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In the early days Internet started as a symmetric peer to peer decentralized network of computers. As time passed by, the Internet became more asymmetric and concentrated in a few centralized data centers with billions of PCs and laptops on the edges. The reason Internet started as peer-to-peer decentralized networks are scalability, high fault tolerance and resilience to censorship. However security is a major drawback in these types of networks as it is almost a certainty that malicious nodes will be joining the network from time to time. These malicious nodes can flood the network with invalid packets, thus preventing the packets from being delivered causing a simple flood attack.

Another common attack is Man in the Middle (MitM) attack in which an attacker places himself between two peer nodes in the network. Such an attack can remain undetected, as long as the attacker remains passive. This also enables the attacker to listen to the communications between the two nodes. As a result, the attacker can assume the identity of both the peer nodes, compromise one or both nodes and try to infiltrate the network. 

What are Sybil Attacks and Sockpuppets?

Sybil attack is another security vulnerability specific to peer to peer decentralized networks as it is open and anonymous in nature. The attack is named after the subject of the book Sybil which deals with the case study of a woman diagnosed with Dissociative Identity Disorder. The main component of the Sybil attack comprise of creating a large number of pseudonymous identities. Once the identities are accepted as peers they try to gain control of the network and subvert the whole network from within. The network’s resilience depends on the main criteria which is how easy it is to create an identity and be accepted as a peer. As there is no 100 percent fail-proof firewall against these types of attacks, the best defense against sybil attacks is to make it as impractical as possible.

Sockpuppet is a term that implies many online identities for the sole objective of deception in the online communities.

A sockpuppet is an online identity used for purposes of deception. The term, a reference to the manipulation of a simple hand puppet made from a sock, originally referred to a false identity assumed by a member of an Internet community who spoke to, or about, themselves while pretending to be another person. A significant difference between the use of a pseudonym and the creation of a sockpuppet is that the sockpuppet poses as an independent third-party unaffiliated with the puppeteer.

What is 51% attack?

A “51% attack” means a bad guy getting as much computing power as the entire rest of the Bitcoin network combined, plus a little bit more.

In his white paper Satoshi proposed the Proof of Work. The main purpose of this algorithm is to minimize 51% attacks. However proof of work does not completely eliminate 51% attack. If a bad guy tries to launch an attack, the algorithm makes it harder as it requires a lot of resources to take down the hashing power of 51 percent of the nodes that constitutes the Bitcoin network. I would therefore like to discuss the possibilities of mitigating these risks by proof of reputation.

Why centralized proof of work increases the risk of 51% attack?

Let us imagine a case scenario where the proof of work is centralized in a few data centers. As a result whoever controls the data centers can intentionally manipulate the proof of work algorithm of the decentralized network to his own ends. It is also feasible for the hackers to have a total control of the network. It will play out exactly the same way the centralized Bitcoin exchanges are getting hacked nowadays. Thus we can conclude that if we centralize the proof of work it only magnifies the risk of the attack rather than mitigating it.

Why delegated Proof of Stake is equivalent to centralized Proof of Work?

Delegated proof of stake magnifies the risk of 51% attack same as centralized proof of work. It is relatively easy to corrupt, say 100 delegates than to corrupt the 51 percent of the stake holders.

A bank is an example of a hybrid of delegated Proof of Stake and fractional reserve system. When a user deposits 100 pieces of silver coins into a bank, the user delegates his stake of silver to the bank. Then the bank releases a token of 10000 notes based on the user’s 100 pieces of silver coins.

The issue with banks is that it involves trusting the third parties as it is based on delegated Proof of Stake. If the trust is violated it magnifies the risk out of proportion because of fractional reserve system. Thus Delegated Proof of Stake cannot be classified as a decentralized system because one has to trust a third party to delegate his stake. In the long run more users tend to delegate their stakes because of brand loyalty, user friendliness etc. This leads to more centralization, violation of the trust, dilution and corruption of the whole stake. 

Proof of Reputation

The motive behind proof of work is based on the control of processing power while proof of stake is based on the percentage of wealth. It is very easy to corrupt both. On the other hand the motive behind proof of reputation is based on ethics and morality which is very resilient to corruption.

Let us examine the Proof of Reputation in depth and its implications. Assuming there are 10 anonymous generals who don’t trust each other but are willing to undertake an invasion by providing 1000 soldiers each. In return they are willing to settle with one tenth of the spoils. It is highly probable for a general to either have 2 to 3 sockpuppets, to conspire with another 5 generals or the combination of the two.

