Predictability plays an essential role in every blockchain’s infrastructure. Without rigid rules and coding instructions, decentralized communities of computers (aka nodes) can’t process, verify, or publish transparent transactions on their respective payment ledgers.
However, as developers experiment with new use cases on their decentralized applications (dApps), there’s a growing demand for "spontaneity" in crypto software. More web3 projects deliberately incorporate randomness into their code to offer users more options and boost onchain privacy, equity, and security.
Thanks to verifiable random functions (VRFs), crypto developers have a powerful tool to introduce planned unpredictability into their protocols. Let’s explore VRFs, how they work, and why more blockchains are putting them into their programs.
What is a verifiable random function in blockchain?
VRFs are a type of cryptographic hash function used to generate provably unpredictable strings of numbers (aka outputs) from a set of unique variables (aka input values). Users feed their input values through a VRF protocol’s algorithms to receive both the random output and a cryptographically secure proof of authenticity. Both these data points prove the outputs from a VRF are unbiased, transparent, and connected to the unique inputs, which gives it high credibility on decentralized blockchains.
Computer scientists Silvio Micali, Michael Rabin, and Salil Vadhan introduced VRF architecture in 1999, and it has since evolved as a method of using cryptography to secure online networks. Blockchain developers also frequently use VRFs to explore new experiences for their dApps and ensure equality on peer-to-peer (P2P) protocols.
How do VRFs work in crypto?
VRF technology uses the public-private key pairing foundational on P2P blockchains. In this cryptographic standard, the private keys provide holders with privileged access to a virtual account or digital assets, and they remain tightly controlled by whoever generated them.
When someone wants to create a VRF, they need to send their private keys and a unique identifier (aka seed) into a VRF system. The VRF combines the private key and seed using complex cryptographic functions to create a deterministic—but also unpredictable—list of numbers. Similar to cryptographic hash functions, VRF outputs are deterministic because they produce the same result with identical inputs.
A defining feature of VRF values is that they come with cryptographic proofs guaranteeing each string of numbers is random and free from third-party manipulation. If crypto traders want to verify a VRF’s legitimacy, they use the provided public key to scan the results. While each public key links to a private key, cryptography helps obscure this connection, so there’s no way to determine the latter’s value with the former information. Since VRFs share the public key openly, everyone can check the accuracy and randomness of each VRF output.
Essential features of a verifiable random function
VRFs work similarly to random number generators but don’t stop at creating unique numbered sequences using internal algorithms. A VRF has additional protocols and procedures to guarantee each list of numbers resulted from pure chance.
- Unpredictability: Blockchains primarily use VRFs to generate unguessable lists of numbers. Even people with privileged access to the input values have no idea what the output string is before using a VRF.
- Provable: Crypto traders don’t have to trust a VRF protocol’s reputation or results. Since the public key is readily available, outside observers can match this info with cryptographic proof to verify their VRF’s integrity and randomness.
- Tamper-proof: VRF protocols use a deterministic hashing model, so there’s no way to manipulate the output results after generating random numbers and proofs. Because each output only relates to one set of private keys and seeds, modifying these functions after the fact is impossible.
Use cases for verifiable random functions
The controlled randomness of VRFs gives them a wide range of applications throughout the blockchain sector. Ironically, when blockchain developers want to add predictability to their protocols, they often turn to VRFs as their primary solution.
Web3 gaming
Blockchain-based video games and metaverses add excitement while maintaining fairness by incorporating VRFs into their gameplay. Whether gamers win loot drops, collectible non-fungible tokens (NFTs), or open treasure chests with crypto tokens, the VRF makes it possible to confirm the randomness of their prizes and ensure everyone has an equal opportunity to win.
Also, when players complete specific tasks, battle fellow gamers, or compete in contests, they don’t have to worry about cheating or third-party manipulation influencing their rewards. The verifiable unpredictability of VRFs promotes trust in web3 gaming while giving programmers more tools to develop engaging in-game experiences.
Proof-of-stake validation
On a proof-of-stake (PoS) blockchain, nodes lock a set amount of cryptocurrency onchain to participate in transaction validation. Typically, the PoS algorithm favors validator nodes with higher amounts "at stake" because they have a greater financial incentive to submit legitimate results. However, there are concerns the benefits large PoS validators enjoy increase the potential for network centralization and manipulation.
VRFs can potentially preserve decentralization on PoS blockchains by introducing extra randomization to the validation selection process. VRFs contribute to a more equitable and secure PoS blockchain by incorporating an unpredictable element into node validation.
Decentralized finance
Decentralized finance (DeFi) applications sometimes incorporate VRFs into token rewards or lottery drawings as an unbiased “thank you” to their liquidity providers. For example, in decentralized lotteries, VRFs select winners from traders contributing to different liquidity pools, preventing any one party from gaining an advantage through manipulation. These fair reward mechanisms boost the morale of current liquidity providers and help DeFi protocols incentivize more participation from the crypto community.
Besides token reward systems, VRFs aim to help maintain fairness in DeFi governance programs like decentralized autonomous organizations (DAOs). The randomness of VRF outputs helps democratize the decision-making process for participants in a DAO, contributing to a more inclusive online governance structure. By integrating VRFs, DeFi applications can increase trust within their online communities, minimize exploitation risk, and promote openness and fairness.
Supply chain management
Randomization seems like a counterproductive feature for supply chain spreadsheets, but there are ways VRFs help with compliance and quality control. For example, a supply chain management firm using blockchain technology incorporates VRFs to randomly pick batches for quality assurance screenings in their systems.
Since the VRF selection process is unpredictable, there’s no threat of bias or manipulation in routine sampling procedures, adding another layer of trust between counterparties in a supply chain.
Are there downsides to using VRFs in crypto?
VRFs are a valuable tool with many possible benefits for crypto security and innovation, but this new technology comes with potential issues. One of the biggest challenges of incorporating VRFs into existing web3 projects is their high computational burden, which sometimes negatively impacts a blockchain’s speed and scalability efforts. Implementing VRFs into blockchains also takes considerable time, skill, and investment, especially as the crypto industry doesn’t have a standardized approach to using this technology.
There are also risks of centralization or manipulation from crypto VRF providers, especially if these protocols don’t provide detailed blockchain audits, a decentralized governance structure, and open-source code for inspection. Although a VRF reveals the public key for cryptographic proofs, there’s a chance whoever has the private keys uses this information to their advantage. Crypto traders need full transparency into a VRF’s operations to ensure the service is legitimate and offers tamper-proof results.
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