Kaspa: A Revolutionary Approach to Proof-of-Work Scalability

Kaspa is the only proof-of-work (PoW) system capable of scaling confirmation times to match the speed of the internet—the fastest possible. At the same time, it increases throughput to the theoretical limits allowed by hardware. It eliminates traditional security bottlenecks, delivering unparalleled response times and throughput. The only constraints are the hardware and the network infrastructure on which it operates.

Beyond these impressive feats, Kaspa introduces innovative solutions to mitigate miner extractable value (MEV). It also redesigns the fee market to address issues prevalent in current PoW systems. Once these features are fully implemented and operational, Kaspa has the potential to be the only Layer 1 platform needed. It provides sufficient capacity, performance, and cost-effectiveness to support all necessary utilities and Layer 2 applications.

Kaspa’s Foundation and Similarities to Bitcoin

Before delving into what makes Kaspa unique, it’s important to understand its foundational similarities to other PoW systems like Bitcoin. Kaspa employs the same fundamental principles.

Proof-of-Work Mechanism: Miners contribute computational power (hash rate) to solve cryptographic puzzles, securing the network. The more hash rate a miner controls, the more influence they have on the network’s final decisions. They also earn more rewards.

UTXO Model: Kaspa uses the Unspent Transaction Output (UTXO) model for tracking coin ownership, similar to Bitcoin. This model ensures transparency and security in transaction processing.

Block Rewards: Miners are incentivized through block rewards. This aligns their interests with the network’s health and security.

Security Properties: Kaspa maintains the same security definitions and properties as Bitcoin. When discussing confirmation times, Kaspa refers to the same level of security one would expect after waiting six blocks in Bitcoin. This ensures robust protection against double-spending and other attacks.

While several projects claim to offer similar capabilities, they often compromise on security standards. They sometimes adopt weaker definitions of confirmation security. Kaspa, however, achieves fast confirmations without sacrificing the rigorous security measures that are fundamental to blockchain integrity.

Challenges with Traditional Proof-of-Work Consensus Mechanisms

Traditional PoW consensus mechanisms, primarily based on blockchains, face inherent limitations that affect throughput and latency. The two main variants are:

1. Longest Chain Rule: The chain with the most cumulative proof-of-work is considered the valid one.
2. GHOST (Greedy Heaviest-Observed Sub-Tree) Rule: Prioritizes the subtree with the most accumulated proof-of-work.

Both approaches require sufficient time between blocks to maintain security and prevent orphaned blocks. Increasing block size to cheat this requirement isn’t viable because larger blocks take longer to propagate through the network. This necessitates even longer intervals between blocks.

As a result, classical networks like Bitcoin, pre-merge Ethereum, Bitcoin Cash, and Litecoin suffer from:

• Low Throughput: Limited number of transactions processed per second.
• High Latency: Slow confirmation times due to the time required between blocks.

Attempts to overcome these limitations have led to alternative solutions, each with its own drawbacks.

Parallel Chain Blockchains

Protocols like Blockflow and Chainweb implement parallel chain blockchains. The idea is to run multiple chains in parallel, each operating like a classical chain but braided together to enhance security. An attacker would need to compromise all chains simultaneously to perform a 51% attack.

While this approach increases throughput, it worsens latency. Transactions require confirmations not only on their own chain but also across the braided chains. This results in longer wait times for finality. Users must wait for their transaction’s chain to braid sufficiently with others, negating any latency improvements.

Summary Blocks Approach

Protocols like Fruitchains, Prism, and Tailstorm employ a summary blocks approach. They allow the creation of numerous blocks containing transaction data, but these blocks don’t immediately contribute to transaction security. Periodically, summary blocks are produced to order previous blocks and establish consensus.

This method improves throughput but doesn’t significantly reduce latency. Transactions can’t be confirmed until the necessary number of summary blocks have been added. Block spacing is still crucial to prevent overlap and ensure security.

Other DAG-Based Protocols

Protocols such as Conflux and Tangram attempt to sort the Directed Acyclic Graph (DAG) using GHOST-like methods. They resolve conflicts by choosing the side with more accumulated weight (proof-of-work) above it.

However, in a DAG structure, conflicts are quickly propagated. Subsequent blocks add weight to all sides of the conflict. This phenomenon prevents the difference in accumulated weight between conflicting sides from growing significantly over time. It leads to liveness issues. The network may struggle to reach consensus, hindering transaction finality and compromising security.

Kaspa’s GhostDAG Consensus Protocol

Kaspa introduces GhostDAG, a novel consensus mechanism fundamentally different from the GHOST protocol despite the similarity in name. GhostDAG operates as a Bitcoin-like consensus but applies it to a DAG structure.

How GhostDAG Works

Looking to the Past: GhostDAG resolves conflicts based on the past history of the blocks, not the future. When two conflicting blocks exist, the protocol examines the accumulated proof-of-work in their respective pasts. It determines which side is the “heavier” and thus the valid one.

Rapid Finality: Once a conflict is resolved, it becomes cemented quickly. Future blocks that include both conflicting blocks in their history do not influence the decision. This prevents the conflict from re-emerging.

Elimination of Liveness Issues: By not relying on future blocks to resolve conflicts, GhostDAG avoids the liveness problems associated with other DAG-based protocols.

Advantages of GhostDAG

GhostDAG’s approach allows Kaspa to confirm transactions very rapidly without the liveness issues seen in other DAG protocols. By applying a DAG-like longest chain rule rather than a GHOST-like approach, Kaspa achieves:

• Fast Confirmations: Transactions can be confirmed quickly because conflicts are resolved based on existing block history rather than awaiting future blocks.
• High Throughput and Low Latency: Kaspa can process a high number of transactions per second without sacrificing security or decentralization.
• Robust Security: The network maintains the same security properties as Bitcoin. Rapid confirmations do not come at the expense of network integrity.

Efficient Node Operation

Storage Requirements and Syncing

In most blockchain networks, each node must maintain a copy of the entire transaction history to verify the chain’s validity. This requirement leads to ever-increasing storage needs, which can become a barrier to entry for new nodes. For example, syncing a Bitcoin node can take up to a week due to the vast amount of data.

Kaspa addresses this issue by adopting and adapting the concept of Non-Interactive Proofs of Proof-of-Work (NIPoPoW), initially realized by researchers Kais Zros and Leonardos. Kaspa extends this idea for DAGs and introduces a novel protocol for pruning block data.

Kaspa’s Approach

Fixed Storage Requirements: Nodes only need to store a small, fixed-size proof rather than the entire blockchain history. This dramatically reduces storage needs.

Efficient Syncing: Even when operating at full capacity of 3,000 TPS on the testnet, syncing a new node takes approximately 20 minutes with the latest version.

Maintained Security: The combination of NIPoPoW and Kaspa’s pruning protocols ensures that the network’s security remains comparable to that of Bitcoin, despite reduced storage requirements.

By minimizing storage needs and reducing sync times, Kaspa enhances decentralization. More participants can operate nodes without significant hardware investments. This strengthens the network’s security and resilience.

Validation Costs

Proof-of-Stake (PoS) systems often have higher validation costs due to the complexity of Byzantine Fault Tolerance (BFT) mechanisms. For example, running a validator node on Solana requires hardware costing around $10,000, with monthly utility costs reaching $400.

In contrast, Kaspa’s PoW system offers significant advantages:

• Low Hardware Requirements: Nodes can operate efficiently on inexpensive hardware, including ten-year-old laptops, Raspberry Pi devices, and even old cell phones.
• Minimal Operational Costs: The simplicity of validating PoW (essentially checking hashes) results in negligible utility expenses.
• Enhanced Decentralization: The low barrier to entry encourages broader participation, distributing network control more evenly.

This accessibility strengthens the network by increasing the number of validating nodes, contributing to overall security and resilience.

Addressing State Bloat

The Problem of State Bloat

As blockchain networks operate, they accumulate more addresses with balances, leading to a growth in the network’s state data. In the UTXO model, this means more unspent outputs to track. In smart contract platforms, the issue is exacerbated by additional storage requirements.

State bloat poses challenges:

• Increased Storage Needs: Nodes must store more data to maintain the network’s state.
• Performance Degradation: Larger state sizes can slow down transaction processing and validation.

Existing Solutions and Their Drawbacks

Several approaches have been proposed to tackle state bloat:

• Full State Storage (e.g., Bitcoin): Nodes store the entire state, leading to continuous growth in storage requirements.
• Demurrage: Unspent balances decrease over time to discourage hoarding. However, this undermines the principle of immutable ownership in cryptocurrencies.
• Sharded States: Dividing the state among different shards can lead to data availability issues and complicate consensus mechanisms.
• Stateless Clients: Use cryptographic accumulators to represent the state succinctly. While promising, this method requires clients to remain online to update proofs and is incompatible with hierarchical deterministic (HD) wallets.

Kaspa’s Harmonic Storage Mass

Kaspa introduces a novel solution called Harmonic Storage Mass, developed by Michael Sutton. This approach cleverly determines the weight of a transaction based on its inputs and outputs.

