How does proof-of-transactions work on a technical level?

The best write-up is our technical description. There is also a presentation on Proof of Transactions available for download from our sidebar that tries to simplify how Saito’s consensus mechanism works. If you are looking of the simplest explanation possible, skip it and read below for the absolute basics:

1. How blocks are produced:

In the Saito network, honest nodes earn the privilege of creating blocks by proving they have routed enough transactions to do so. Attackers can pretend to be honest nodes, but to do this they need to create a lot of fake transactions that pay real transaction fees. This gives Saito the same security against chain reorganization attacks as Bitcoin: we can all calculate how much money it will cost to attack the network and wait for the appropriate number of confirmations.

2. Who collects the transaction fees:
The node that produces the block collects a tiny amount of money up-front, but locks most of the fees into a “golden ticket”. Miners in the network then hold a provably-fair lottery to figure out who wins this money, splitting the fees between the miner that solves the lottery and one node picked randomly from the routing network. The system shares the same properties as Bitcoin: no-one can control who gets paid at any point in time, but the payments will generally flow to the people who are doing the most work in the network.

3. This sounds simple:
It is better than simple! Saito is an elegant design that uses market pressures instead of algorithmic complexity. We make sure all actors are incentivized to act in ways that promote the health of the network, and we guarantee that if someone tries to cheat it will be profitable for everyone else in the network to counterbalance them.

Looking for a more complicated explanation, check out our presentation designed to help people understand proof-of-transactions. While it goes into more detail about what is going on, if you really want everything you should read our technical description.