Nahmii State Pools: The Intersection of Security and Finality Reimagined
Last week, we left you with a bit of a tease. In case you missed it, the layer two Ethereum scaler ecosystem is in the midst of chasing its holy grail. It wants to achieve a combination that has been impossible so far: the speed and efficiency of centralized servers and transactions that zip across the web in the way we’ve become accustomed to in the Web 2.0 applications we use every day, plus the pseudonymity and security that blockchain technology provides.
For example, most of us love the sharing economy that is being built by companies like Uber and Airbnb. But what if we could make those services truly peer-to-peer without their centralized authorities sitting in between us, extracting money we could otherwise keep? What if there was a Twitter that was unhackable? Email without spam? Working with automated, blockchain-based smart contracts on top of Ethereum, we now have the technology to do these things. We can build a DAO that connects users and service providers, provide for periodic maintenance and manage microtransactions securely but we need a true scaling solution for Ethereum.
With all of the noise from the folks working to solve this conundrum, this might end up being the Summer of Scaling. But so far, rather than practical, workable solutions, all we’ve seen is cloudy dreamscapes of what the world looks like when we finally solve this problem and Web3 applications are available for mainstream users.
Last week, we told you Nahmii had the first practicable solution for making Ethereum able to support applications working at scale. This week, as promised, we’ll explain how Nahmii uses a new technology we’ve named state pools, to get us to the Web3 we’ve been waiting for.
For starters, the state pool technology that Nahmii has created is not just pie in the sky or wishful thinking. We are employing proven technologies in a way that captures their benefits and mitigates their shortcomings. In short, Nahmii’s technology combines the instant finality of state channels and the pooled security of other scaling solutions to generate transactions that are instantly irreversible and secured by Ethereum — thus the name “state pools”.
But let’s dive in, beginning with how state channels contribute to the Nahmii solution. Like most scaling solutions, at a basic level, state channels involve having users interact with each other outside of the main blockchain network or “off-chain,” saving the costs and time of executing every transaction directly on the layer 1. Expensive base layer fees are only paid when the state channel is opened or closed. Similar to opening and closing a bar tab — the credit card need only be scanned twice, not every time a drink is ordered. In short, transactions within state channels are backed by the same level of security as transactions on the base layer while using a fraction of the network resources.
Perhaps the most well known application of state channels is Bitcoin’s Lightning Network. The Lightning Network addresses Bitcoin’s scaling issues with dedicated two-party payment channels that allow pairs of network participants to make almost instantaneous transactions away from the main chain. While normal bitcoin transactions take 10 minutes to settle and can cost up to several dollars, transactions on the Lightning Network take milliseconds and cost a fraction of a penny.
However, while the Lightning Network focuses on scaling payments, state channels can also support general updates to state, for example votes or supply chain tracking. Moreover, at any point, either of the parties can settle the current state back to the main chain, so users are fully incentivized to act rationally.
Most importantly though, transactions within state channels have instant finality — even before they are committed to the base layer. Users don’t have to wait for each transaction to be committed to the blockchain because each signed transaction abides by the network rules. This makes the user experience seamless and more mirrors how popular online applications operate today.
But in addition to their strengths, state channels have a host of limitations. An example of one weakness of state channels resides in its settlement mechanism. As mentioned, either party to a state channel can initiate settlement of state to the base layer. But the only check against fraud is the other party’s ability to challenge the transaction. Let’s say Alice and Bob are transacting via a state channel, such that Alice pays Bob monthly for six months of rent. After six months, Alice decides to commit state, but as it was after month five, omitting her last payment recorded in the channel. When she initiates settlement, Bob has an opportunity to challenge, but if he’s not paying attention during that period of time, Alice will get away with her fraudulent settlement. The channel will close and the base layer will only record five of the six transactions.
To solve for this situation and others, Nahmii incorporates the pooled security of other models. In Nahmii, instead of requiring Bob to police Alice alone, every participant in the network has a reward incentive to review settlements and challenge fraudulent commits. The result is the best of both worlds: transactions that are irreversible immediately, and fraud security on par with Ethereum.
Instant finality and security are a major part of what distinguishes the protocol Nahmii will launch this month from any other scaler in existence. But there is more to talk about. Are you ready for more on how Nahmii works for institutions? Next week, we’ll dig in on just how we are bringing true commercial viability to the blockchain.
