Will Proof-Of-Stake Go out of Fashion?
Almost every innovation in the field of cryptocurrencies was made to solve numerous Bitcoin’s flaws. Curiously enough, every implementation of such innovative solutions ended up as a side project, while Bitcoin continues to dominate the market.
PoS (Proof-of-Stake) is one such innovation, developed to improve on Bitcoin’s insanely expensive algorithm of consensus. Some view it as the inevitable evolutionary step, others believe it can never be as reliable and secure as PoW. In this article, we will explore the pros and cons of PoS and present some expert opinions.
PoW’s problems became apparent to some members of the community even before they fully manifested themselves. Proof-of-stake was conceptually developed as early as 2011. The principle of operation of this alternative consensus algorithm is to use blockchain’s internal resource (coins locked in the wallet) instead of consuming an external resource (electricity and computing power).
Energy consumption for BTC and ETH mining is a massive waste and there’s no incentive to take responsibility for the carbon footprint. Absolutely ? that this isn’t high on the agenda for the growing climate crisis… https://t.co/psR77m78Ua
— Brad Garlinghouse (@bgarlinghouse) March 4, 2020
One of the problems Proof-of-Stake attempts to solve is related to energy consumption. “Mining” in PoS is cost-free. Each participant has a chance to be randomly selected by the creator of a new block (validator) and this chance increases in proportion to the number of coins in his wallet. There is little incentive for validators’ work. On the other hand, they spend nothing in the process of creating a block.
Proof of Stake: a bunch of signatures
Proof of Work: real skin in the game
Proof of Stake is fiat marketed differently. pic.twitter.com/HLkUmoyqYg
— Jimmy Song (송재준) (@jimmysong) January 3, 2019
Historically there have been two types of vulnerabilities, which PoS was deemed particularly susceptible to. The so-called ”nothing at stake” and “long-range” attacks.
Nothing at Stake
The ”nothing at stake” problem is enabled by the fact that in PoS systems validators do not spend any resource when creating blocks.
While in PoW miners are forced to choose which chain to mine, because their resources are limited, PoS users can stake their coins on all existing forks simultaneously. This incentivizes users to participate in every fork available to maximize their profits and the possibility of endless forking without consequences becomes an issue.
Proof of Stake is no different than the Federal Reserve system, which is owned by its constituent banks, who have a monopoly on increasing the money supply you are forced use. It's the problem Bitcoin solves with proof of work by making money creation hard for everyone.
— Saifedean Ammous (@saifedean) December 25, 2018
That being said, “nothing at stake” has so far remained a boogeyman. No PoS blockchain to this day has experienced serious trouble with this. For example, NXT solves this issue having no block rewards whatsoever. While Buterin suggests a ”wrong-voting penalty.”
100% proof-of-stake is the future of blockchain tech 🙂
— Vlad “ETH is not money” Zamfir (@VladZamfir) October 6, 2014
The long-range or deep-fork attack is basically a reconstruction of the entire chain from a very early point of its existence by an early validator or a group of those.
Most PoS blockchains mitigate this vulnerability by introducing a limitation on the range at which prior blocks can be disputed.
PoS also has several major offshoots, most popular being DPoS, where blocks are validated by a small number of democratically elected nodes.
Proof of work becomes completely centralized when quantum leap in computation or algo is discovered… dpos stays decentralized regardless of technological developments. You can fork dpos easily, but creating a new resistant proof of work is very difficult.
— Daniel Larimer (@bytemaster7) April 14, 2019
In these systems, additional concerns became vividly obvious as of late, mostly linked to governance hurdles. The bitcoin community has long been terrified of a situation where few powerful miners would collude and force the community to accept whatever new rules they choose. But DPoS, on the other hand, is vulnerable to the so-called “short-range” attack also known as good old bribing.
Conjectured governance under proof-of-stake seems to involve programmers & other amateurs making legal & accounting decisions. Bitcoin governance does not. Even when lawyers & accountants properly take over PoS governance, PoW governance will likely be far more socially scalable.
— Nick Szabo ? (@NickSzabo4) January 25, 2018
Another major PoS concern was that consensus could be compromised by the owners of a huge amount of blockchain’s native tokens, the so-called whales.
@mariob003 I think proof-of-stake is hard-coded 'the rich get richer' and is deeply unfair.
— Gavin Andresen (@gavinandresen) January 10, 2014
In the event of a conspiracy among the largest “shareholders”, it will be impossible to overcome it. A chilling illustration of this concern is Steemit’s recent debacle.
Vitalik Buterin reacted to this scandal calmly, noting that mining and governance are two different beasts and so Ethereum’s plan to transit to PoS will not be affected by this.
Coin voting != PoS. In PoS validator's just verify blocks, they are not voting on decisions. Using PoW to vote on decisions would be even more of a disaster than using coin voting.
— vitalik.eth (@VitalikButerin) March 2, 2020
PoS is not just a technological solution, but also a political and economical statement. PoS is more energy-efficient and is geared for punishing bad actors. Yet its reliance on the native token for generating blocks makes it more vulnerable to centralization.
That being said, in the spirit of blockchain technology itself, where people disagree on the direction the industry should take, they can split off and work on their respective concepts.
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