Why Proof of Stake Is The Future: Part 4

PoS: The Solution

This article series titled “Why Proof of Stake Is The Future” is exploring blockchain solutions and evaluating their sustainability. Since Proof of Work was the first and most common method of consensus, the first three articles in the series have detailed some of the most relevant concerns with work-based algorithms, including: the extreme waste of electricity, vulnerability to 51% attacks, and scalability.

Now we will take a “bird’s-eye” view on a different blockchain architecture, and discuss how it solves some of the aforementioned issues.

Proof of Work Recap:

Proof of Work blockchains use a work-based algorithm to verify blocks. The term “work” refers to the amount of computing power required to solve the complex algorithm. The term “hash” refers to all of the work being done on the network at any given time. As block difficulty increases, the network hash continues to climb. In an attempt to maximize mining profitability, a hash arms race has ensued, exponentially increasing the waste and carbon footprint of Bitcoin mining. In 2019, Proof of Work blockchain mining will account for nearly half of a percent of global energy consumption — a number larger than many countries.

Proof of Work blockchains are also inherently limited in the number of transactions that can be supported on the network. This scalability issue has undoubtedly slowed the adoption of cryptocurrency into the mainstream, largely because of its inability to support institutional demand.

These types of blockchains are more vulnerable to attacks as well, now made possible through “rentable hash.” If someone really wanted to, they could rent the computing power necessary to conduct 51% attacks and rewrite the blockchain’s history.

How Proof of Stake Solves These Issues

Proof of Stake does not require miners to solve complex algorithms in order to mint new blocks. Instead, a staking mechanism is employed through the implementation of economic incentives in order to ensure chain security. Removing electricity guzzling miners makes this method of consensus far more efficient, and much more eco-friendly.

Energy Waste:

For most Proof of Stake coins, the only electricity requirement is that your wallet must be open to receive stakes. This means that the only power consumption comes from your computer running (or in some cases, your VPS). However, there are some blockchains that support cold-staking, which would allow mining even from hardware wallets.

The result of this is that PoS blockchains are several thousand times more power efficient.

51% Attacks:

To mine a PoW chain, no investment specific to that chain is required. One simply has to contribute some hash to the network, and they are rewarded with coins. In PoS, the only way to receive rewards is to actually hold a stake in the currency. This stake must be held in an open wallet. The result creates a two fold economic benefit: it creates a natural demand for coins and holds coins out of circulation.

When it comes to security, this is a much more stable solution. The only way for a 51% attack to be carried out on a PoS chain is for one wallet to possess more than 51% of the coins in circulation. The amount of capital required to purchase 51% of coins (if that many are even available on exchanges) would be astronomical. And spending this amount of capital on acquiring this many coins would automatically disincentivize any attack — because carrying out such an attack would harm the value of the attacker’s holding! Therefore, while 51% attacks are theoretically possible on PoS chains, they are extremely difficult, costly, and pointless.

Scalability:

By not requiring a complex computational process to produce blocks, the speed at which new blocks can be minted is greatly accelerated. For PoS chains to propogate, it simply requires ⅔ of nodes to sign a block — thus verifying its authenticity. While this is a slight limitation, block times can be scaled to massive sizes and incredible speeds. For example, the EOS blockchain (which runs on PoS) boasts a block time of three seconds. This is lightspeed compared to Bitcoin’s 10 minute blocktime.

PoS also makes new blockchain technologies (such as sharding) possible, which increase the theoretical network throughput to a whopping 27,000,000 tx/s. This architecture would provide the basis for global adoption once perfected.

Conclusion

In order for global adoption to occur, the issues of energy waste, chain security, and scalability must be addressed. With the inherent limitations and inefficiencies of PoW technology, the blockchain industry must evolve. The necessity of this evolution is already being pursued, with Ethereum planning a transition to PoS in 2019–20. While not perfect, PoS technology is a much better solution for these issues and opens the door for new innovation. PoS truly is the future.