How the network works

In this article you will learn how the network works.
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How the network works


Basics of the network

Nyzo is a very different network, it is not Proof of Work nor Proof of Stake and with that come some new concepts to understand. Below you will find visualizations and explanations for the major components of the network.

The mesh

The mesh represents the entirety of the network.
Nodes are seperated into two groups and are called:

  • Cycle candidates
  • In-cycle verifiers

The majority of the verifiers in the mesh are cycle candidates.
(Note: Cycle candidates were called queue verifiers before the network changed to a lottery-based entrance mechanism)

Cycle candidates

All nodes start off as cycle candidates. Cycle candidates do not actively participate in the production of blocks, they do however actively track the network.
A valid cycle candidate consists out of:

  • A unique IPv4 address
  • An up-to-date & running, copy of the nyzoVerifier codebase

After the cycle candidate has initialized for the first time (the codebase has been installed on a new machine with a unique IPv4 address & is running), a sequence of events take place:

  • The cycle candidate starts tracking the blockchain and its state
  • The cycle candidate notifies the in-cycle verifiers of its existence
  • The in-cycle verifiers record the existence of the cycle candidate with a timestamp

30-day incubation period

New cycle candidates must repeat the above for at least 30 days before they become eligible for selection by the cycle, this largely prevents botnets and illicitly funded servers from gaining a significant advantage in joining the network. It also avoids having an immediate advantage in joining the network.

Candidate selection

The in-cycle verifiers automatically select candidates to become part of the cycle.
This process is deterministically random and is sometimes referred to as the 'Nyzo lottery'.

The verifiers independently switch the verifier they vote for based on the 50-block incremented block hash. This does however not mean that a new candidate is allowed to enter the cycle every 50 blocks.

The blockchain rules depict when a candidate is allowed to join the cycle - according to the following formula:

24 * 3600 / cycle size / 7 / 2 = Joins per day
24 / Joins per day = Hours between joins

Upon selection by the network the candidate has to produce a block in order to join the network.

Shown below is the historical progression of new cycle candidates joining the cycle and becoming an in-cycle verifier. (at the time of writing)

Block production

The cycle consists out of a fixed structure of nodes, who each in turn produce a block. This makes block production faster than PoW or PoS systems, with a block time of 7 seconds.

All in-cycle verifiers vote every 7 seconds to approve the production of the proposed block by the producing verifier.

Block rewards

The verifiers solely earn rewards from transaction fees. If you are able to join the cycle as a verifier, you get 10% of the transaction fees for each block you verify and 10% of transaction fees for each of the next 9 blocks in the chain. This is how you will earn coins in the beginning, and this is how you will continue to earn coins as more people join the system.

Until a lot of people have a lot of coins, organic transaction volume will not be high enough to make transaction verification worthwhile.

To remedy this, 27 million seed transactions have been created: one transaction per block for the first six years that the system will be in operation.

These transactions are drawn from an account for which the private key was generated, used to sign the transactions, and discarded without saving.
Release 479 ensures that no other transactions originating from the seed wallet can be included by the network.

The seed account is funded with ∩20 million; it will be drained to approximately ∩0.01 at the end of five years if all seed transactions are processed. Transactions in the sixth year will only process if some of the earlier transactions are omitted.

Emission scheme

Every cryptocurrency has a way of releasing coins to the people which are involved with the project - this is the incentive for securing the network and the primary driver of interest by cycle candidates whom are looking to join the network.

It is an important determinant in regards to prospecting a cryptocurrency's price.
As mentioned above, the seed account facilitates rewards for the first six years of the network's existence. It is to be expected that the network will see organic transaction volume after this time period. The cycle fund acts as the main catalyst for rewarding development on and for Nyzo.

The core determinants:

  • Blocks per day
  • Seed transaction amount
  • Cycle size
  • Organic transaction volume

There are tools available on the Open-Nyzo github repository for generating a historical view of the coin's supply and the network's cycle events.

The first graph shows the decrease in the amount of Nyzo the seed transaction contains. The 'block reward' is 0.25% from the seed account transaction.
This does not include any additional earnings through verification of organic transactions.

The second graph accounts for the amount of verifiers in the cycle.
The more people are part of the cycle, the less blocks one single verifier produces in a single day. As the cycle grew from 10 official nodes onwards, the amount of blocks produced by a single verifier decreased rapidly.

The last graph omits the first 700,000 blocks from the chart above, as to get a better view on the recent emission progress.

Learn more

This article already contains an extensive amount of information about the network, but some subjects can not be covered here without making the page erroneously long. The knowledge base contains a seperate category for Proof of Diversity, where the role of the sentinel is explained, a typical verifier lifecycle timeline is visualized, the network's attack resilience is documented and the electrical consumption is compared to other projects in the cryptocurrency space.

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