Will the Proof of Work (PoW) consensus mechanism become a thing of the past or continue to create the future? This is a question in everybody’s mind these days. Let’s dig a bit deeper to understand the reason behind the potential downfall of PoW consensus mechanism.
Proof-of-Work was the first consensus algorithm ever implemented. It is currently being used by Ethereum, Bitcoin, its forks, such as Bitcoin Cash, Litecoin, Dogecoin and many other established cryptocurrencies.
What actually PoW is?
Users on a blockchain network perform a variety of transactions like exchanging cryptocurrencies or other digital tokens, deploying smart contracts, interacting with the deployed contracts, and many more. A decentralized ledger is used to gather all these transactions into blocks and maintain a transparent and secure database. It is the responsibility of some special nodes on the blockchain network called miners, to confirm the transactions, arrange them into blocks, and add each block to the blockchain.
With PoW, miners compete against each other by solving a complex mathematical puzzle in order to add their respective block on the network and get rewarded.
Some of its Advantages!
The main benefits of a PoW consensus mechanism are a strong defence against DoS attacks and low impact of stake on mining possibilities.
Defence against DoS attacks: PoW imposes some limits on the actions that can be performed in the network. A lot of efforts has to be put into execution for performing any unacceptable action. An efficient attack requires a lot of computational power, cost, and time to do the complex calculations involved in PoW. Hence, an attack is maybe possible but kind of useless since the costs are way too high.
Impact of stake on Mining possibilities: It doesn’t matter how much money you may have in your wallet, in order to get to mine a block successfully. But, what matters is to have a large computational power to solve the puzzles, form new blocks, and add them to the blockchain. Thus, the holders of huge amounts of money will not be in charge of making decisions for the entire network.
What are its limitations?
PoW is a researched and technically proven consensus mechanism which ensures a secure and immutable blockchain network, but it isn’t perfect. Proof of Work have scalability issues, is very slow, and consumes huge computational power of miners. A network which is distributed among millions of unknown entities, having unknown hardware, taking decisions in a trustless fashion and requiring a huge amount of computational power to process even just a few transactions, cannot be expected to perform insanely well. It’s just physically impossible.
Its inability to strongly impose a penalty on the malicious validators is also a big flaw. Mining is fundamentally anonymous and open to all, and it is quite impossible to prevent a misbehaving validator from participating in the network, and there is no way to block their mining equipment as penance for misbehaving.
“The major flaws in the PoW mechanism are the huge expenditures involved and a considerable possibility of 51 per cent attack!”
Huge expenditures: Mining requires highly specialized computer hardware to run some complicated algorithms. Currently, the Bitcoin Blockchain consumes roughly the same amount of electricity annually as the entire country of Chile. Nowadays, mining with proof of work is only feasible for mining pools specifically built by large companies for this purpose. These specialized machines consume large amounts of power and cost to run.
51 percent attack: A 51 percent attack, or majority attack, is a case when a user or a group of users control the majority of the mining power of the network. If the attackers get enough power to control most events in the network, they can monopolize generating new blocks and receive rewards since they will be able to prevent other miners from completing blocks.
Apart from the extortionate levels of energy, the Bitcoin blockchain consumes, many worries that the hardware manufacturing has become extremely centralized and the large mining farms hold too much power over the network. Currently, more than 51% of the hash rate in the Bitcoin network is provided by only a few large mining pools.
The future of Consensus Mechanisms
Consensus mechanisms are protocols that ensure that all nodes on the network are synchronised with each other and agree on the authenticity of transactions that are to be added to the blockchain. These consensus mechanisms are crucial for a blockchain network. It is necessary that all transactions are constantly checked and the blockchain is constantly audited by all nodes.
There are numerous consensus mechanisms existing in the world like Proof of Stake, Proof of Authority, Delegated Proof of Stake, Benzatine Fault Tolerance, etc. Each has its own benefits and shortcomings and can be used for different use cases. There are various potential and non-PoW Blockchains out there, which are worth to know about. Ethereum has also planned a hard fork from PoW to the PoS consensus mechanism in an attempt to improve its scalability.
In the battle for the future of the decentralized internet, numerous competitors have risen to the top including TRON, Ripple, EOS, XinFin, Cardano, and many more. These use various different mechanisms and techniques and offers better scalability, security, overall experience, and usability in the real world. They are much faster, energy-efficient, interoperable, end-to-end transparent, and have lower costs than the tradition power-hungry Proof of Work systems.
Perhaps unsurprisingly, there are no undisputed winners. All the blockchains out there are flawed in some way, and everyone will have a different opinion depending on the use case. Some offer a platform which promises to be more active and scalable than the others. Some offer a hybrid blockchain that is suited for all and can full-fill the requirements of both public and private blockchains. Some are suited for public transactions, some fit the needs of enterprises who wish to keep their transactions to themselves, while some can be used by both.
No matter what you believe, the blockchain race is a long one and whoever is leading today may fade into oblivion next year. The good news is that if you have a strong conviction on which blockchain is the best, you will be handsomely rewarded for being correct by simply investing in the corresponding token and holding onto it.
Disclaimer: The views expressed by the author above do not necessarily represent the views of the Ethereum Foundation.