Blockchain Learning, Proof of Stake

Kusama & Polkadot’s Approach to Decentralization

By Connor Smith

Note: This is the sixth installment of a series detailing different approaches that blockchain networks have taken to decentralize their network. Part 1 introduced the concept of decentralization and the inter-play it has with certain aspects of crypto networks like governance, incentives, and network architecture. If you missed that article I highly recommend going back and reading it here. The subsequent articles have examined the decentralization of Bitcoin, Factom, Cosmos, & Terra. If you missed those and would like to go back and read them before we dive into Kusama & Polkadot, you may do so, here, here, here, & here respectively.

Hey everybody, and thank you for joining me again as we continue our examination of the varying approaches to decentralization throughout the crypto ecosystem. Two weeks ago we examined Cosmos’ approach to decentralization and the unique challenges the protocol faces in its quest to build the internet of blockchains, and then spent last week studying one of the blockchains building on its platform, Terra. This week we will examine Polkadot, another protocol attempting to build a network of interconnected blockchains. Yet, it is taking a radically different approach from what we observed with Cosmos. However, as Polkadot has not yet launched its mainnet, much of the discussion will be framed through the lens of what has ensued on its ‘Canary Network’, Kusama. If you are wondering what a canary network is or why we will be examining two protocols in this article, don’t worry, I promise I will address these concerns in due time. However, to better discern how Polkadot differs from Cosmos and its approach to decentralization, it is crucial to first understand the history of the protocol and the institutions leading its development.

So What is Polkadot and Where Does Kusama Come In?

The Polkadot whitepaper was released in 2016 by Dr. Gavin Wood, co-founder of Ethereum and  of blockchain development powerhouse Parity Technologies. Designed to connect all types of blockchains (private, consortium, public, & permissionless) and technologies, Polkadot aims to serve as the backbone of an ecosystem for independent blockchains to seamlessly transact between one another in a trustless manner and enable the decentralized internet at scale. Gavin and Parity Technologies are veterans of the crypto industry and have been instrumental in the evolution of blockchain technology. Many people tend to associate fellow Ethereum co-founder and figurehead of the protocol, Vitalik Buterin, as the leader of the blockchain revolution and bringing stateful programming to blockchains for applications outside of digital money. These assertions are well justified, seeing as he authored the Ethereum whitepaper, and has led the direction of the protocol’s development since its inception. However, many of Ethereum’s core components and widely used technologies are the work of Gavin and Parity. For example, during Gavin’s time with Etherum, he created the Solidity smart contract language that powers all of the dApps running on the network and was responsible for the network’s first functional release in 2014. Parity Technologies are also the lead developers and, until recently, maintainers of the popular Parity Ethereum Client.  The Parity Etherum client is an ultra-efficient alternative to the popular geth node run by many Ethereum developers that powers an estimated 20% of Ethereum nodes and portions of Infura, the open node cluster used by many developers that processes 13 Billion transactions a day.

Needless to say, Gavin & Parity, have been instrumental in shaping the decentralized web and blockchain, thus far. Many of the protocols that followed Ethereum have attempted to build upon or adapt its concepts in some way borrowing from the innovations that these two produced. However, throughout all of the work Gavin & Parity performed for Ethereum, they began to notice that most approaches to blockchain networks were not practical in terms of scalability or extensibility as a result of inefficiently designed consensus architectures. Hence, Polkadot was proposed as a heterogeneous multi-chain framework that would allow many different blockchains, irrespective of consensus mechanism, to be interoperable with one another and overcome the following five shortcomings of conventional crypto networks: scalability, isolatability, developability, governance, & applicability. If you are curious as to how Polkadot views them, check out their whitepaper here. Similar to Cosmos, Polkadot’s heterogeneous multi-chain architecture is hyper-focused on addressing the scalability and isolatability problems, believing that if these two are adequately addressed the subsequent ones will reap tangible benefits and see improvement as well.

Shortly thereafter, Gavin, in conjunction with Robert Hermeir & Peter Czaban of the Web3 foundation, officially founded Polkadot and commenced R&D on the ambitious effort. The Web3 foundation is a Swiss based organization founded with the intent of supporting and nurturing a user-friendly decentralized web where users own their own data and can exchange it without relying on centralized entities. The foundation conducts research on decentralized web technologies and supports different projects building them, Polkadot being the first. In May of 2018 the initial proof-of-concept for Polkadot was released as a testnet and three subsequent iterations that integrated additional features were released in less than a year. Testnets provide an excellent proving ground for networks to work out any technical bugs that could occur at scale before a mainnet launch. 

