Follow the Satoshi (FTS) Algorithm

The Follow the Satoshi (FTS) Algorithm is a key mechanism used in Proof of Stake (PoS) blockchain systems to fairly and randomly select a validator (or stake pool) for a particular task, such as creating a new block or validating transactions. The algorithm is named after Satoshi Nakamoto, the pseudonymous creator of Bitcoin, and it operates by randomly choosing a “Satoshi” (the smallest unit of a cryptocurrency, like ADA in Cardano) to determine the validator for the next block.

How the Follow the Satoshi Algorithm Works:

1. Staking Participation:
   • In a PoS system, users (or validators) lock up a portion of their cryptocurrency (referred to as their stake) in the network. This stake can be used to secure the blockchain, and the amount staked determines the probability of being chosen as the next block producer or validator.
2. Random Selection:
   • The FTS algorithm is designed to select a random Satoshi (or the smallest indivisible unit of the cryptocurrency) from the total pool of all staked tokens.
   • Since each staked coin is divided into many Satoshis (or small units), the more stake a user has, the more Satoshis they control, thus increasing their chances of being selected.
3. Choosing a Validator:
   • Once a Satoshi is selected at random, the algorithm follows the ownership of that particular Satoshi to determine which validator owns it.
   • The owner of the chosen Satoshi (and thus the owner of the corresponding stake) is selected as the validator for that block or for performing a specific task (e.g., creating or verifying a block).
4. Fairness and Security:
   • The random selection process ensures that the choice of the validator is fair and proportional to the amount of cryptocurrency staked by each participant. The more coins a user stakes, the more Satoshis they own, and thus the higher their chances of being selected.
   • However, the selection is random, which prevents large stakeholders from monopolizing block creation. Small stakers still have a chance to be selected, even though their chances are lower compared to large stakers.

Example:

Let’s use Cardano as an example, where ADA is the cryptocurrency:

• Suppose there are 1,000,000 ADA staked in total by different participants in the network.
• One ADA consists of 1,000,000 Lovelaces (the smallest unit of ADA, equivalent to a Satoshi in Bitcoin).
• The Follow the Satoshi Algorithm randomly selects a Lovelace from all staked ADA.
• The owner of the ADA to which that particular Lovelace belongs is chosen as the slot leader (the validator) to create the next block or perform another consensus task.

In this way, the probability of being selected depends on the amount of ADA staked. If you have staked 100,000 ADA (which equals 100,000,000,000 Lovelaces), you have a higher chance of being selected than someone who staked 1,000 ADA, but both still have a chance of becoming the validator.

Benefits of Follow the Satoshi Algorithm:

1. Proportional Fairness: The algorithm ensures that validators are chosen in proportion to the amount of cryptocurrency they stake. Larger stakeholders have a higher chance of being selected, but it’s still a randomized process, giving smaller stakeholders a fair chance.
2. Decentralization: By involving all participants and allowing any stakeholder to be selected, the FTS algorithm promotes decentralization, avoiding the centralization of power that could occur if only large stakeholders had a chance to be validators.
3. Energy Efficiency: Unlike Proof of Work (PoW) systems, which require massive computational power to solve cryptographic puzzles, the FTS algorithm in PoS systems selects validators based on stake, making the process energy-efficient.

Application in Cardano:

The Ouroboros protocol, which is the consensus algorithm for Cardano, uses the Follow the Satoshi Algorithm as part of its block selection process. In Cardano:

• Each epoch (a period of time in which blocks are created), a certain number of slots are allocated for block creation.
• For each slot, the FTS algorithm is used to select a stake pool (validator) that is responsible for producing the block.
• The random selection process, combined with verifiable random functions (VRFs), ensures fairness and security in selecting slot leaders.

Summary:

The Follow the Satoshi Algorithm is a fundamental component of Proof of Stake blockchains like Cardano. It ensures that validators are selected fairly, based on the amount of stake they hold, while keeping the process random and decentralized. This algorithm provides a way to proportionally distribute the chances of block validation while maintaining security, fairness, and efficiency in the consensus process.