Let us now bring in the proof of reputation in the equation. Say for example each general has a score for Proof of Reputation which is based on how many of the 1000 soldiers like them. It is very difficult to gain good reputation for all the 3 sock puppets even if they tend to have similar reputation as it negates the purpose of the sock puppets. If a general tries to conspire with another 5 generals, it will be very difficult to conspire with all the 5 generals with good reputation. This is because each one will have to risk his reputation.

In a decentralized peer to peer network it is next to impossible to corrupt 51% Proof of Work, 51% Proof of Stake and 51% Proof of Reputation of the whole network. 

Implementation of Proof of Reputation

Proof of Reputation can be implemented as an assurance contract which is explained as follows:

In a binding way, members of a group pledge to contribute to action A if a total contribution level is reached. If the threshold level is met, the action is taken, and the public good is provided; otherwise, the parties are not bound to carry through the action and any monetary contributions are refunded.

The problem with assurance contract is that it enables free riders. Free riders are those who do not contribute to the public good but reap the benefits of the public good at the cost of other contributers. In order to eliminate the problem of free riders, Alex Tabarrok proposed Dominant Assurance Contract by publishing a white paper. Dominant Assurance Contract not only defines the monetary incentive, expiry date as in Assurance contract but also adds another parameter known as minimum number of contributers required for the contract to come into effect.

Therefore Proof of Reputation has to be implemented as a dominant assurance contract to discourage free riders. One method of implementation is based on semi-trusted oracles. Gavin Andresen explains the implementation as follows.

So I’ll start there, and imagine that there are semi-trusted ‘oracles’ that compete to be the most reliable and trustworthy verifiers of contracts. People involved in contracts choose N of them, and then require that contract conditions be validated by one or more of them before the contract pays out. Pick more than one so no single oracle can steal the contract’s funds, but less than N in case some of them go out of business or just aren’t around to validate contracts when it is time for the contract to pay out.

These oracles need an agreed-upon, machine-readable contract language, but that shouldn’t be hard. There are lots of interesting design decisions on what information contract scripts have access to (and lots of not-so-interesting-to-me design decisions on the language itself; is it stack-based, register-based, high-level, low-level bytecode, etc etc etc).

Another method of implementation is by awarding tokens to miners based on honesty and integrity. Tokens are basically an implementation of the assurance contract to make sure that the motives of the miners and end users are aligned for the common good. For example, if the mining pool operators will tweak their mining rigs between 10-20 percent for a period of time then the operators will have an incentive to be honest and earn reputation as tokens in addition to mining incentives. If a miner is using a mining pool, he can pledge may be 5% of his total Bitcoin mining towards the dominant assurance contract so that the mining pool will receive a reputation token which can be pegged to the market value of Bitcoin.

Tokens can also be crowd funded as a pledge by the stake holders in the decentralized network to ensure the miners and pool operators have an incentive to be honest, hence earn reputation. The tokens can be earned or burned depending on the nature of the coin which is either inflationary or deflationary. If it has to be burnt it can be released as a token and claimed by charities.

The tokens can be issued either as 1 to n, n to n or n to 1, depending on individual requirements based on Counterparty protocol, Colored coin protocol for Bitcoins or Dogeparty protocol for Dogecoins.

Another method of implementation is using the Lighthouse platform. Lighthouse has a lightweight encrypted HD wallet. It uses payment verification by directly synchronizing with the block chain. It also enables dominant assurance contracts for people to pledge for the projects directly using Bitcoins. If they want their money back before the contract reaches its target amount, they can revoke the pledges they have already made. As the contract is entirely based on the block chain, pledges cannot be claimed individually. They can only be claimed when the combined pledges together reaches the targeted amount.

LTBcoin

In LTB network, Proof of Reputation is being implemented to defend against sockpuppets which is based on token controlled access. Each piece of content is mapped to certain tokens and quantities. If the quantity is zero, the content is accessible to users. If the quantity required is more than zero, the content is then blocked.

Token-Controlled Access (TCA) is a simple idea. In a given system, different levels of access to that system are granted according to the combination of tokens in a particular user’s wallet. 
Token Controlled Viewpoint (TCV) is an application of TCA to information content (forums, posts, comments, bonus content, bloopers, walkthroughs, tips, tweets, supplemental blogs, RSS feeds or other data) on basic web pages. 

