The answer to the question “What is blockchain and how does it work?” is less than obvious to the majority of users. Masses of blockchain-related information is published daily. Most of this content tries to use accessible language, but ends up switching from layman’s terms to the Martian-like language of computing.

Simple explanations can’t keep pace with the development of blockchain technology, including both its achievements and failures. Hence the average user remains puzzled: “First you say blockchain is cool, even couldn’t grasp its benefits for myself — and now you’re telling me there are issues!”

Understanding of blockchain by users, financial and government institutions is heavily coloured by this mess of headlines, breeding fears and stereotypes. Before we explain what Waves-NG is and how it increases the network’s speed, we’ll make yet another attempt to make things clearer about what blockchain is and, putting mining and ICOs aside, how exactly it can be beneficial to you.

Blockchain is a technology, just like pipe production and house construction. What do these things have in common? All technologies generate benefit if applied correctly and accordingly to the right rules and conditions. We stick to these rules to use technology to produce a pipe of the correct diameter or to build a house that will not fall apart later. It’s the same with blockchain: a technology that allows you to transfer and store information, whether that takes the form of text, money, medical records, etc.

Expanding the analogy, if you once had to dig a pit, lay a foundation, buy bricks and carry out a lot of other work to build a house, now you can use a fast and effective solution by putting up a modular house: after 2-3 months of assembly at the factory, the house will be dispatched to your land and connected to all the necessary utilities in just one day.

The new technology defeats its predecessor if it is more effective, less costly and easier to use. People used candles in the past, but after electricity gradually permeated their lives everyone switched to electric bulbs. Like electricity, bulbs vs candles, blockchain is superior to existing ways of storing and transferring information.

The key advantages of blockchain, compared to other technologies, are the following.

Decentralisation

Blockchain literally means an assembly of blocks in a chain, but there’s no need for a third party, a supervisor or any controlling institution, like a bank. It’s like playing an advanced game of dominoes. The dominoes (blocks) are distributed between different people. Combined, the dominoes make up a full and authentic picture, so each participant who contributes to the assembly of the puzzle sees the results on the spot. Moreover, the dominoes fit strictly to one another, so their order cannot be meddled with. So there’s no need for supervision of any kind to verify their accuracy.

Outstanding Security

Blockchain is a counterfeit-proof chain for storing and transferring information. Blockchain is a set of dominoes where all the tiles (blocks) combine to form one system. Unlike real dominoes, the tiles (blocks) can be copies of one another. This means that at a certain moment the players may find themselves creating two or more identical sequences simultaneously. The first completed sequence becomes the only valid version, and all its unfinished copies are wiped out.

“But you can create tiles (blocks) on your own and make them look however you like!” — one might say. Well, each tile is secured. Imagine sitting at a table with other players. Each tile has a unique mark, for example, a code, a hologram or a watermark. Moreover, besides its unique mark, each tile contains information about every other tile. You’ll lose more by messing about with tiles and fabricating them than playing the game by the correct rules. That is why blockchain is so attractive to users, entrepreneurs and developers - you have no choice but to act honestly.

Suppose Bill wants to transfer some amount of money to Pete if they together complete a sequence of dominoes. After it is finished, Pete will get his money. Besides Bill and Pete, there are also Ann and Jane, helping Bill and Pete to complete the sequence faster. For their help the girls will receive a fee from the money transferred from Bill to Pete. That is what mining is essentially about.

Taking into account that the tiles (blocks) are protected with unique marks, there’s no need for a third party supervisor to validate all the operations. That’s how the Proof of Work algorithm functions in a blockchain. It will be hard for Jane to counterfeit tiles even if she tries, because each tile contains information about all the other tiles. So if one block (tile) changes, the whole sequence immediately falls apart. To run a scam she’ll have to change all the blocks, which is simply too hard and not worth the trouble to try.

Ok, if you are still with us after the first part of the article, let’s proceed to take a look at the blockchain as a whole.

Speed and Capacity: Throughput

Throughput capacity has long been one of the key issues of blockchain’s development. Simply put, the greater the number of transfers you want to make, the more complex the sequence will be. That means you’ll either have to invite more players, or officially call for a change of the rules by making the tiles (blocks) bigger, so the players can include more information in the blocks. In both cases the sequence will be limited in scale and by the speed of assembly. Today’s blockchain systems have limited throughput capacity.

