Blockchain Consensus Algorithms: The Proof of Stake slice
I recently moved to a new neighborhood and before scouting out where to get a haircut or where to shop for groceries, I had to find something far more important: where to go for a good slice of pizza.
I did research online. I looked at menus. I talked to friends. And eventually, after narrowing my search down to a few spots, I went out to grab a slice or three. I knew what I was looking for: thin crust, generous portions of mozz, good options including white pizzas, not too far away in case it rains, and a good price. Hey, finding a good neighborhood pizza join is hard work.
Similarly, shopping for the right blockchain consensus algorithm takes work. While there is no price tag, there are other pros and cons to consider.
Previously, we looked at the Proof of Work (PoW) consensus algorithm which is used by the cryptocurrency Bitcoin. But there are others. Today we’ll look at the Proof of Stake consensus algorithm. Here’s how the edX “Blockchain for Business — An Introduction to Hyperledger Technologies” course explains Proof of Stake (PoS):
“The Proof of Stake algorithm is a generalization of the Proof of Work algorithm. In PoS, the nodes are known as the ‘validators’ and, rather than mining the blockchain, they validate the transactions to earn a transaction fee. There is no mining to be done, as all coins exist from day one. Simply put, nodes are randomly selected to validate blocks, and the probability of this random selection depends on the amount of stake held. So, if node X owns 2 coins and node Y owns 1 coin, node X is twice as likely to be called upon to validate a block of transactions. The specific implementation of PoS can vary, depending on the use case, or as a matter of software design. Instances include Proof of Deposit and Proof of Burn. The PoS algorithm saves expensive computational resources that are spent in mining under a PoW consensus regime.”
There’s a lot going on there and a fair amount of shorthand so let’s break that down. As the cryptocurrency Bitcoin uses Proof of Work as its consensus algorithm other cryptocurrencies have chosen to use Proof of Stake hence the reference to coins. While cryptocurrencies are a hot topic, they are not the focus of this blog so I’ll go over the PoS consensus algorithm and hit the main points, but will not go into depth about cryptos.
So PoS is similar to Proof of Work, but different. How? In Proof of Work miners race to hit a target, repeatedly lobbing 64 character long hashes at the target till they hit their mark which can take time and incur high financial costs due to the energy required to keep lobbing those hashes try after try after try. This is like lobbing half court shots in basketball: You’ll make it eventually, but it will most likely take time, a bunch of shots, and a fair amount of sweat before you do.
In Proof of Stake, ‘validators’ who mine the block are not determined by speed as in PoW, but up to a combination of how much of the determined cryptocurrency coins they possess and other factors that are supposed to randomize the process. If it was just up to the validators with the most coins a monopoly could develop.
The way in which the validators are randomized depends on the cryptocurrency coin being processed. Cryptocurrencies such as Nxt, Blackcoin, and Peercoin all have different ways to randomize the process.
The main benefit of PoS is that it avoids the energy suck and associated financial and environmental costs that riddle PoW. Unfortunately, while PoS avoids that issue, it has other issues.
Bitfury, a full service blockchain technology company, issued a white paper in September 2015 that directly compared PoW and PoS consensus algorithms. Their paper goes into great detail about PoS’ issues which are primarily related to the different attacks PoS is open and subject to. These attacks include; Long Range Attack, Bribe Attack, Coin Age Accumulation Attack, and the Precomputing Attack. The white paper also goes over how hackers can game PoS blockchains through forking.
What about Delegated PoS, you say? While Delegated PoS (DPoS) systems have solved some of the problems that PoS faces, it too is no panacea.
Again, it is early days in the cryptocurrency world and because cryptocurrency is not the focus of this blog I don’t want to overwhelm readers with jargon and minutiae, but rather give an overview of how these different consensus algorithms work and what their costs and benefits are.
PoS might be your slice. Or it might be worth another walk around the block to try a different spot. We’ll explore other consensus algorithms in future posts.
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