Which coins are better — PoS vs PoW? PoS vs PoW ASIC vs PoW GPU?

Written with Shlomi Agmon.

Proof of Stake (PoS), Proof of Work (PoW) and their variants are different beasts, just like http and https are. As such, they each have their own usage, and thus their own “right” to exist. In general, PoS is better perceived than PoW because it is energy efficient. However, choosing between the different variants of PoS and PoW depends on the goal one is trying to achieve. When solving particular problems, one might be better suited than the other.

In the following, we will present the problems a blockchain technology should solve. Then we address the different approaches PoS and PoW take to solving them. Finally, we compare between the ASIC and GPU variants of PoW. We hope that the sequel will help emphasizing the distinctions between these technologies, facilitating a better understanding of which is better suited when.

We will summarize a post by a friend, adding some notes.

A blockchain is a linear chain of blocks.

What problems should a blockchain solve?

1. Random block creation. Blocks should be generated at random with no way to foretell who will create the next block. This discourages miners from planning manipulations over the course of multiple blocks (for example, methodically denying service to a certain party).
2. Encourage decentralization. For true decentralization, it should also be easy for new parties to begin mining, receiving compensation proportional to their mining investment.
3. Linear chain. Since we want to build a sequential chain of blocks (not a tree), blocks should be generated only one at a time.
4. Tamper-proof. The chain of blocks should be tamper-proof, provably incurring a large economic (or other) cost to a party wishing to retrospectively modify any blocks.
5. Easily verifiable. Each new block should be consistent with the protocol definitions. For example, each transaction should be legal and not spend more money than the owner has. In addition, any party wishing to inspect the chain should be able to independently verify that the chain was generated in compliance with the protocol.

We will now present how PoW and PoS tackle these 5 challenges.

How PoW (Proof of Work) tackles the five challenges of blockchain?

1. All of the miners are trying to solve the same mathematical problem using brute-force search. That is, to add a block on top of the last one added. The first to solve the problem generates the next block. Since all of them have the same odds to succeed, and therefore the creator of the next block is effectively chosen in random.
   The mathematical problem is such that there is currently no known solution to it other than brute-force search.
2. All that is needed to mine is relevant hardware (CPU, ASIC, GPU, etc.) and suitable software, which could (in principle) be done by any end-user. As Bitcoin has drawn more attention, the picture became more complex, with large cooperative mining pools combining computing power, thus making it much harder for single users to mine Bitcoin.
3. For a chain of blocks to be linear (“sequential”), we would like a newly added block to be appended at the end of the chain. Doing so requires knowing where is the end of the chain. There are times when the network has not yet synchronized on a newly appended block. Due to such lack of synchronization, a miner might attempt to extend a now outdated chain. Such occurrences (called forks) are rare, and do not persist: eventually, one of the branches will become longer than the others and all miners will accept only it. Once a new block is created all miners should abandon their current searches and start mining on top of the newly created block.
4. The protocol can control the expected block-generation time by setting the difficulty level of the mathematical problem. In Bitcoin, the total computing power is taken into account when difficulty is set, such that a new block will be created on average every 10 minutes.
5. Rewriting history (retrospectively replacing an existing block) would be computationally infeasible. An attacker wishing to do so would need to control at least 51% of the network’s computing power. This renders tampering the network incredibly expensive economically, due to costs of computations.
6. Assuming that an honest miner can trust the validity of the blockchain, this is a simple accounting procedure with a negligible computation time relative to the time required to create a new block.

How PoS (Proof of Stake) tackles the five challenges of blockchain?

1. The creator of a new block is chosen randomly among qualified account. An account is qualified depending on wealth (and so forth), also known as stake. For a chosen creator to create a new block, s/he must be online at the time of creation, and have her/his wallet synchronized with the network.
2. A new “miner” synchronized to the network must have a sufficient amount of coins, so as to deny the possibility of pooling. That is, to prevent several accounts from joining forces to jointly influence (or determine) the creator of the next block.
3. The exact creation time of a block (and not only the average time lapse between blocks) is known ahead of time. Since the block creator is chosen (randomly) in advance, no more than a single block can be created at a time.
4. Rewriting history (retrospectively replacing an existing block) would be economically infeasible. An attacker wishing to do so would need to control at least 51% of the total wealth.
5. Assuming that an honest miner can trust the validity of the blockchain, this is a simple accounting procedure with a negligible computation expense.

Comparison of PoW and PoS blockchains

Now that PoW and PoS were presented, before heading to GPU and ASIC variants of PoW, below is a comparison between PoW and PoS.

Pros of PoW —

1. Solves the 5 blockchain challenges.
2. Considered safe as the miner undertakes significant effort to solve a difficult mathematical.

Cons of PoW —

1. Power inefficient.
2. Can be attacked by major players (such as Amazon or Google) controlling a least 51% of computing power.
3. A 51% attack can be carried out by mining pools.

Pros of PoS —

1. Solves the 5 blockchain challenges.
2. Power efficient.
3. The miner receives fees for validating previous and current blocks and transactions in the chain, and for keeping the network synchronized. Miners failing to do so will risk losing their fees, and thus have a strong motivation to follow the rules.
4. In order to carry out a 51% attack an attacker needs to acquire 51% of the network’s funds. Attacking the network would deteriorate the value of these funds once the word about such an attack spreads, risking the attacker’s assets.

Cons of PoS —

1. Required the coins to be decentralized from day one in order to be safe from 51% attacks (point 4 on the left).
2. Users are required to sync their wallets in order to prove ownership. Therefore, cold wallet can not be chosen as next block creators.

PoW vs ASIC-resistant PoW

For more details on what is ASIC and how it is made see here. For a discussion about Is ASIC Resistance Desirable see here.

See also: Assessing the value of blockchain technology and cryptocurrency.