Ripple and XRP – Part 7: Consensus vs. Proof-of-Work (2018)

So consensus is the way that the XRP ledger solves the double spend problem without proof of work.
Kind of the problem is that we can all agree on which
transactions are valid or invalid, the basic rules for a transaction are simple:
they have to be properly signed you can’t send money you don’t have, those things are all all not a problem.
The problem is if let’s say Alice has
one XRP or one Bitcoin or one dollar,
we want her to be able to send that to Bill if that’s what she wants to do and we want her to be able
to send that to Charlie if that’s what she wants to do, but if she can do both
we have a huge problem. So somehow
even though both
transactions are valid we have to agree on which one of them were going to put first so that we can agree that the second
one is invalid. And so it’s that problem of resolving conflicting
transactions. Now historically
that’s been done by a bank, like if I write a check my bank either says I have the funds or I don’t and if
I write two checks for the same money
They’ll process one first, and we’ll all agree that the one the bank said was good is good, but we don’t have a central authority.
Bitcoin uses proof-of-work Ripple doesn’t. The XRP ledger
uses a distributed agreement protocol, which is essentially just a way of everybody to say hey,
I saw this transaction first
and if you have a super majority of agreement on that and no way to
renege on that agreement, that is sufficient to order the transactions that combined with the
deterministic validity rules, is enough to say that the one that we agreed comes first is it is valid and the one that we didn’t
agree comes first, is forever invalid. One of the things that we realized very quickly when we started to experiment with consensus and see what it
was capable of doing is we saw that it had several advantages over proof of work. And some of them are fairly
obvious that you don’t need to spend millions of dollars just to keep the blockchain secure.
You don’t need to suck money out of the ecosystem to send to power companies, but there was another one
that’s a little bit less obvious, which is that you don’t have a dictator who gets to choose
what’s in each block. Each block or its equivalent, each ledger, is determined by a consensus of participants.
So there is no single party that gets to determine each block.
That’s what makes possible some of the features that the Ripple ledger has, like the decentralized exchange of the arbitrary assets.
Those things require a system that has inherent fairness rather than people who get to decide the outcomes.

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