Dear community - looking forward to your guidance on putting holes in the thesis:
In 2008, when Satoshi released the BTC whitepaper it took off on the back of being the first blockchain which solved the double spend problem. Listen to Adam Back on how the previous projects Hash Cash, B-Money, Bitgold were already existing but not decentralised and had the critical issue of double spend problem.
I see a similar parallel in the layer 1 space where ALL layer ones focus on picking two of the three considerations of the trilemma (security - decentralisation - scalability) except Algorand.
Silvio Micali noted the limitations of proof of work / bonded proof of stake / delegated proof of stake per below.
********* TLDR: Per Silvio, Algorand is the best layer 1 and only project to solve the blockchain trilemma and will eventually cut through the clutter of 100s of other layer 1s. ********
Please put holes in my thesis. Not a shill post (I hold multiple projects) but genuinely trying to understand perspectives on what downsides on Algorand which may not be apparent.
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Excerpt from Silvio's blog post below: https://medium.com/algorand/algorands-core-technology-in-a-nutshell-e2b824e03c77
Proof-of-Work
The first approach is proof-of-work, famously used by Nakamoto for Bitcoin and inherited by many other blockchains. In this approach, at a very high level, users race to solve a very complex cryptographic puzzle. The first one to solve the puzzle has the right to append the next block to the chain. Proof-of-Work suffers from several flaws.
First Flaw: Proof-of-Work Does Not Scale. Proof-of-work is very slow. Bitcoin’s crypto puzzles are so hard in order to guarantee that one solution is found only every 10 minutes, no matter how many miners try to solve the crypto puzzle. We can understand expensive and fast. But expensive and slow is hard to understand. The world is a large place and one block of transactions every 10 minutes is hardly enough.
Second Flaw: Proof-of-Work Results in De-Facto Centralization. Proof-of-work has caused a tremendous concentration of power. This centralization is a consequence of the fact that Proof-of-Work is both expensive and wasteful. The amount of computation performed by the miners — that is, the users trying to solve the crypto puzzles —is stunning. Mining today utilizes racks and racks of specialized hardware and consumes an enormous amount of electricity. One miner wins the race and generates the new block, and the efforts of all the others are wasted. Without the subsidies that Bitcoin currently offers, the cost of posting a single transaction on Bitcoin’s blockchain is around $20. Not the way to go if you want to use the blockchain for everyday transactions like buying a slice of pizza or if you want to use it offer financial services to those 2.2 billion who are currently not served by the financial system.
The common user would lose money if she tried to solve the crypto puzzle with her laptop. Win or lose, she must pay for the electricity necessary to power the computations of her laptop. This amount of electricity may not be big, but her probability of winning is so small that, in expectation, she would lose money.
Only professional miners, who have made the capital expenditure necessary to buy racks and racks of hyper specialized mining equipment, can expect to make a small profit. Accordingly, only they participate in block generation. Furthermore, miners consociate in mining pools.
Today, Bitcoin’s blockchain is controlled by just three mining pools and Ethereum’s by just two mining pools. If they so decide, or if they are bribed to do so, these mining pools can rewrite the database: they can erase blocks or change the order of blocks. Proof-of-work has turned what was intended to be a decentralized system into an extremely centralized one.
Third Flaw: Proof-of-Work Is Not Secure. As we said, any blockchain that is centralized, whether by design or de facto, is insecure. But proof-of-work has additional vulnerabilities, and it is especially vulnerable to network attacks. A blockchain ultimately is a communication protocol, and any such protocol is executed over an underlying communication network. An adversary may thus attack either the protocol — e.g., by sending messages that are different from the prescribed ones — or the communication network itself — e.g., by interfering with routers, cables, etc.
Just how insecure proof-of-work is may be underestimated because the current way of analyzing a blockchain’s security is flawed. This analysis typically focuses only on protocol attacks and neglects network attacks that, especially in the context of proof-of-work, can be deadly. For instance, in a proof-of-work blockchain, an adversary capable of partitioning the communication network for an hour or two could double-spend with impunity. In a successful partitioning attack, an adversary prevents the messages sent by the users belonging to a set of users A from reaching the users in a separate set B, and vice versa. Network partitioning has not attracted much attention, because it is considered too expensive to be practical. But the cost of a network attack may be justified, once the gains are high enough. A truly borderless economy may be valued in trillions of dollars. And an adversary may be willing to ‘invest’ millions of dollars, if he stands to illicitly gain billions of dollars.
Fourth Flaw: Forks. Another disadvantage of proof-of-work is the unavoidable existence of forks. Whenever two or more users solve the crypto puzzles within a few seconds of each other, the chain branches because users may now see multiple candidates for the next block. A fork may continue to exist for a while, and all its branches may even be elongated by the addition of new blocks. But eventually, all branches but one will die, and all the blocks in the dead branches will disappear.
Forks are an unwelcome source of uncertainty and delay. If a payment made to you appears in the latest block added to the chain, you cannot consider yourself paid and ship the goods. This is so because some branch may overcome the current chain and your block may end up in a dead branch and vanish. Before considering yourself paid, you would need to wait for a sequence of blocks to be added to yours, so as to minimize the chance that a soft fork will arise and the block containing your payment will end up on a dead branch.
How long should you wait for? Some people recommend six blocks to be added after yours to be confident that your block will remain on the chain. Others recommend an even longer wait, if the payment made to you is sizable. Thus, rather than waiting ten minutes, to have reasonable confidence in the finality of a transaction, in reality you have to wait hours.
Some people have suggested making the crypto puzzles easier in order to speed up the process, for instance by making it possible to find a solution every minute, rather than every 10 minutes. However, by doing so, the probability of getting two solutions within a few seconds of each other increases significantly. The system can cope with an occasional soft fork, but not with very frequent forks.
Expenses, slowness, and uncertainty are indeed major flaws in the proof-of-work approach, but they pale in comparison with its fatal flaw.
The Fatal Flaw in Proof-of-Work. Recall the already discussed fatal flaw: the whole economy is at the mercy of a small part of the economy.
In proof-of-work, this small part of the economy is that owned by the miners. Since the miners own only a small fraction of the money in a proof-of-work blockchain, the chain is not secure.
Delegated Proof-of-Stake
A different approach is delegated proof-of-stake (PoS). This is a very simple idea. The community empowers a few special users, the delegates, to choose the next block, at least for a while. (For example, in EOS, the number of the delegates is 21.)
Delegated PoS is, therefore, centralized from the get-go. Hopefully, the chosen delegates are honest to begin with. However, relying on delegates remaining honest for a long time is risky.
Once again, we have that the whole economy is at the mercy of a small part of the economy. Indeed, in a delegated-PoS blockchain the delegates may own a tiny fraction of the total money in the system, yet the whole blockchain is secure if and only if the majority of delegates are honest.
Additional Security Problems. Even assuming that there is an ironclad guarantee that all the delegates will remain honest forever, they can easily be attacked. In particular, they can be brought down by a denial of service (DoS) attack. In such an attack, an adversary bombards any user of his choice with zillions of junk messages, causing the buffer of that unfortunate user to overflow. If a delegate were so bombarded, he would be unable to perform his job, namely collating new and valid transactions into the next block. The blockchain would grind to a halt.
DoS attacks are quite cheap and can be mounted instantly against not only 21 people but even 1000 people. Since delegates are known, even if they were kept in power for just a day or an hour or a...
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