Since Lisk was the best performer in my portfolio last week I decided to write a bit about it.
Lisk is a decentralized blockchain network that utilizes Delegated Proof of Stake (like BitShares) as opposed to Bitcoin's Proof of Work or Nxt's Proof of Stake. To better understand Lisk's operating model, I'll provide a quick breakdown of these three algorithms:
Proof of Work (POW)
POW is used to facilitate and operate the Bitcoin network by providing an incentive to participants and a disincentive to spammers/fraudulent actors. It requires participants in the network (miners) to perform computationally costly mathematical operations that are computationally cheap to verify. These mathematical operations are usually hashing functions, and in the case of bitcoin, are a hash of the current block, hash of the previous block, and a random variable (nonce). Calculating this hash is extremely simple, so to increase the difficulty of this, the bitcoin network requires that the resulting hash start with a certain number of 0's. The more zeros required, the more attempts are required to find a valid hash. Miners must alter the nonce and then generate a new hash, repeating this process until a valid hash is found that contains the required number of leading zeros. Whoever finds a valid hash that meets the difficulty requires (specific number of leading 0's) receives the reward for "mining" that block. By requiring participants to expend significant computing resources to compete against each other to be the one who successfully enters a block onto the blockchain (by finding a valid hash), you are requiring Proof of Work to be a participant and enter data.
Proof of Stake (POS)
POS is different from Bitcoin in that the creator of the next block is chosen in a deterministic (pseudo-random) way, and the likelihood of being chosen is tied directly to the participants stake (number of coins). To prevent a single participant from dominating block creation (and thereby allowing that participant to substitute an alternate blockchain history), additional mechanisms have been added to some cryptocurrencies. PeerCoin applies the concept of "coin age": the longer an amount has been held by a single participant, the more likely it's owner will be of being selected to create the next block. Once chosen, the coin's age is reset.
Systems that utilize POS algorithms often do not pay rewards to participants who create new blocks (miners). Instead, the reward for block creation is paid from the transaction fee for that block in liu of new tokens. These systems are vastly cheaper to operate as they do not require participants to expend extreme amounts of electricity in the pursuit of achieving the highest hash rate to hopefully win a reward.
Delegated Proof of Stake (DPOS)
DPOS was first developed by BitShare's lead developer Daniel Larimer and is used by BitShares, Crypti, LISK, and other cryptocurrencies. DPOS is similar to Proof of Stake in that it doesn't require participants to compete against each other via hashing; simply owning tokens is enough to participate. The main difference between DPOS and POS is similar to the differences between direct democracy and representative democracy. In POS, every coin containing wallet is eligible to generate a block. In DPOS, each coin containing wallet is eligible to vote for a delegate who will be chosen to validate transactions and as a result, receive transaction fee's. This allows the network to select a limited number of trusted actors to maintain the blockchain. In the case of BitShare's and Lisk, there are 101 delegates.
The main advantage of DPOS over POS (and POW) is it's flexibility and efficiency. All network parameters from fee schedules to block intervals, transaction sizes, etc. can be tuned via elected delegates. Transaction confirmations are extremely fast as there is a limited number of delegates who actually handle transaction confirmation rather than a large decentralized network of participants. It's more efficient than POW or POS systems that incentivize large numbers of participants to expend computational power to vie for rewards. Additionally, DPOS allows for lightweight wallets that don't require the full blockchain to be able to vote on delegates To vote on a delegate you don't need the full blockchain. The side effect of this system is that it consolidates power into a small number of hands (more so than POS already does), and decreases network robustness overall.
So what is Lisk?
Lisk is a Blockchain application platform, established in early 2016. Based on its own Blockchain network and token LSK, Lisk will enable developers to create, distribute and manage decentralized Blockchain applications by deploying their own sidechain linked to the Lisk network, including a custom token. Thanks to the flexibility of sidechains, developers can implement and customize their Blockchain applications entirely.
The idea behind Lisk is that sidechains connected to the Lisk mainchain can be developed via the Lisk SDK, which in turn can be used to enable decentralized application development. The Lisk SDK allows you to deploy a sidechain that's completely customizable for your applications needs. An example use case would be if a startup company wanted to raise funds via an Initial Coin Offering (ICO), they could create their own customized coin/token as a sidechain to Lisk very rapidly. The SDK provides a number tools and capabilities that help bootstrap the process and reduces the amount of technical knowledge required to create your own blockchain.