What is Proof-of-Stake & Why won’t Bitcoin use it?
As the popularity of Bitcoin grows, so does the cost of maintaining its blockchain using Proof-of-Work (PoW) as its consensus mechanism.
Proof-of-Stake (PoS) is another popular consensus mechanism proposed in 2011 as an alternative to PoW. Since its initial proposal, PoS has since gained traction in its adoption and has earned the reputation of being more energy-efficient than PoW by securing the blockchain with only a fraction of PoW cost. Even though PoS’s original proposed objective was to improve Bitcoin’s blockchain efficiency, Bitcoin has yet to adopt PoS. And why is it so? Before we dive any further, let’s explore the fundamental differences between PoS and PoW using Bitcoin.
What can you do with a Bitcoin powered by PoW:
- You can treat it as a currency for buying goods and services
- You can treat it as an investment asset
What can you do with Bitcoin powered by PoS:
- You can treat it as a currency for buying goods and services
- You can treat it as an investment asset
- You can become a blockchain validator by using your Bitcoin as collateral to earn more Bitcoin.
In essence, you do not need to own any bitcoin to be a Bitcoin blockchain validator (aka a miner) under the current PoW consensus mechanism scheme. Anyone who wishes to become a miner will need to:
- Invest in ASIC /GPU computers
- Install a Bitcoin mining software
However, the scenario is different under the PoS consensus mechanism blockchain. The term “miner” is replaced by “validator,” and it is nonessential to own any powerful ASIC or GPU computer to be a validator; all you need is to:
1. Own some Bitcoin.
2. Own some decent computer hardware
3. Setup the hardware according to the requirements
Why is PoS is more efficient than PoW?
The high maintenance cost of running a PoW blockchain wasn’t a design flaw. In fact, a PoW blockchain was created to be difficult and compute-intensive on purpose to deter any potential hackers from tampering with the blockchain. Since only one miner will be rewarded in a mining process, miners are highly incentivized to ramp up as many compute resources as possible for their mining activities, thus pushing up energy consumption.
PoS, on the other hand, doesn’t involve any cutthroat competition among its validators to verify transactional blocks and add the verified blocks to the blockchain. Depending on the implementation of PoS, a validator can be selected:
· At random
· Based on the total coins staked
· Based on the duration of the coin being staked
The validator will be rewarded once the verified block is added to the blockchain successfully. Since validators have a stake in the blockchain, they are incentivized to keep the blockchain secure. In addition, staked coins will be forfeited if any fraudulent activity is detected.
Why won’t Bitcoin adopt PoS?
Capitalism does not equate to being socially responsible. Existing Bitcoin miners are reluctant to move to PoS due to the investment costs. Under the PoS environment, employing high-performance computing doesn’t give you an edge in the validation process. Therefore, there is zero motivation to migrate even if the move is beneficial to the environment.
Another common argument you hear in the justification of the continued use of PoW is, “PoW is more secure than PoS.” However, in reality, both consensus mechanism is subjected to a 51% attack. In PoW, a hacker can technically control the blockchain by holding 51% of the mining resources, whereas a hacker will have to gain 51% control of the total staked coin in a PoS for a complete blockchain hijack.
In my opinion, the main reason for the unlikely move to a PoS consensus mechanism is a lack of leadership. Satoshi Nakamoto, the founder of Bitcoin, is nowhere to be found. Consequently, the objectives of Bitcoin are up to your interpretation. Different people have various vested interests in Bitcoin. Any proposed changes to Bitcoin, whether to reduce its carbon footprint or improve its scalability, are often locked in a stalemate. It is hard to align all these different individuals toward a common goal without its founder leading the way.
Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing
