As public blockchains like Bitcoin and Ethereum gain traction and expand their user base, certain problems begin to arise, limiting access to the blockchain and opening up attack vectors.
In Bitcoin, for example, the 1MB limit on the block size has limited the transaction throughput to about 3 to 7 transactions per second. This lead to the current situation where transactions have to pay higher fees or wait for longer periods of time in order to be confirmed. In Ethereum, the stateful nature of the platform has caused the blockchain to grow at an exponential rate, making it harder for regular users to host a node.
These issues, however, have so far been tackled from a technical point of view and not from an economic one. A recent paper by Alex Chepurnoy and Dmitry Meshkov at IOHK, dubbed “On Space-Scarce Economy In Blockchain Systems”, proposes a new way of dealing with the problem of uncontrolled State (e.g. current balances in the system) growth, using a new transaction fee scheme that takes into account the space that is taken and the lifecycle of the information taking up that space. The paper reads:
“Uncontrolled state size growth could lead to security issues, such as denial-of-service attacks. Only technical solutions, not economic, have been proposed to tackle this problem at the moment. In contrast, we propose to add a new component to a transaction fee scheme based on how much additional space will be needed for new objects created in result of transaction processing and for how long they will live in the state.”
The paper delves into this system by outlining and analyzing three possible implementations for this model in which the time of the information on the blockchain is also accounted for in the fees: prepaid outputs, postpaid outputs and scheduled payments. The paper also contemplates how this new factor in the fee schedule creates additional income for miners, among other advantages.
So, what’s the difference between these three models?
In the prepaid outputs model, an output of a certain size is prepaid for a predetermined period of time (measured in blocks). In this model, a spending script that determines that the output must be used is included. So, if the timespan for the output is ten years, the person that now controls said input must spend it within those ten years, or else anyone is able to spend the aforementioned output (presumably a miner).
In the postpaid outputs model, the user pays a fee for the consumed space-time when he spends an output, so the fee is calculated from the current lifetime of the output.
Finally, in the scheduled payments model, a combination of the former two models is used. The user pays for an output according to its lifetime when he spends it in a transaction. In addition, the output is also enforced to be moved after a known duration since being touched last time.
What we’re left with is a system where users, one way or another, must pay for both space that is taken up and the time it is taken up for. This incentivizes users to make transactions within the network, ensuring miners are constantly rewarded. Most importantly, however, the system described also ensures that information can be removed from the blockchain when it is no longer needed.
Ergo, “a decentralized and open-source cryptocurrency that introduces multiple improvements to different layers of the blockchain”, plans to use an implementation of this same concept on its platform as a way to solve one of the most pressing issues in the cryptosphere, the exponential growth of state sizes.
To do so, the team has completed and published several research papers that will set the foundation for the Ergo blockchain project, including “Improving authenticated dynamic dictionaries, with applications to cryptocurrencies” and ”Rollerchain, a blockchain with safely pruneable full blocks”. To learn more about Ergo, visit the official website and check out the latest Q&As here and here.