At Electrical Coin Co. (ECC) we’re exploring a transition in Zcash from the present proof-of-work (PoW) consensus to a proof-of-stake (PoS) consensus. We’re proposing a step on this path that we name the Trailing Finality Layer (TFL). If deployed, this could be mixed with Zcash’s current consensus; the ensuing consensus protocol at that time could be a hybrid of PoW and PoS.

The general objective is to allow finality and PoS on Zcash in a minimally disruptive method. Finality is a assure that when a block is finalized, that block and the transactions it incorporates can’t be rolled again. Finality can scale back delays for some use circumstances (equivalent to centralized alternate deposit wait occasions) and allow new enhancements equivalent to safer cross-chain bridges.

If the TFL strategy is adopted by the Zcash neighborhood, it might allow some new use circumstances, equivalent to staking ZEC to earn protocol rewards, whereas minimizing disruption to current use circumstances. Mining is an instance of a course of that will be impacted in a hybrid mannequin, as mining rewards could be lowered whereas the remainder of mining infrastructure and processes would stay unchanged.

We additionally purpose to attenuate disruption to evaluation of consensus safety, as lots of the current consensus properties stay intact in a hybrid mannequin.

We’ve solely begun to outline the design of this PoW/PoS hybrid protocol. Many key particulars stay open questions, as we broaden on under. By sharing our strategy early on this course of, we’re aiming to assemble and incorporate suggestions as we go, discover potential collaborators, and stimulate dialogue about this strategy.

Become involved

In case you’re enthusiastic about offering suggestions or collaborating on this challenge, please get in contact! A very good alternative to be taught extra and be part of the dialog is to attend (in particular person or just about) the Interactive Design of a Zcash Trailing Finality Layer workshop I’m main at Zcon4. Additionally be at liberty to e-mail me, [email protected], about your curiosity. We’re searching for contributors from a variety of backgrounds, together with technical, product, neighborhood, and any Zcash customers who wish to weigh in because the proposal evolves.

PoS transition background

ECC beforehand shared our rationale for why we consider it’s in the most effective curiosity of present and future ZEC customers to transition the protocol to proof of stake within the weblog put up Ought to Zcash transition from Proof of Work to Proof of Stake? and the Zcon3 presentation Motivations of Proof of Stake. In 2022, we revealed a high-level overview of our Proof-of-Stake Analysis strategy, a extra detailed Strategy, Focus, and Subsequent Steps companion put up, and gave a Zcon3 presentation about high-level design challenges in Proof of Stake.

A proof-of-stake transition path

Our imaginative and prescient for a transition to proof of stake contains a minimum of two main milestones:

1. Transferring Zcash from its present proof-of-work mannequin to a hybrid PoW/PoS system.
2. Transferring Zcash from a hybrid PoW/PoS system to pure PoS.

Our main motivation for proposing (a minimum of) two steps is to attenuate disruption of usability, security, safety, and the ecosystem throughout every step.

This strategy of transitioning from PoW to hybrid to PoS was executed by Ethereum with the deployment of the Beacon Chain (hybrid) then The Merge (pure PoS). 

Design objectives for a hybrid PoW/PoS system

ECC is refining the design of TFL with a number of objectives in thoughts, and we’ll probably be including extra as we proceed to develop this proposal. Presently:

• We wish to reduce disruption to current pockets use circumstances and UX. For instance, nothing ought to change within the consumer flows for storing or transferring funds, the format of addresses, and so on.
• We wish to reduce complexity of safety analyses by preserving current evaluation outcomes the place doable.
• We wish to allow new PoS use circumstances that permit cell shielded pockets customers to earn a return on delegated ZEC.
• We wish to allow trust-minimized bridges and different advantages by offering a protocol with finality.
• We wish to enhance the modularity of the consensus protocol. Modularity has a number of loosely outlined and associated meanings, e.g., it’s doable to grasp some consensus properties solely given data of a element of the protocol, and it’s doable to implement consensus guidelines in modular code elements with clear interfaces.

