Hyperchains — secure, cheap & scalable blockchain technology for everyone

On linking blockchains in blockchains

More and more organizations are currently porting their digital asset infrastructure to blockchain technology. Ideally a blockchain is cheap to maintain and still secure from being tampering with. No single entity or several entities together should be able to control it and to change its internal state.

In case a company has millions of assets or users it will not be feasible to create an entry (output) for each asset and user on the Bitcoin blockchain. Transaction fees are generally rising in terms of their price in USD. The scalability of the Bitcoin blockchain is currently a big issue and the need for customized (private) blockchains with arbitrary rules is rising.

Introduction to Blockchains

A blockchain is a cryptographical data structure. It uses hash-pointers to create a time-stamped append-only log of blocks which contain transactions. It is also the main innovation and underlying technology of Bitcoin, the worlds first P2P transaction network with a single global state (the longest chain).

Proof-of-Work

The main mechanism which guarantees immutability of the hash pointers and thus secures the blockchain is called Proof-of-Work and is by definition very resource intensive. To offer a financial incentive to the nodes which do the work (the “miners”) the so called block-reward exists inside the Bitcoin blocks. The block-reward also functions as a way to create and distribute the bitcoins initially. Another reward for the miners are the transaction-fees. Since the space in the blocks is currently limited to one MB, one needs to include market-priced transaction-fee, so that ones transaction gets included into the next block by the miners. Currently the transaction fee is about 0.0001 BTC or 0.04 USD.

Centralization of the mining power has become an increasing issue for Bitcoin. Currently most of the hashes get produced in China, just like almost everything else, mainly because of cheap hardware and electricity. In case two of the largest mining pools collude, they could easily revert blocks and transactions or even attack the network and create troubles.

Proof-of-Stake

To achieve an independence from miners and generally be less resource intensive a Proof-of-Stake “Staking” algorithm got proposed first on Bitcointalk and then implemented for the first time with Peercoin (PPC), here still in combination with PoW.

“Mining has an unnecessary step” (46:45) — Introducing PoS (‘virtual mining’)

The core difference of PoS- in comparison to PoW-blockchains is that the stake-holders of the currency randomly get chosen to attach blocks to the chain. This means, there is no actual mining but so called staking which requires no special hardware to crunch hashes. This also means that one needs to own some coins initially in order to create blocks and this way vote on which transactions and blocks are valid and which are not.