Disclosure

This article is meant for informational purposes and is not an endorsement. Articles published on the LTB network are the author’s personal opinion and do not necessarily represent the opinions of the LTB network.

Further Reading

https://bitcoin.org/bitcoin.pdf 
https://en.bitcoin.it/wiki/Attacks#Attacker_has_a_lot_of_computing_power 
http://gavintech.blogspot.co.uk/2014/06/bit-thereum.html 
http://mason.gmu.edu/~atabarro/PrivateProvision.pdf 
http://blog.vinumeris.com/2014/05/17/lighthouse/

ADAM's NOTE: PLEASE EDIT THIS COPY FOR THE TEST

Summary

• Differentiation of the blockchain from proof of work to proof of resource.
• Advantages of a resource based economy.
• Disadvantages of a consumption based economy.
• Examples of resource based crypto-currencies.

The Bitcoin network is built on Proof of Work, which is based on an algorithmic assymetry: valid hashes are computationally easy to verify but difficult to create. The vast processing power devoted to mining consumes electricity and therefore the bitcoin network is resource-backed.

Downsides of the proof of work model such include the cost of maintaining the network and centralization of the asymmetric processing power. However instead I would like to discuss the upside which is long term impact of blockchain technology on the economy.

The concept of resource-based economics was developed by Jacque Fresco through his Venus Project in 1995.

The Venus Project is an organization founded by Jacque Fresco that advocates for what it calls a resource-based economy. The goal is to combine Fresco’s versions of sustainable development, energy efficiency, natural resource management and advanced automation in a global socioeconomic system based on social cooperation and scientific methodology.

Jacque Fresco’s work focuses only on natural resources of the planet such as minerals, natural gas and oil. However in the internet era, the scope of resources goes beyond natural resources of the planet. In a decentralized computer network resources include processing power, storage and network bandwidth. In any given community, resources include member skills, software development, availability of tools, and content produced.

Since our current economy is based on the equilibrium between production and consumption, perpetual growth is only possible with perpetually increasing consumption. In other words, for growth to never reverse or cease, consumption must eventually become infinite. As inflation is baked into the very core of the growth pattern of this economy model, it is like a tornado that feeds itself anything on its path. Among this model's destructive consequences are peak oil, depletion of natural resources, and ever increasing pollution.

Transition from division of labor which is Proof of Work by humans to Proof of Resource has already begun. Division of labor was advocated by Adam Smith in The Wealth of Nations. Thanks to the innovation of Blockchain, the technology is moving towards transforming centralization and corruption into decentralization, transparency and accountability at all levels.

One of the main advantage of Proof of Resource model is that it is based on deflation rather than inflation. This is because the resources do not and cannot be inflated to infinity. Gold or any mineral mining are very good examples of this model. By implementing the Proof of Resource in a decentralized system we are making sure the resources are not controlled by few but managed by the people based on group consensus.The Blockchain enables the group consensus and empowers the people on a grass roots level.

Proof of Publication and Proof of Participation are the basis of LTBcoin. This model considers content produced by the community as a resource. The end users, who are the consumers, earn coins by participating in the community and enhancing the content through Proof of Participation. The distribution of LTBcoin for the next five years is as follows. 

• 60% of LTBcoins will be distributed to members who publish content on the LTB Network 
• 25% of LTBcoins will be distributed to members who are the end users 
• 10% of LTBcoins will go towards the  maintenance of  the platform
• 5% of LTBcoins will go towards administration 

The main advantage of this model is that group concencus is required to control the discussion. This makes subtle censorship less likely than on sites like reddit or slashdot.

SolarCoin is backed by two forms of proof of work. One is the traditional cryptographic proof of work associated with digital currency. Another proof of work is a 3rd party verified meter reading. SolarCoin is equitably distributed using both of these proofs of work as a means to reward solar energy generation.

SolarCoin is the first renewable energy currency and also a resource based coin as it is backed by production of solar electricity. One solarcoin is rewarded to the producer of 1 megawatt of electricity.

Disclosure

This article is meant for informational purposes and is not an endorsement. Articles published on the LTB network are the author's personal opinion and do not necessarily represent the opinions of the LTB network.

Further Reading

http://www.youtube.com/watch?v=KphWsnhZ4Ag#t=13 
http://www.youtube.com/watch?v=jsV_3yBDXXI 
https://en.wikipedia.org/wiki/The_Wealth_of_Nations 
http://www.hashcash.org/ 
http://wiki.solarcoin.org 
http://solarcoin.org/news/