If you want to transfer two sums of money through two different, yet simultaneous tranches, each tile will contain two unique marks. Since there are twice the number of marks on the tiles (information recorded in the blocks), twice as much time will be spent on verification. There is a way to boost the throughput capacity of a blockchain network. The amount of transactions per minute can be increased through speeding up the process of validation. Besides that, new blocks can be introduced faster if the time elapsed in putting each new block into the sequence is reduced.

Yet such solutions have drawbacks. More blocks mean validation will take more time, especially when you have dozens of correct variants (variants of a sequence’s development), since the blocks can be copies of one another. In this case the system’s throughput and security will drop, because it will be hard to figure out swiftly which variant is the right one and which is a ‘fork’ (an incorrect variant of the sequence).

Enlarged blocks (tiles) will also lead to weakened security. The more information there is in a block the longer time will elapse on its verification and assembly of the sequence as a whole (there will be too many forks leading the sequence nowhere).

Waves-NG

Considering all the risks, Waves has implemented a high-quality new, cutting-edge protocol called Waves-NG. The protocol excludes any possibility of creating forks, whilst significantly speeding up network’s throughput and cutting time for the creation of a new block.

Suppose the tiles can be verified not one by one, but all at once. That’s how Waves-NG works. The sequence is divided into sections (‘epochs’). Each epoch has a leader block, from which other blocks derive in parallel, not one by one. For example, we have a leader block and three batches of blocks, each containing three blocks. Leader blocks are generated with proof of stake but they don’t contain transactions — they serve as a leader election mechanism and contain a public key that identifies the chosen leader (player). Each block has a header that contains, among other fields, the unique reference of its predecessor, which is a cryptographic hash of the predecessor header (either a key block or a microblock). As in Bitcoin, for a key block to be validated, the cryptographic hash of its header must be smaller than the target value. In Waves-NG, a key block contains a public key that will be used in subsequent microblocks.

If we apply such a protocol to our real world scenario, the dominoes would not be solely black or white, but rather divided into groups by colours. Inside these groups each tile would have its own serial number. Colours and numbers help to build a sequence faster. For example, a blue tile is the leader block, from which a sequence of red tiles numbered 1-9 is supposed to be built.

Waves has significantly increased the capacity and speed of the NG protocol. While block size is permanent in Bitcoin-NG, Waves-NG lets you increase the size of a block to a certain extent. You can control your block while mining it. The ‘liquid block’ continues to grow until the link to the next block appears, at which point it becomes fixed. That is, besides being divided by colour and numbers, the dominoes can be of different size, meaning a different amount of information can be recorded on different tiles.

The core idea of Waves-NG is to split the liquid block into two types, Key blocks and Micro blocks. The process of creating a liquid block works as follows:

• The miner node gains permission to create a block.
• The miner node creates and sends the key block (which does not contain transactions).
• The miner node creates and sends microblocks (which contain transactions, just as in a normal block, with a reference to a previous microblock or key block) with a mining time interval of three seconds.
• Miners will mine those microblocks and propagate them directly to the network until the next new key block appears with a reference to the liquid block.

All transactions are part of the same block and are contributed all together. In between blocks, the traditional Bitcoin system appears idle to an onlooker, as miners are working to discover the next block, but without apparent progress on the consensus front. In contrast, in Waves-NG, the key blocks can be small because they need to contain only the coinbase transaction, which defines the public key that the miner will be using to sign microblocks. Because a key block requires proof of stake, miners cannot just produce one and expropriate the leadership at will. Following the key block, the lead miner can quickly issue microblocks, simply by signing them with the private key corresponding to the public key named in the key block’s coinbase.

All information needed to create the next block is immediately transferred to all nodes right after the previous block was forged. After that, the miner sends a certain amount of transactions via microblocks to the network. The next miner is chosen according to the size of their balance — the larger the balance, the higher the chance to be chosen to mine the next block. So, the dominoes players know whose move is going to be next. The miner receives 40% of fees from the block he creates and 60% of fees from the block he refers to.

To sum up, besides being the fastest and most scalable of all the consensus protocols, Waves-NG enhances decentralisation and security, making the Waves blockchain the most technologically advanced and user-friendly to date. In a manner of speaking, it’s like playing a super-advanced form of dominoes, where each round is a win for everyone.

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