we see a visualization of what two braided chains would look like.

The main scalability innovation is a graph layout strategy developed by Will Martino, co-founder of Kadena. The goal of this strategy is to provide a standard on how to scale a PoW network. The strategy is derived from graph theory and is used to braid parallel chains together using hashes. It considers the number of hops to get to the farthest chain as a diameter, k, and the number of edges (the hashes that connect the blocks from other chains) as a degree, d. This strategy is critical in making sure Chainweb does not congest; it minimizes the number of hops it takes to get to the furthest chain and minimizes the chains each chain is connected to.

This chart shows how many chains it would take to minimize the number of hops and minimize each chain's connections for multiple degrees and diameters.

This is the strategy for connecting ten chains visualized with degree three and diameter two.

This is the strategy for braiding ten chains visualized. Hashes are visualized as black lines and chains as blue circles. Here the degree is three because each chain is connected to three other chains via hashes, and the diameter is two because we can check the furthest chain after verifying the hashes of two chains.

Using the same strategy, Kadena successfully forked to 20 chains while preserving the original ten chains. This is Chainweb’s current configuration; it stores three different hashes per block. This configuration has degree three, but it now has diameter three, so we have to wait for three blocks after a transaction before the whole network’s hash power is protecting it. After three blocks, you can transfer coins from one chain to any other chain. The hash braiding gives us the Merkle tree structure needed to do cross-chain SPV proofs, yielding a single $KDA token across chains.

This is Chainweb’s current 20 chain configuration visualized. Here the degree is three because each chain is still connected to three other chains via hashes. However, the diameter is now three because we can check the furthest chain after verifying the hashes of just three other chains.

Visualization of Merkle trees and SPV proofs

20 chain configuration colorized.

Using the same strategy, Chainweb can scale to tens of thousands of chains. Potentially well into the hundreds of thousands. Obviously, there are limits. Let’s say if Chainweb forked to one million chains, there’s not going to be any way to get the bandwidth requirements, with today’s infrastructure, for that type of load. However, using the same strategy, Chainweb can adapt to handle a million chains. For any real demand, Chainweb offers the best throughput.

stats may vary

Unlike current top protocols, Chainweb’s innovations already produce industrial throughput while keeping gas prices extremely low.

Gas is an innovation from Ethereum, which implemented a cost model for smart contracts. Vitalik concluded the best way to solve the high gas price problem, for now, is EIP 1559, which does three things.

1. EIP-1559 diminishes miner revenue. An ETH hard fork could be a possibility.

2. A portion of the ETH rewards will be burned, resulting in less ETH in the market.

3. Reduces transfer fees to mitigate insufficient GAS errors.

Vitalik is aware of the high fee problem and knows the solution is not EIP-1559; Ethereum will still congest easily even after EIP-1559 leading to high gas prices. Kadena has concluded that the only way to scale proof-of-work is by producing more blocks using an innovative graph layout to braid the chains in parallel. There is no limit to the Chainweb block production rate.

Kadena is never going to have an EIP-1559 issue; miners making money from high gas fees is acceptable, but it won’t change the problem that congestion increases gas prices. Also, as seen with recent gas surges on Binance Smart Chain, even fast finality PoS systems hit a limit. Industrial-strength scalability can’t be faked. Chainweb can scale to any load; any sharded PoS system will grind to a halt with enough shards and experience massive security breaches. By solving for scalability, Kadena finally unleashes blockchain for universal adoption.

Security:

A Gauntlet.network simulation proved that Chainweb’s security stays stable for the same amount of hash rate no matter how many chains the network grows to. Chains get more secured as there are more chains to attack, a property unique to Chainweb. Ethereum moving away from PoW to PoS for scalability is creating a dangerous precedent for cryptocurrencies. The go-to consensus mechanism for creating new blockchains seems to be some form of PoS which trades off decentralization and security for scalability. Proof-of-stake requires validators always to be online as they can’t miss any calls. The entire protocol’s trust comes from this high level of interactivity. We have already seen slashing issues erupt in PoS networks where an outage leads to blameless operators being punished. If there was a massive power outage, PoW systems could return to normal in no time, not the case with PoS systems.

The crux of PoS is that it utilizes a system that allows for the free exchange of money, AKA crypto itself, with no regulation. Therefore, it bears upon economics and will. The moment a sufficiently motivated crypto whale, not someone lower like a crypto minnow, determines that they want to attack a PoS network, it’s just a matter of spending money. PoS has a structure that impedes a truly decentralized system, like central banking. PoW has been battle-tested to incentivize ethical behavior while making it challenging to be a bad actor. Currently, with all the new entrants to crypto, money is easy to make. When that changes, attacking PoS will become lucrative.