Trailing Finality Layer in a nutshell

The hybrid PoW/PoS protocol we envision at ECC is structured like in the present day’s Zcash NU5 protocol with a brand new Trailing Finality Layer. We describe it as a layer, as a result of the prevailing nodes and most of their logic will proceed to function largely as-is with minimal modifications, whereas a lot of the brand new performance might be offered by new, supplementary elements and community protocols.

This new layer gives the blockchain with a trailing finality assure: after blocks are mined they are often finalized that means they is probably not rolled again. This assure extends to any of the transactions throughout the blocks. It’s trailing as a result of this finality property follows the PoW mining system “trailing behind it.”

As a result of this hybrid design depends absolutely on PoW for producing new blocks, this protocol is proof against halting in the identical manner Bitcoin or present Zcash is — though the finality assure might stall, as we describe subsequent.This design paradigm has each a theoretical and sensible monitor file: It’s analyzed in a analysis paper, Ebb-and-Circulation Protocols, and it’s the identical paradigm utilized by Ethereum each within the pre-Merge hybrid design of the Beacon chain in addition to in present day Ethereum.

Why finality issues

Nakamoto PoW consensus, launched with Bitcoin and inherited by Zcash, gives probabilistic finality. This implies the prospect {that a} block might be rolled again falls as extra blocks are mined.

In our view, the first problem with this sort of finality is that totally different contributors independently react to rollbacks. For instance, most likely most contributors anticipate 1-block rollbacks (that are comparatively widespread), however as the scale of rollbacks develop bigger, three challenges emerge:

1. Bigger rollbacks turn out to be extra uncommon, so some contributors might not have a course of or coverage for dealing with that state of affairs.
2. Totally different contributors might have totally different insurance policies, so within the occasion of a giant rollback, the ecosystem might fracture as totally different contributors disagree on the way to get well.
3. When counterparties require a sufficiently low tolerance for rollbacks, their interplay should incur a considerable delay.

Instance: trust-minimized bridge

To drive this level dwelling, take into account the dear use case of a trust-minimized bridge: ZEC despatched right into a bridge have to be locked up whereas an equal variety of proxy tokens are issued on one other community.

If a rollback reverts a bridge deposit after the proxy tokens are issued elsewhere, these ZEC are now not locked within the bridge, and the proxy tokens at the moment are unbacked. This breaks the peg of the bridge, and plenty of bridge customers will concurrently lose funds. If the bridge designers determine to require sufficient PoW blocks to make the chance of this occasion astronomically small, then issuing the proxy tokens on the opposite community may have a particularly giant delay.

Instance: alternate deposits

If a consumer deposits ZEC on a centralized alternate, their account on the alternate is credited the suitable quantity. If a rollback of this sediment happens, the alternate accounting now has extra ZEC liabilities than precise ZEC held.

Exchanges search to deal with this by requiring extra PoW blocks to achieve a sufficiently low chance of this occasion. Nevertheless, it is a balancing act: If an alternate imposes a delay of n hours, the chance remains to be not “astronomically small,” so customers are inconvenienced by n hours and the alternate nonetheless carries a sensible threat of a legal responsibility overhang occasion.

Moreover, due to problem quantity 2 above, totally different exchanges require totally different deposit delays, which probably confuses customers and places exchanges into competitors to tackle extra threat by accepting fewer block confirmations.

Finality

In distinction to probabilistic finality, a consensus protocol might present a finality assure. Protocols that do that make sure that all contributors agree on which set of blocks and transactions are ultimate. The trade-off is that finality might fail to make progress within the occasion of community disruptions. As soon as the community recovers, the trailing finality can “catch up” to the PoW blocks which have been produced within the interim.¹

Virtually, this implies if contributors are ready for a transaction to turn out to be ultimate, typically they might want to attend an arbitrarily lengthy period of time. 

