Proof-of-Stake (vs proof-of-work)

Hello everyone I’m Xavier, you may have read the content before Digital currencies like Bitcoin use huge amounts of computing power to lock in the security of the network But why is it so? More importantly, do we have any other options? Because of the PoW algorithm, mining tokens requires a lot of computing power The Pow algorithm first appeared in the anti-spam confrontation in 1993. It was officially named "Proof of work" In 1997 But it wasn’t until 2009 that Satoshi Nakamoto founded Bitcoin that this technology was used on a large scale. He realized that this mechanism can be used to form a consensus in a multi-node network environment He uses this mechanism to ensure the safety of Bitcoin However, the PoW algorithm requires all nodes to perform operations to solve an encryption problem The operators of these cryptographic problems are miners.

The first miner who arrives at the correct solution will get the "miner reward" These rewards have led to a situation where people are building bigger and bigger mines Like this According to a Digiconomist report, the power consumption of Bitcoin mining farms is as high as 54 TWh This electricity can provide household electricity for 5 million American residents, which is equivalent to the electricity consumption of a country in New Zealand. Or a whole of Hungary But this is not the end The existence of the PoW algorithm leads to the better the performance of the computing power equipment, the more rewards they receive The higher your computing power rate, the greater the probability that you will get the next block That is, the greater the probability of getting block rewards In order to increase the success rate of mining more, miners pool their computing power to form Mining pool The mining pool evenly distributes the computing power of the miners, and distributes the rewards obtained according to the ratio of the computing power In general: PoW causes miners to consume a lot of electricity on mining And it encourages everyone to mine in the mining pool, which in turn causes the blockchain's computing power to become more and more concentrated in the mining pool (violating the principle of decentralization) In order to solve this problem, we need to find a new consensus algorithm, which must be more effective than the PoW algorithm In 2011, a Bitcoin forum user, QuantumMechanic (quantum power) proposed a new technology he called "Proof of Stake" He thinks it is a wasteful behavior to let everyone compete with each other for mining As an alternative, the PoS mechanism uses an election mechanism.

A certain node in the network is randomly selected This node will be responsible for verifying the next block Meme, it seems to be a subtle difference in terminology In the PoS algorithm, miners no longer exist. Replaced by "Verifier" And this algorithm does not allow everyone to "mine", but "create" blocks Of course, the selection of "validators" is not a completely random process In order to become a validator, a node must first mortgage a certain amount of Token as a "Stake (property)" You can think of this deposit as a deposit The amount of collateral determines the probability of you being elected as a "validator" in the next election This probability increases linearly Let’s assume that Bob pledged 100 USD and Alice pledged 1000 USD Then the probability of Alice being selected as the creator of the next block is 10 times that of Bob This seems to favor the "rich people (those with a large amount of money)", but in reality This algorithm is more fair If the PoW algorithm is adopted, the rich can enjoy the cost advantage brought by the scale effect Because big miners have more competitive advantages in mining machines and electricity prices The more they buy, the cheaper the unit price Economies of scale! But after returning to the PoS algorithm, If a node is selected as a "validator", it must verify that all transactions in the next node are valid If all checks pass, the node will add a signature to the new block and add the block to the chain In return, this node will receive all transfer fees in the new block.

OK, now how do I trust the "verifier" in the election? This is the time for the pledged Stake (property) to come out If the verifier allows illegal transactions to be included in the block, then it will lose part of the deposit As long as the deposit is higher than the transaction fee obtained We can trust them safely Because if they refuse to keep the books properly, they will suffer losses As long as the deposit is greater than the sum of the handling fees, cheating is uneconomical because the loss will be more When a node is no longer a "verifier", the deposit it paid before and all the handling fees obtained by accounting All will be returned after a certain period of time Although it is not very straightforward, when the blockchain network finds that the "validator" is cheating Still have the ability to punish you Therefore, PoW and PoS formula mechanisms are two very different mechanisms PoS does not allow everyone to participate in the accounting process, which consumes less energy At the same time, it’s more decentralized Why do you say that? Because in the PoW mechanism, there is the concept of "mining pool" Participants of the mining pool obtain income through mining pool team mining But these mining pools control a large percentage of Bitcoin's computing power They make the mining process more centralized and more dangerous If the largest mining pools are further merged, they will have the majority (more than 50%) of the computing power Then they can make fraudulent transactions Another advantage of PoS lies in the cost of setting up nodes PoS nodes are much cheaper than PoW nodes Because you don’t need expensive mining machines, PoS encourages more people to participate in setting up nodes, So as to make the blockchain network more decentralized However, this does not mean that the PoS algorithm is perfect, it also has shortcomings You may think back: "Wait a minute!" If I own more than 51% of the tokens, I can manipulate the network by allowing fraudulent transactions Yes, your judgment is completely correct This is called a "51% attack" and was discussed as an attack vulnerability when the PoS algorithm was first proposed In the PoW algorithm, if a group of miners have more than 51% of the computing power, This group of miners can control this blockchain Based on the value of cryptocurrency, PoS makes this 51% attack very difficult in fact If you want to attack Bitcoin by 51%, according to the current currency price, You need at least 79 billion dollars So in fact, the possibility of this kind of attack against the PoS mechanism is smaller than that of PoW.

And this is not the only risk PoS must also carefully select the next "verifier" when it is implemented This process is not completely random, because there are factors related to the amount of deposit But at the same time, the mortgage cannot be the deciding factor alone, because it favors the rich. The consequence of rich people getting more bookkeeping opportunities is that the rich will become richer and richer. This further increases the likelihood that they will be selected as "validators" There have been several proposals to address this issue, such as "the selection method based on the age of tokens" Another potential problem is that when the network selects a node as the "verifier", It refuses to be a "verifier" It’s easier to resolve this situation. We can select many alternate "Verifiers" at the same time when selecting "Verifier". In short: PoS mechanism introduces more risks than PoW mechanism We still need to do a lot of research on the road to understand and fight against this risk Okay, now we know what PoS is, its advantages and risks, Let's take a look at the application in real life.

Some tokens are already using PoS, they are Peercoin, Lisk and Nxt, There will be more in the future For example, Ethereum is implementing its own PoS system, which they call "Casper". Casper is being actively developed on the Ethereum test network. There is also a project called Cardano, which is already trying to establish a PoS algorithm with provable security. They call it "Ouroboros" You can see this thing if you want to know more Okay, this video ends here If you like it, please like it~ You can also subscribe to my channel Thank you for watching! Looking forward to meeting you again in the next video!.

You May Also Like