ETH 2.0 Trades security for scalability

The design flaws of Ethereum’s smart contract language, Solidity, have caused a myriad of security issues. The smart contract language Pact is an innovation by Stuart Popejoy, Kadena CEO. It is Turing-incomplete, which means it prevents the most dangerous recursive bugs that have been exploited on ETH smart contracts from being possible in the first place; it is not a limitation. It incorporates human readability where the code that is going to execute is the one you wrote, not a lower version. Pact smart contracts are more accessible because they’re stored in a human-readable format on-chain. With Ethereum, you only see the bytecode. Pact’s built-in formal verification mitigates human error by preventing unintended outcomes and consequences during execution based on the smart contract inputs. When Pact detects any errors, it will automatically roll back a smart contract to a previous state and prevent further updates. A blockchain is best used for updating states, making sure rules are enforced, continual event reporting, and security. Pact was designed with these principles in mind.

Decentralization:

Will Martino has stated that they did not believe in launching Kadena with a multi-billion market cap that would enrich early investors at launch. Kadena believes participants intrigued by their innovations should get a chance to fairly mine on the network compared to other protocols that favor the wealthy. PoW ensures that Chainweb will not suffer from an invasive centralization of wealth. Chainweb’s unique properties also result in environmentally friendly mining. It can process more using less hash power than the top protocols.

Ethereum is making it impossible to interact natively with other PoW chains. They want to prevent other PoW projects from being able to do decentralized bridges on Ethereum. They only make excuses about politics and overcomplicate the matter with unclear ETH 2.0 specifications. Ethereum is where it is today because it is PoW; it is a more useful BTC. Ethereum is hostile to miners with EIP-1559 deliberately because transitioning to PoS can crash ETH. When ETH 2.0 was first ready to deploy, multiple versions of ETH 2.0 suddenly appeared. Politics couldn’t decide which one to implement, and it was further delayed again and again. The timing of these events was interesting when considering ETH price spikes. ETH’s hashing algorithm is monopolized; only hardware made for the ETH hashing algorithm can mine ETH. These are anti-competitive and anti-decentralization practices. ETH 2.0 promises to validate potentially hundreds of chains. However, Kadena has already delivered that with Chainweb and Pact while at the same time scaling PoW.

Kadena has one of the strongest interoperability stories in the industry. Pact can be written and deployed on the Tendermint blockchain, which can then be connected to other blockchains via the Cosmos network. Kadena’s Pact language is open source and can be integrated with other blockchains. Kadena is currently developing an integration to the Tendermint chain, an open-source consensus platform, to provide a free, open-source consensus layer.

Tendermint is a key component of the Cosmos Network, a network of interconnected blockchains connected through the Inter-blockchain Communication Protocol.

The team at Kadena is going above and beyond by working with miner manufacturers to make sure limited miners are sold to single entities to produce a good community spread. Most $KDA mining was done with CPUs and GPUs at launch; FPGAs were prominent sometime after that. Finally, ASIIC’s that launched in September 2020 dramatically increased the number of miners on the network. Hardware that supports Kadena’s hashing algorithm is not monopolized and can be used to mine other coins. This theoretically enables maximal decentralization; all these factors have made Kadena one of the most profitable coins to mine recently.

It is an exciting time for Kadena. Years of hard work and collaborations with other communities are starting to pay off. Kadena is confident Pact will be adopted because it is determined to open source fundamental industrial-scale financial infrastructure. Developers are already deploying robust Pact applications. DeFi’s, NFT’s, DAO’s, every significant crypto use case will be open-sourced on Chainweb by the end of 2021. It will be a no-brainer for developers to innovate Pact code in real-time with little overhead.

Kadena has made the scalability trilemma a thing of the past.

Decentralized & Secure. Transactions on BTC and ETH can take between 5 minutes to an hour, making them hard to adopt for mainstream use. Kadena retains the decentralization and security benefits of PoW while using an innovative strategy to produce throughput that puts the competition to shame.

Security & Scalability. Secure, scalable, but centralized would describe traditional databases like SQL, Oracle, SAP, even Hyperledger. The data stored in these systems are managed by limited personnel with some backups, but not hundreds or thousands of nodes in a decentralized system. Chainweb’s properties make it more decentralized as the number of chains grows and the number of miners increases. Kadena Kuro provides a lightning-fast layer-2 rail that leverages Chainweb’s public PoW for settlement. Layer-2 is the best way to get fast finality. Kuro’s ScalableBFT protocol handles thousands of validators without slowing down, so you can ramp up layer-2 security as needed. Kuro is available on Amazon Web Services and Microsoft Azure.

Scalability & De-centralization. Some blockchains sacrifice some decentralization for scalability and lower security. For these blockchains, the consensus mechanism tends to be Proof-of-Stake like ETH 2.0 is supposed to be someday. As reviewed, PoS can be manipulated by whales or bad actors. Chainweb can’t be subject to this manipulation and enhances smart contract security with PACT.

Kadena delivered a real solution to solving the scalability trilemma built on a proven consensus protocol, PoW. Chain braiding adds unique properties to the mix, but each chain is still a PoW chain. PoW has withstood the test of time. PoS systems are still considered open research. There is clear value and opportunity in $KDA for scaling Chainweb on PoW and innovating smart contracts with Pact.