Research Report: Is Proof of Stake better than Proof of Work?

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Breaking down the differences between PoW and PoS

This Research Report is powered by Stakingrewards.com, the independent platform providing access to trusted staking data and knowledge.

Introduction

In order to get a deep understanding of Staking and Proof of Stake in general, it makes sense to compare it to the closest and currently most popular consensus algorithm, namely Proof of Work.

1. Proof of Stake Definitions

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“Getting the foundation built”

2. Trend

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“PoS making a splash in the blockchain space”
  • Total Value Locked in Staking: >$5 bio.
  • Proof of Stake Dominance: 9.80%
  • Proof of Stake Dominance (without BTC & ETH): 26.6%
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Stakingrewards.com 29.04.2019

3. Scalability

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“Room of people not aware of blockchain scalability issues”
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Source: https://blocktivity.info/ and others

4. Network Security

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“Security through the eyes of a nation state”
  • Current Price for Antminer S9: $300
  • Antminer S9 Hashing Power: 13 TH/s
  • Hardware Cost for 51% Attack: $1,153,846,153 USD (1.11% of network value)

Long Range Attack

A Long Range attack is a scenario where an adversary creates a branch on the blockchain starting from the Genesis block and overtakes the main chain. This branch may contain different transactions and blocks and is also referred to as Alternative History or History Revision attack.

Nothing at Stake Attack

One issue that can arise with PoS networks is the “nothing-at-stake” problem, wherein block generators/validators have nothing to lose by voting for multiple blockchain histories, thereby preventing consensus from being achieved. Because unlike in PoW systems, there is little cost to work on several chains.

51% Attack

You may think that a total of 51% of the network value is required to run such an attack, but in some PoS network the amount of stake necessary to conduct such an attack is estimated to be as low as 33%. And with delegations or votes the attacker doesn’t even need the stake himself, but is fine with third party network support, which he may be able to gain through vote buying or bribery. It is important to point out that the attacker doesn´t need ⅓ of the total supply, but rather ⅓ of the active stake, which could be significant lower.

Low Staking Participation (Stake Ratio)

It is important to point out that the 51% attacker doesn´t need ⅓ of the total supply, but rather ⅓ of the active stake, which could be significant lower. E.g. with a Stake Ratio of 25% the required amount is only 1/12 of the total supply (⅓ * 25%)

Private Key Attack

While Staking the private keys are always online and therefore exposed to the network in order to proof ownership of the stake and sign transactions. With the constant connectivity to the network, the keys are more vulnerable to attacks. Even if the private keys do not directly control all the funds of the total stake: Gaining control of the keys gives access to validation and staking rights, to run an attack.

5. Centralization / Decentralization

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“Typical 2017 ICO landing page background”

PoW

The underlying consensus machinery in Proof of Work is the mining hardware. This hardware is hard to access and the technology is licensed by single corporations.

PoS

Unlike PoW, the underlying consensus machinery in PoS are the native assets. Proof of Stake assets are freely available and can be acquired at any exchange or even OTC market in bulk without much hassle. Thus, in order to participate in staking there is usually a low to non-existent hurdle.

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Source: 3IQ Research Group

6. Cost

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“I would like one blockchain in beige, how much?”
  1. Capital required to maintain the blockchain
  2. Inflation cost to compensate Validators/Miners

Blockchain Transaction Costs

Storing data on public blockchains is extremely expensive. Each byte needs to pass on to every node in the network and all nodes have to store it.

Capital required to maintain a blockchain

Proof of Work requires expensive hardware and a lot of electricity, whereas in Proof of Stake the cost for every validator is simply a solid and secure hardware infrastructure (without a need for a lot of computational power) with thus a small cost for electricity.

Inflation cost to compensate Miners/Validators

Average rate of Inflation in PoS network is 6%, whereas average inflation in Proof of Work networks is 4% (rough estimate).

7. Governance

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“Typical blockchain governance engagement”
  1. Users: decide which protocol to accept as the original and which services in the ecosystem to use
  2. Foundations: decide fund allocations to certain development teams, who are working on different protocol proposals or such
  3. Nodes: decide which software to run and serve to users through APIs

8. Community Interaction and Engagement

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“I invented Bitcoin”

9. Bootstrapping

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“Two Zero Zero Nine, Bitcoin was brought to shine

10. Environment

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“What non-coiners think the world would look like without Bitcoin”
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Conclusion

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“What is ahead of Proof of Stake?”
  • Lower barrierrs of entry for consenus participation
  • On average more scalable due to a healthy trade-off between number of consensus keepers and thransaction throughput
  • Abscence of economies of scale for large investors and infrastructure providers, which arguably leads to lower centralization over time
  • Lower costs to maintain the blockchain
  • Arguably a higher degree of security against 51% attacks
  • More transparent governance due to 1 Coin = 1 Vote rule
  • Better incentive alignment between consensus keepers (e.g. validators) and the overall community
  • Environment-friendliness

About Us

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About the Authors

Gleb Dudka is a Blockchain Analyst exploring meaningful Enterprise blockchain applications at T-Systems. He is proponent of Application-specific blockchain vision, powered by Interoperability Protocols. As an Editor and Research Analyst at Stakingrewards.com, he has a big passion for Staking and Generalized Mining.

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