How It Works

• Dynamic Transaction Weighting: The weight (and thus the cost) of a transaction is calculated according to its impact on the state. Transactions that add more to the state (e.g., creating new UTXOs) have higher weights.
• Quadratic Penalty: The amount of block space wasted by inefficient transactions grows quadratically with the amount of storage wasted. This means that attempts to bloat the state become economically unfeasible very quickly.
• Attack Mitigation: Regardless of the attacker’s strategy, the cost of spamming the network increases sharply, discouraging state bloat attacks.

Benefits

• Efficient State Management: Encourages users to optimize their transactions to minimize storage impact.
• Maintained Usability: Regular users are not adversely affected, and microtransactions are supported effectively (as detailed in KIP-10).
• Enhanced Security: Protects the network from attacks aimed at overwhelming the state storage.

For more detailed analysis and hard numbers demonstrating the effectiveness of Harmonic Storage Mass, refer to KIP-9 (Kaspa Improvement Proposal 9).

Performance Metrics and Future Plans

Current Performance

Mainnet:

• Block Rate: 1 block per second.
• Throughput: 300 TPS.

Testnet:

• Block Rate: 10 blocks per second.
• Throughput: 3,000 TPS.
• Accessibility: Open for anyone to join, test, and even stress-test.

Despite the high transaction rates, nodes operate smoothly on inexpensive hardware without performance issues. Users have synced nodes on old cell phones and ten-year-old laptops, demonstrating Kaspa’s efficiency.

Upcoming Crescendo Hard Fork

In the coming months, Kaspa plans to implement the Crescendo hard fork, which will:

• Increase Mainnet Block Rate: From 1 to 10 blocks per second.
• Boost Mainnet Throughput: Up to 3,000 TPS, matching the testnet performance.
• Introduce Additional Updates: Enhance network capabilities and efficiency, paving the way for future developments.

This upgrade is poised to solidify Kaspa’s position as a high-performance blockchain platform capable of handling significant transaction volumes.

Historic KRC-20 Launch

On September 15th, Kaspa witnessed the launch of KRC-20, a platform for tokens developed by the independent team Clx. This event was the largest live experiment in PoW history.

Key Highlights

• Mass Token Minting: Approximately 100 tokens were minted simultaneously.
• High Transaction Rates: Users generated transactions at rates of 600 to 700 TPS.
• Large Mempools: Transaction pools grew to over 250,000 pending transactions.
• Volume Processed: Over 20 million transactions were processed within 24 hours.
• No Outages: Despite the unprecedented load, the network experienced no downtime.
• Low-Cost Nodes: All nodes operated on hardware costing around $100.

Never before had a decentralized system processed such a volume of transactions while maintaining stability and accessibility. This achievement showcases Kaspa’s capability to handle real-world demands and sets a precedent in distributed computing.

Community-Driven Development

Funding and Development Model

Kaspa’s development is entirely community-based, distinguishing it from many other blockchain projects that rely on:

• Dev Fees: Allocating a portion of block rewards to developers.
• VC Backing: Securing funding from venture capitalists, which may influence project direction.
• Foundations with Premines: Establishing foundations funded by a premine or initial coin allocation.

Kaspa adopted an “if we build it, they will come” philosophy. All development was initially funded by community contributions through funding pools. Now, foundations like the Kaspa Ecosystem Foundation and the Kaspa Industrial Initiative support ongoing efforts.

Developer Accountability and Global Participation

• Continuous Proving Ground: Developers, including the original team, must consistently demonstrate their value to the community.
• Growing Team: The core development team has expanded from a few developers in Israel to 21 contributors from 17 different countries.
• Decentralized Innovation: This global participation enhances the project’s decentralization and fosters diverse perspectives and ideas.

This approach ensures that development aligns with community interests and promotes a transparent and democratic evolution of the platform.

Decentralized Mining and Fair Launch

ASIC-Friendly Mining

Contrary to concerns about mining centralization due to ASICs, Kaspa believes that being ASIC-friendly is essential for true decentralization.

Rationale

• Inevitability of ASICs: If a cryptocurrency becomes valuable, specialized hardware will emerge regardless of initial resistance.
• Drawbacks of ASIC Resistance: ASIC-resistant algorithms only delay the inevitable and result in more expensive, less accessible hardware when it does emerge.
• Accessible Mining: An ASIC-friendly approach ensures that mining hardware is more affordable and accessible to a broader range of participants.

Kaspa’s Strategy

• Delayed ASIC Entry: The mining algorithm was modified so that existing hardware couldn’t mine immediately. It was announced just a day before launch to prevent any unfair advantages.
• Rapid Emissions: A significant portion of the coin supply (about 65%) was mined by GPU miners before ASICs became available, similar to Bitcoin’s early distribution.
• Cost-Efficient Mining: Due to higher block rates and transaction volumes, achieving a meaningful share of mining requires less capital compared to networks like Bitcoin.

