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Decentralizing the cost structures of cloud & API providers |
We posit that application-specific blockchains like Pocket Network have the ability to design greater cost efficiencies at the base protocol layer of the Web3 stack while enhancing security and censorship resistance.
Pocket achieves this through an incentive design that rewards Service Nodes for collectively achieving economies of scale:
- Load balancing at the protocol level incentivizes decentralization and minimizes the need for buffers
- Staking and inflation enables more efficient resource allocation
- Low marginal costs reduce barriers to entry, allowing anyone to participate at any scale
Due to the protocol using pseudo-random mechanisms to load balance work evenly across all nodes in the network, the optimal deployment strategy for node providers is to horizontally scale the number of Service Nodes they run (rather than to scale vertically by increasing the POKT stake of the Service Nodes they already have) to increase the probability that they’ll receive work. By decreasing the average work per Service Node, participants of all scales are encouraged to provision their computing power to Pocket Network. This aspect of Pocket’s system design means Pocket Network’s node counts will increase as it scales.
To minimize the marginal cost of each Service Node, it will ultimately become more profitable to run nodes out of homes and local data centers, which will, over time, create a lower-cost, more efficient decentralized network.
Pocket’s distributed nature makes it redundant-by-design, removing the need for node operators to provision extra infrastructure to handle surges in user traffic. Web2 cloud-powered infrastructure requires large buffers of redundant server capacity, which can increase the costs of coordination borne by Web3 users by up to 50%. Conversely, instead of one entity providing all the work, Pocket Network naturally splits demand up amongst Service Nodes through its Session data structure, tumbling new, pseudo-random nodes every Session to give all Service Nodes the opportunity to provide work. As a result, the buffer that each Service Node must provide is significantly lower. Additionally, because Applications must stake POKT to access the service, Service Nodes can account for all potential requests paid for in aggregate, using Application Stake as a gauge of network capacity.
For a decentralized infrastructure service like Pocket Network, on-chain payments via Bitcoin, ETH, or DAI would be inefficient due to the frequency of Relay requests. While state channel implementations do improve the cost of coordination for micropayments, Pocket matches Applications with 5 pseudo-random Service Nodes every 25 blocks for security purposes; creating and breaking on-chain state channels to communicate with each of these nodes would make the cost of coordination impractically high.
Pocket uses Proof-of-Stake (PoS) to secure the state machine and falls under the umbrella of generalized mining or useful proofs of work, where inflation is directly tied to work validated by the network. Applications stake just once to access the protocol (assuming they don’t change their throughput), using the native cryptocurrency POKT which is tied for single-use to the Pocket blockchain. Service Nodes batch all requests received in a Session to one Pocket blockchain transaction, a “Proof-of-Relay” that Applications can validate client-side and other nodes can validate in block production, removing the need for Applications to pay constant transaction fees for this work. Once those Proofs-of-Relays are validated by the network, a new block is confirmed, then POKT is minted and issued to the relevant Service Nodes as a reward for their work.
Pocket’s staking and inflation mechanisms enable a more efficient resource allocation structure by limiting the number of transactions (and thus block validation costs) to one-time staking transactions. All nodes are able to focus primarily on servicing and validating Relay requests by Applications, with minimal energy spent on block validation. By being eventually consistent and tying rewards directly to inflation, Service Nodes are in effect, receiving micropayments for work validated by two parties without the need for constant on-chain fee payments.
The marginal cost of running an individual Service Node is only as high as your electricity and bandwidth costs, ensuring a low barrier to entry for new Service Node operators. Because work is load balanced evenly across the protocol, the stake, size, or capabilities of the Service Node does not increase the probability of receiving work, which enables hobbyists and small providers to participate and contribute alongside major infrastructure providers. As smaller Service Node operators scale up, they can then choose to bear the costs of hardware, equipment, and salaries needed to add more Service Nodes to their operation. \
While the bulk of work will most likely be serviced by professional infrastructure providers, Pocket also enables a long tail of individuals to participate and increase the resilience of the protocol, with potential for upward mobility for those who choose to purchase more Service Nodes.\