Proof of Reputation
By: Travis Reeder
Tags: Blockchain, Gochain

This is a repost of the original from Feb. 22, 2018. The original was changed along with moving the GoChain blog to the GoChain website. I’m putting this here to have the original up for public reference.

GoChain uses a Proof of Reputation (PoR) consensus model that depends on the reputation of the participants to keep the network secure. A participant (a block signer) must have a reputation important enough that they would face significant financial and brand consequences if they were to attempt to cheat the system. This is a relative concept as almost all businesses would suffer significantly if they were caught attempting to be deceitful, but larger companies will typically have more to lose and thus are chosen over companies with less to use (smaller businesses).

Once a company proves reputation and passes verification, they may be voted into the network as an authoritative node and at this point, it operates like a Proof of Authority network (PoA), where only authoritative nodes can sign and validate blocks (more on PoA) below.

Reputation is Everything

Reputation is critical to a business. A business that acts in an unethical way suffers on many levels including financial (fines, loss of revenue), valuation decreases, branding (distrust) and public relations. Trust is cornerstone to a successful business and once a brand loses trust with their customers, it can take years to recover if ever.

Let’s use the Volkswagen emissions scandal as an example. They operated alone to deceive the public and their own customers. Once caught, it was both a financial and public relations disaster that cost them $25 Billion, a 50% drop in stock price, and their brand lost a lot of trust. Their reputation was put to the test and they paid dearly for it. Proof of Reputation relies on this risk of significant loss to enable trust in the network.

PoR is Very Secure

PoR adds a layer of protection that may have never existed before and that is having companies working together to keep each other honest. Imagine if Volkswagen worked with Ford, Toyota and others to validate and verify their emissions tests. It is extremely unlikely that Volkswagen could have even attempted to cheat the system when their competitors are performing tests on each other’s vehicles. And even if they attempted to act in a nefarious way, knowing the risks, once caught, they would quickly be voted out of the consortium and lose their rights to be a part of the network.

Also, since these companies are rewarded with native GoChain tokens for running nodes and signing blocks (similar to PoW), it is in their best interest to be honest and keep the network safe and trustworthy.

And finally, it would still take 51% of the companies in the network to collude at the same time to perform the infamous 51% attack. This would mean risking the reputation of 26 companies (assuming 50 authorities).

About other Proof of Authority Networks

Proof of Authority (PoA) works great in a private network, which is what it was originally intended for, where you know and trust the nodes you add to the network. The advantages gained with PoA are hard to ignore so using it for consensus in a public network is a great thing to solve for. The problem is it doesn’t work in a public setting without something at stake. There are a couple of other companies that are attempting to use PoA in a public network, but there are several issues with these networks.

One such network is using a network of 12 US Notary Publics. While this obviously has a serious centralization problem, the more important problem is the security of the network.

First, there is a disparity between the net worth of the network versus the market cap of the network. This is what Proof of Stake (PoS) attempts to solve. Assuming an average net worth of an individual in the United States is $68,828 [18], the total net worth of the validators is $825,936:

12 ∗ $68, 828 = $825,936

Even if the number of validators increased by an order of magnitude, the total net worth of the validators is a tiny fraction of the $6.8T in transactions processed by Visa, Inc. every year. This disparity introduces a strong incentive for bribery.

Second, validators must post their physical address publicly which opens the potential for intimidation or physical threats. A terrorist organization or rogue state can mount an attack on a large scale financial system by controlling half of these validators.

Finally, most individuals lack the experience and infrastructure to run a secure transaction processing system. This significantly increases the network’s exposure to malicious hacking.

Rating Reputation

There are a few factors to take into account:

Valuation — the higher the value of a company means the more financial risk.

Brand — companies like Coca Cola or Apple are very high on the brand scale, almost to the point where you could say brand is everything to them. A coal mining company does not have the same kind of brand risk.

Unfortunately these things are not an exact science and need to be evaluated by humans.

Technical Benefits

The benefits of Proof of Reputation are:

It’s green — No need to consume large quantities of electricity in order to secure a blockchain (Bitcoin and Ethereum are estimated to burn over $12 million worth of electricity costs per day as part of their consensus mechanism).

It’s secure (see above).

It can perform much faster due to removing the heavy calculations required for PoW and having a known number and size of nodes.

It’s as decentralized as the companies are decentralized.

Business Benefits

Proof of Reputation has benefits from a business point of view in addition to the technical benefits above. One of the main things is that enterprise companies may be more willing to use a network using PoR than they would be using an untrusted, anonymous network such as one that is using PoW or PoS.

In PoR, everyone knows who is operating the network (each company running each node) and where the nodes in the network are running (which country). A company can then decide whether they trust the companies running the nodes and therefore whether they trust the network. If they do trust it, they are much more likely to run a business process on it. We feel this could open the door to new ways that businesses work together using a public blockchain.

Onwards and Upwards

GoChain is ready to change the world of smart contracts and DApps by using PoR to drastically increase performance, massively decrease energy consumption, and keep the network secure and decentralized. We believe Proof of Reputation is a great step forward in solving the inherent issues of existing blockchains and cryptocurrencies.

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