This decision makes more sense from a microeconomic perspective, specifically the concepts of substitutes and complements .
Substitutes are products that can be substituted for each other when another product becomes unavailable or becomes too expensive. Pepsi-Cola is a substitute for Coca-Cola. Tea is a substitute for coffee. If you run a business, you want alternatives to be as unavailable and as expensive as possible .
Complements, on the other hand, are products that are usually consumed together . Cars and gasoline are a prime example. Spolsky pointed out that Netscape opened up the source code of its browser because the browser was complementary to its money-making server. If you run a business, you want your complements to be as abundant and cheap as possible .
Here’s what Joel Spolsky has to say about money:
Again: when the prices of a product’s complements fall, the demand for that product increases .
Generally speaking, a company’s strategic interest is to keep the price of its complementary products as low as possible. The theoretically sustainable lowest price would be the “commodity price” — the price that occurs when you have a group of competitors offering indistinguishable goods.
So: Smart companies try to commoditize complements of their products.
If you can do this, demand for your product will increase and you’ll be able to charge more and make more money.
Because Aleo is running the “commoditize your complement” playbook on zkSNARK, which is partly proof that it has incorporated this strategy into its consensus mechanism . That’s what I mean.
The more companies that use zkSNARK in their applications, the more successful Aleo will be . Because generating proofs is difficult, Aleo’s design allows applications to outsource proof generation to third-party “proof services” that use specialized hardware and software to perform faster than application developers can on some base CPUs. , cheaper and more efficient computation of zkSNARKs.
Currently, one of the biggest limiting factors going forward is that even for proof services, “creating zero-knowledge proofs of correct application execution is likely to be much more expensive than running the application directly.” zkSNARK proofs are not yet a commodity .
In order for zero-knowledge proofs to become common, and for Aleo to succeed, zkSNARK proof hardware, software, and knowledge need to be commoditized. Aleo designed the consensus mechanism and sponsored the ZPrize competition to commercialize proofs.
Let’s take a step back and get into the details.
Traditional PoW mining, like Bitcoin, is relatively simple and the hardware is commoditized. Miners hone SHA-256 capabilities on ASICs and try to position themselves near cheap energy to maximize profits. There aren’t many creative ways to gain an advantage.
On Aleo, proofs require polishing zkSNARKs, a richer design space that provides more opportunities for mature provers to gain huge advantages. “ One prover runs something special that no one else has access to, so they end up dominating, which is bad for a variety of reasons, including community perception and most importantly the security of the underlying protocol ” . Aleo also differs from Bitcoin in that it accepts multiple valid solutions per block and therefore distributes the rewards to more provers, rather than a “winner takes all” dynamic but one prover crushing everyone else The existence of will inhibit the participation of provers, thereby reducing decentralization and making the cost higher.
Therefore, Aleo did two things to complementary commoditize its zkSNARK proofs: AleoBFT and ZPrize .
AleoBFT combines Proof of Stake (PoS) with a specific type of Proof of Work (PoW) called Concise Proof of Work (itself a subset of Necessary Proof of Work).
We’ll dig into that in this section, but what you need to know is that AleoBFT aims to do three things: secure the protocol, ensure there are enough skilled provers to meet the zkSNARK needs of the application, and incentivize more people to efficiently and cheaply prove.
In the blog post “Introducing Provers in Aleo Testnet 3 “ last August , Pratyush Mishra wrote that “solving the problem of motivating the development of better proof architectures” was one of the key motivations behind the design of Aleo’s new consensus algorithm, AleoBFT. ” AleoBFT (BFT stands for Byzantine Fault Tolerance):
is a hybrid architecture that utilizes Proof-of-Stake to achieve instant finality of block confirmations, and Proof-of-Work type “coinbase puzzles” to reward the development of faster proof-generation technologies.
(Side note, the “ coinbase puzzle “ has nothing to do with the Coinbase company. Both are named after the coinbase transaction, the first transaction in the block, TIL.)
Details of the PoS portion of AleoBFT are still being released, but the team says it will be based on DiemBFT, which you can learn more about in this Messari report .
- Provers generate proofs for a given block and earn a coinbase reward (a subset of the total block reward) proportional to the number of proofs they submit above the target.
- Validators use Aleo points to propose blocks consisting of these proofs and receive a portion of the total block reward for validating.
- The validator checks that the proof within the block is correct (without knowing the content of the proof) and receives a portion of the block reward.
The proof part of AleoBFT is based on Aleo’s original consensus algorithm — Proof of Simple Work (PoSW). The most important thing to understand about PoSW, especially as Ethereum and newer chains eschew Proof of Work for environmental reasons, is that the “work” in concise Proof of Work is actually useful, unlike polishing SHA-256 . In fact, PoSW is based on Proof of Necessary Work , an idea proposed in 2020 by Assimakis Katis (an Aleo advisor) and Joe Bonneau (another former Boneh student) “where proof generation is an integral part of the Satoshi Nakamoto Consensus” The amount of work used in , effectively uses energy that would otherwise be wasted to generate proofs . ” If you need to spend energy securing the blockchain, spend it on proofs.
This work is necessary in two ways, direct and indirect:
- Directly, generating zkSNARKs is very useful for letting people prove something without revealing any information about that thing.
- Indirectly, by incentivizing the generation of zkSNARKs, Aleo hopes to accelerate the development of better proof architectures.
“ The goal is to incentivize miners to develop hardware acceleration for SNARKs so that these types of computations become a commodity and become commonplace, and one way to do that is to ensure that miners always have something to prove,” Howard said on the Zero Knowledge Podcast .
Howard explained: “If the market demand shows that there are a lot of programs and people want to pay a lot of transaction fees to run their programs, then I will target my hardware to those types of programs and if there is a sudden decrease in activity, there will still be a block chain where I can mine a block and get rewarded.”
Interestingly, given the nature of commoditization, Aleo’s efforts in this area could also help other ZK protocols. Howard noted: Coinbase rewards on Aleo are also useful for companies like Matter Labs and Aztec, whose rollup validators are designed to provide high performance for calculating ZKP. During periods of lower aggregate traffic, these validators can switch and use their hardware to generate zkSNARKs on Aleo.
The combination of AleoBFT and ZPrize is Aleo’s attempt to commercialize zkSNARK proofs, thus increasing the demand for zkSNARKs.
Commoditization is an interesting strategy because it benefits anyone who offers a commoditized good or service as a complement. That so many zero-knowledge protocols have joined forces to pursue this goal speaks to the nascent nature of the industry, the breadth of opportunity, and the collaborative spirit of what on the surface looks like a crowded field.