Starting with Cosmos’s Game of Stakes, the idea of using incentivized testnets to entice developers to truly stress test a network before mainnet launch has become largely canonical as the step preceding the launch of any proof-of-stake network. Polkadot took this a step further and released Kusama, an early,  unaudited release of Polkadot, that serves as the experimental proving ground for the network. Affectionately referred to as ‘Polkadot’s Wild Cousin’, Kusama is Polkadot’s ‘canary’ network, or a highly experimental reflection of what the production version of Polkadot will be like. Kusama allows developers to test governance, staking, and more in an authentic environment with real economic conditions. Thus, developers and those validating on the network can be adequately forewarned of any potential issues that may transpire on Polkadot and correct them before a mainnet deployment. Kusama differs from a traditional testnet in that it is an entirely separate network from Polkadot, with its own token (KSM), and is run by the community. It will exist in perpetuity so long as the community supports it and is not inherently tied to Polkadot aside from inheriting its design and functionality.

So How Do These Heterogeneous Multi-Chain Networks Work?

There are three fundamental components that comprise the architecture of the Polkadot ecosystem: the relay chain, parachians, & bridges. For those of you who have been following along in this series, each of these pieces is largely analogous to the hub, zone, & pegzone concepts described in my Decentralization of Cosmos article. Parachains, or parallelizable chains, are the individual, customized blockchains built on top of Polkadot that gather and process transactions within their own network. All computations performed on the parachain are independent from the rest of the polkadot ecosystem. Thus, parachains can implement data storage and transaction operations in a manner most befitting to the problem they are trying to solve without being tethered to the technical underpinnings of another protocol like its scripting language or virtual machine. Parachains are then connected to the relay chain, i.e Polkadot, which coordinates consensus and relays transactions of any data type between all of the chains on the network. Lastly, bridge chains are a specialized permutation of a parachain that link to protocols with their own consensus like Ethereum or Bitcoin and communicate with them without being secured by the Polkadot relay chain. An image of how these pieces all fit together may be viewed below:

Image adapted from Pink denotes the relay chain, orange the parachains, and blue a bridge chain

Designing the network in this manner has several key benefits, namely high security and near infinite scalability. Polkadot pools all of the security from the relay chain and the parachains building on top of it, irrespective of consensus mechanism, and then shares that aggregated security across the entire network. The relay chain provides a ground source of truth for the network by handling transactions and arriving at consensus, but any computation performed on the network can be scaled out in parallel across the appropriate parachains. Moreover, parachains can be attached to other parachains to create highly distributed networks for processing transactions. This allows the transaction volume of the network to be scaled out immensely without placing a crippling burden on the relay chain itself and allowing it to maintain the same level of security. Each parachain can maintain its own notion of validity for the transactions it processes, seamlessly disseminate that information to other parachains via the relay chain, and then the network as a whole can arrive at consensus.

However, this is only feasible with participation from the following core network stakeholders: validators, collators, and nominators. Similar to other proof-of-stake networks, validators are the node operators responsible for verifying transactions on the network and producing blocks for the Polkadot blockchain. Equivalently, nominators are those who elect validators on their behalf into the active set by staking with them in exchange for a portion of their block rewards. The new player in this ecosystem is the collator, who is responsible for consolidating the transactions on the respective parachain they monitor into blocks and proposing proofs of those blocks to the validators. This eases the technical burden on validators by allowing them to only have to verify potential blocks from parachains as opposed to processing and verifying thousands of parallel transactions. Hence, the relay chain can arrive at consensus in seconds as opposed to minutes and maintain the security offered by a highly decentralized network. Collators can also act as ‘fisherman’ who are rewarded for identifying parties on the network acting maliciously. An image depicting how all of these stakeholders interact across the different network layers may be viewed below:

It is important to note that I am simplifying significant portions of how Polkadot works at the technical level. The project is highly complex, with a myriad of intricate components at each layer that would take far too long to detail in a single article. For example, Polkadot uses a novel proof-of-stake consensus algorithm known as  GRANDPA (GHOST-based Recursive Ancestor Deriving Agreement) that separates block production from block finality, allowing blocks to be finalized almost immediately. For more on GRANDPA check out this article, and if you are interested in learning more about the underlying technology of the network, check out the whitepaper here.

Governance on Polkadot

Similar to other proof-of-stake networks, the crux of Polkadot’s governance is hinged on the idea of stake-weighted voting, where all proposed changes require a stake-weighted majority of DOTs (or KSM on Kusama) in order to be agreed upon. However, Polkadot also incorporates a tiered governance structure and unique voting mechanisms in an attempt to decentralize power and governing authority on the network. Anyone holding the protocol native currency, DOTs, has the ability to directly participate in governance on the network. They can do everything from vote on proposals brought forth by the community, nominate validators to participate in the network, prioritize which referenda are voted upon and more. Governance, itself, is completely dissociated from validating on the network aside from the fact that validators can use their DOTs to vote as described above.

