Next Generation Nakamoto Consensus (Bitcoin-NG)

Next Generation Nakamoto Consensus (Bitcoin-NG)

In traditional blockchain systems like Bitcoin, each block serves two purposes: it establishes who gets to add the next block (leader election) and contains the actual transactions. This dual role creates a fundamental limitation on transaction throughput because the network must wait for a new block to be mined before processing new transactions. æternity solves this problem by implementing Bitcoin-NG, a next-generation consensus protocol that separates these two functions.

Key Blocks and Micro Blocks

Bitcoin-NG introduces two distinct types of blocks: key blocks and micro blocks. This separation is at the heart of æternity's improved performance:

Key blocks are used for leader election through proof of work, similar to traditional Bitcoin blocks. When a miner successfully creates a key block, they become the leader for that generation (or epoch). Each new key block starts a new generation and contains the public key of the new leader.

Micro blocks contain the actual transactions and are created by the current leader in rapid succession. Unlike key blocks, micro blocks don't require proof of work, allowing them to be generated quickly - every three seconds in æternity's implementation. This rapid micro block creation is what enables æternity to achieve its high transaction throughput.

Leader Responsibilities and Incentives

Once elected through a key block, a leader can create micro blocks until the next key block is mined. To incentivize proper behavior, transaction fees are split between block creators: 40% goes to the leader who creates a micro block, while 60% goes to the miner of the next key block. This split incentivizes both efficient transaction processing and continued participation in the mining process.

Security and Fork Resolution

The Bitcoin-NG protocol includes several mechanisms to maintain security and prevent abuse:

Fraudulent behavior by leaders (such as creating multiple conflicting micro blocks) can be detected and proven through a Proof-of-Fraud mechanism. When detected, the malicious leader loses their block reward, which is held for 180 blocks before being released.

If a new key block is mined while micro blocks are still being processed, some transactions might temporarily appear in a "micro-fork." These transactions are automatically returned to the transaction pool and will be included in future micro blocks by the new leader.

Performance Benefits

This innovative approach to consensus provides several key advantages:

• Transaction throughput increases to approximately 117 transactions per second, compared to Bitcoin's 7 transactions per second

• Block confirmation time reduces to just 3 seconds, versus Bitcoin's 10 minutes

• Network bandwidth is used more efficiently by spreading transaction data across multiple smaller micro blocks

• The system maintains high security while achieving better scalability

Future Innovations

The Bitcoin-NG consensus mechanism in æternity is designed to be forward-compatible with future improvements. As the platform evolves, this foundation enables the implementation of additional scaling solutions like state channels and Hyperchains, while maintaining the core benefits of decentralization and security.

Understanding Bitcoin-NG is crucial for developers building on æternity, as it influences how transactions are processed and confirmed. The rapid block time and high throughput enable new types of applications that wouldn't be practical on traditional blockchain platforms.