Impact on Decentralization

• Lower Entry Costs: Home miners can participate without prohibitive investments.
• Mining Distribution: Small home mining machines remain popular, preventing dominance by large mining farms.
• Enhanced Security: A diverse and widespread mining community strengthens the network against attacks.

For instance, while Bitcoin’s total mining capital expense is around $122 billion, requiring an initial investment of $12 million to see weekly revenue, Kaspa’s structure would require only $2,000 for the same potential return if it had a similar capital expense.

Innovative Fee Market Design

Challenges with Traditional Fee Markets

In existing PoW systems, fee markets often suffer from:

• Transaction Starvation: Low-fee transactions may remain unconfirmed indefinitely during high network congestion.
• Unpredictable Fees: Users struggle to determine the appropriate fee for timely confirmations.
• Inefficient Incentives: Miners prioritize high-fee transactions, leading to a less equitable system.

Kaspa’s Approach

Kaspa’s high throughput and parallelism allow for a healthier fee market through:

• Randomized Transaction Selection: Miners aiming to maximize profits introduce randomness in selecting transactions, rather than strictly prioritizing by fee.
• Early Fee Incentives: Users are incentivized to include fees even when the network isn’t congested, as higher fees increase the probability of faster confirmation.
• No Transaction Starvation: Low-fee transactions aren’t ignored but may experience longer confirmation times, ensuring fairness.

Benefits

• Quality of Service Representation: The fee paid more accurately reflects the expected confirmation speed, aligning costs with service levels.
• Reduced Congestion Issues: Incentivizing fees before congestion occurs helps prevent sudden spikes in network load.
• Enhanced User Experience: Users have a clearer understanding of how fees impact confirmation times, allowing for better decision-making.

This design leads to a more efficient and user-friendly network, addressing long-standing issues in fee market dynamics.

Mitigating Miner Extractable Value (MEV)

Understanding MEV

Miner Extractable Value (MEV) refers to the potential profit miners can extract by manipulating transaction inclusion and ordering. This leads to:

• Front-Running: Miners prioritize their own transactions over others for personal gain.
• Increased User Costs: Users may have to pay higher fees to compete for inclusion.
• Trust Erosion: Manipulative practices undermine network integrity and user trust.

Kaspa’s Unique Solution

Kaspa’s architecture inherently mitigates MEV through:

• High Throughput and Parallelism: Rapid block production means miners lack perfect information about the network’s current state when creating blocks.
• Competitive Inclusion: Miners compete to include transactions without certainty about others’ actions, reducing the ability to manipulate ordering.
• Value Sharing with Users: Competition among miners leads to natural sharing of any potential MEV with users, aligning incentives.

Outcome

This approach is unique to Kaspa and effectively reduces MEV’s impact. It promotes a fairer and more transparent network. By designing the protocol to limit miners’ ability to extract undue value, Kaspa enhances trust and fosters a healthier ecosystem.

Future Prospects: Smart Contracts on Kaspa

While time constraints prevent a detailed exploration, it’s worth noting the potential for smart contracts on Kaspa:

• On-Chain Validation: Kaspa’s fast confirmation times enable efficient on-chain validation of smart contracts without compromising responsiveness.
• MEV Resistance Benefits: Smart contracts would inherit the network’s MEV-resistant properties, enhancing fairness and security.
• Best of Both Worlds: Users could enjoy the security of on-chain execution with responsiveness comparable to off-chain solutions.

Kaspa’s capabilities position it to offer significant advancements in smart contract execution, combining speed, security, and decentralization.

Conclusion

Kaspa is not just another blockchain; it’s a revolutionary platform that addresses critical challenges in scalability, security, and decentralization. By reimagining consensus mechanisms through GhostDAG, optimizing node operation, and innovating in areas like state management and fee market design, Kaspa sets new standards for what’s possible in a PoW system.

Its community-driven development and commitment to fair and decentralized mining further strengthen its position as a leading blockchain technology. The historic KRC-20 launch demonstrates Kaspa’s ability to handle unprecedented transaction volumes without sacrificing performance or accessibility.

As Kaspa continues to implement its roadmap, including the upcoming Crescendo hard fork and potential smart contract integration, it stands poised to become a foundational Layer 1 platform. It’s capable of supporting a vast array of applications and Layer 2 solutions. By delivering unmatched performance and efficiency, Kaspa could indeed be “the only Layer 1 you actually need,” transforming the future of decentralized networks.