Polkadot also has a Council that will range in size from 6-24 members and have prioritized voting rights. Anyone who is a DOT holder is eligible to run for council, and are elected by the community in hopes that they will propose referenda that are sensible and benefit the network as a whole. In addition to preferred voting rights, council members have the ability to veto incoming proposals if they believe they are harmful to the protocol. However, after a cool-down period, the proposal may be resubmitted and, if the council member who vetoed it originally is still present, he or she will be unable to do so again. To protect against council members becoming negligent in their duties or abusing their governing power, members are elected on a rolling basis, with the term of each council member being equal to the size of the council times two weeks. An illustration of this may be viewed below.

To combat the fact the total community participation for voting on any referendum is unlikely, Polkadot implements what is known as Adaptive Quorum Biasing to change the supermajority required for a proposal to pass based on the percentage of voter turnout. Consequently, when voter turnout is low a heavy supermajority of ‘aye’ votes is required for a referendum to pass or a heavy super majority of ‘nay’ votes is required to reject it. Yet, as voter turnout approaches 100% the system adapts and only a simple majority either way is required to account for the greater number of total votes. DOT holders votes are also weighed proportionally based on the amount of DOT they own and the amount of time they choose to lock those tokens for after the referendum has ended. For example, any DOT holder voting on a proposal must lock their DOTs for at least 4 weeks, but they can instead choose to lock it for up to 64 weeks to place a greater weight on their vote. All voting also occurs on-chain, so any approved proposals have a direct and immediate effect on how the network behaves.

So How Decentralized is Polkadot?

As mentioned earlier, Polkadot has yet to launch its mainnet so this discussion will be framed through the context of Kusama. As of the writing of this article, there are over 300 nodes supporting the Kusama network and 160 active validators distributed around the world. Moreover, there is currently a proposal to increase the active set from 160 to 180 validators up for election with significant support from the community, suggesting that the network will become even more decentralized in the near future. The Council has 13 members with a combined backing of over 1 MM KSM and 264 voters. Of the 8.380 MM KSM issued so far, 2.641 MM, or 31.51%,  of it is staked across the active set of validators. Similar to the other proof-of-stake networks we have observed so far, the top 10 Validators control a significant portion of the staked KSM on the network, albeit far less than that of networks like Cosmos and Terra. Of the 2.641 MM KSM staked on the network, only about 18% of it resides within the top 10 validators by amount staked. Especially when considering that governance is completely decoupled from validating on the network, this is all the more impressive. Of the total possible voting power on the network the KSM held by the top 10 validators by stake only amounts to only roughly 5% of the overall voting power.

Given the scope of Polkadot to not only serve as a network of heterogeneous multi-chains, but as a platform for connecting private to public blockchains and create a truly decentralized web, having a sufficiently decentralized network across in all aspects (architecturally, economically, and from a governance perspective) will be hyper-critical to its success. If how decentralization on Kusama has materialized is an adequate proxy, then the future looks exceedingly bright for Polkadot. However, it is difficult to tell how this level of decentralization will carry over from Kusama to Polkadot. Kusama was launched to test out the different technical parameters of Polkadot and simulate what a live environment would be like for those validating on Kusama. Consequently, it has been an exceedingly open community and encouraging of people to participate, which has likely led to the magnitude of decentralization observed on the network. Considering that 50% of genesis rewards from Polkadot have already been distributed via a token presale that occurred over two years ago, it is difficult to say with certainty that this level of decentralization will occur on Polkadot come mainnet launch. While many of those on Kusama have been involved with the project for a long time and intend on participating in Polkadot, the crypto world has evolved tremendously over the last two years. Therefore, there is some inherent possibility that the old money that entered two years ago has very different interests than the newcomers who have become involved since. However, the team behind the project is a force to be reckon with in the crypto world that has worked hard to make Polkadot a reality and the community grows more and more everyday, so I’m optimistic that its launch this year will exhibit decentralization in a manner more aligned with how Kusama has evolved.

That’s all for this week, I hope you enjoyed the article! I know we unpacked quite a bit of information here, but, as I said, Polkadot is one of the most technically advanced protocols making waves right now and I really just scratched its surface. If you’re interested in learning more about Polkadot or Kusama, seeing if its a right fit for your application, or want to get involved in staking, feel free to reach out to us at Consensus Networks! We are actively involved in the community, have run Validators for both Kusama and the current Polkadot testnet (Alexander) for some time, and are gearing up for Polkadot mainnet so we are highly familiar with the protocol. Contact one of our LedgerOps experts here with any questions you may have about the network and we will get back to you as soon as we can. We are excited for the future of Polkadot and the impact it could have on the decentralized web, and eager to help you access the network. Thanks again for reading and tune in next week as I conclude my examination of decentralization with Celo.