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Contributions to Permissionless Decentralized Networks for Digital Currencies Based on Delegated Proof of Stake

Publication . Morais, Rui Pedro Bernardo de; Crocker, Paul Andrew; Sousa, Simão Melo de

With the growing and flourishing of human societies came the desire to exchange what was deemed as valuable, be it a good or a service. Initially this exchange was made directly through barter, either synchronously or asynchronously with debt. The first had the downside of requiring coincidence of wants and the second the need for trust. Both were very inefficient and did not scale well. So, what we call money was invented, which is nothing more than a good that is used as medium of exchange between other goods and services. Since then, money has changed form and has acquired new functions, namely unit of account and store of value. The most recent form of money is digital currency. This money cannot be transferred physically like other forms, so it needs a digital network to be transferred, which can have different characteristics. This thesis concerns a specific type of networks for digital currencies: permissionless, meaning that any participant can have read and write access to the network; decentralized, meaning that no single entity controls the network; and that use Delegated Proof of Stake (DPoS) as a Sybil defence mechanism, to prevent the network from being controlled by malicious actors that create numerous false identities. Its research tries to fulfil the vision that a network for digital currencies, besides being permissionless and decentralized, should be scalable, monetary policy agnostic, anonymous and have high performance. Three different layers of the network are studied: the communication layer, responsible for sending and receiving messages, the transaction layer, responsible for validating those messages, and the consensus layer, responsible for reaching agreement on the state of the network. The first two goals can be achieved in the communication layer. On one hand, a vertical way to scale the system is proposed composed of a peer management and traffic prioritization design based on DPoS, offering an alternative to highly disseminated fee-based models. On the other hand, a horizontal way to scale is presented through database sharding. In the transaction layer, a general framework to make DPoS compatible with anonymity is described. More specifically, two different approaches to achieve amount anonymity are proposed: one based on multi-party computation and the other on the Diffie-Hellman key exchange. Finally, a new decoy selection algorithm, called SimpleDSA, is developed to improve sender anonymity. The consensus layer features two innovative consensus algorithms, Nero and Echidna, and two methods for state machine replication: Sphinx (leader-based) and Cerberus (leaderless). These developments aim to enhance the performance of the network, specifically by decreasing the latency of its state changes and increasing the throughput, i.e., increasing the number of state changes per unit of time. A protocol that instantiates the transaction and consensus layer, called Adamastor, is formalized with security proofs and implemented with a prototype in the Rust language. Benchmarks demonstrate the practicality of the scheme and potential application to decentralized payment systems. While further research is needed, particularly in implementing a fully operational network, it sets a foundation for future advancements. In conclusion, this thesis contributes to the area of knowledge that results from the fusion of economics and computer science, by offering technical solutions for implementing a vision of a more inclusive, fairer, efficient, and secure financial system. The implications of this work are far-reaching, suggesting a future where digital currencies play a significant role in shaping global finance and technology.

2024-10-30Doctoral thesis

Open access