Finality addresses all three challenges to some extent:

1. Contributors now now not have to anticipate rollbacks of various possibilities when designing their procedures and insurance policies. As a substitute, they have to anticipate the chance that typically finality fails to progress in a well timed vogue.
2. All contributors agree precisely which blocks and transactions are ultimate, although they might disagree on the way to react if finality is stalled for lengthy durations of time.
3. Contributors might now depend on the finality assure to make sure they solely react to some transactions when there may be zero probability of the transaction being reverted.

Within the examples above:

• A trust-minimized bridge can depend on finality for issuing proxy tokens. This ensures the bridge won’t ever be under-collateralized. The trade-off is that so long as finality stalls, cross-bridge transfers may even be stalled.
• All exchanges can use the identical finality assure, so customers can count on the identical deposit delay all over the place (and it’s more likely to be notably decrease than the established order). The trade-off is that if finality stalls, new deposits may even be stalled, although all exchanges will behave persistently on this regard.

The top consequence for customers is that some high-value interactions (equivalent to bridging or alternate deposits) will now be quicker and safer more often than not. Typically finality might stall. When finality resumes, it should “catch up” to the PoW chain, so customers who don’t want the finality assure can proceed utilizing this hybrid protocol, equally to how they use Zcash in the present day, and be unaffected if finality stalls.

Standing and open questions

This weblog put up introduction covers most of our R&D, to date, on the TFL design. There are nonetheless many open points that should be resolved with collaboration and enter from the Zcash neighborhood earlier than a TFL design is prepared as a proposal for a Zcash improve.

An incomplete checklist of points that also should be resolved embody:

1. Is that this basic strategy acceptable to the Zcash neighborhood?
2. How will new ZEC issuance be distributed between PoW, PoS, and any potential Dev Fund successor? This can be a key concern for each miners and potential stakers or delegators.
   1. How can we combine some other modifications to issuance mechanics, such because the Zcash Sustainability Fund?
3. The entire PoS accounting mechanics, equivalent to how bonding works, how delegation works, what sorts of slashing might happen, withdrawal delays and mechanics, and so on.
4. How would PoS operations work together with all different Zcash ledger actions, equivalent to shielded swimming pools, and so on.? This might be a key space for understanding how privateness and staking work together.
5. Ought to the chain tip ever stall in an effort to certain the hole between the finalized block and the chain tip?
6. Detailed safety analyses, together with financial safety, a case evaluation of PoW seize, PoS seize, community safety (esp. given two separate community protocols/layers).
7. How can we guarantee cell shielded wallets are first-class contributors? For instance, can we guarantee they’ll safely and effectively delegate stake and handle stake-delegation positions? This contains each UX points, like delegation UI flows, in addition to implementation, equivalent to lightwalletd protocol modifications.
8. The way to combine any TFL protocol modifications with different proposed protocol modifications in a secure and well timed method. Examples: Zcash Sustainability Fund, Zcash Shielded Belongings, bridging efforts, Namada integrations, and so on.
9. Collection of a particular finalizing PoS protocol. We’re at the moment specializing in utilizing Tendermint and ABCI as a solution to quickly prototype and validate the design.
10. Prototypes, testnets, code structure, and so on.

As we handle the open points above, particularly the interplay with different protocol options and coordination with these groups on timing, we will start to refine a deployment timeline.

Subsequent steps

Our subsequent steps for this TFL R&D initiative are to get neighborhood suggestions on this weblog, host a workshop at Zcon4, and produce R&D updates on the open points above.

As we collaborate with different protocol improvement groups, we’d prefer to create a tentative deployment timeline that comes with the entire different protocol function efforts such because the Zcash Sustainability Fund, Zcash Shielded Belongings, and potential cross-chain bridge efforts.

Lastly, we’re in search of out different groups or people who’re enthusiastic about collaborating on this TFL challenge, so for those who’re , please see the Become involved part above.

¹ In a pure finalizing PoS protocol, the equal “stalls” are literally network-wide halts. One power of this hybrid design is that PoW needn’t halt, and if it doesn’t then customers who don’t rely on finality can proceed utilizing the community.