Consensus: Proof of Work vs. Proof of Stake
One of the key features of blockchain is its consensus mechanism. Necessary for the distributed ledger to function is ensuring the entire network of participants collectively agree with the terms of the contract. The purpose of the consensus is to verify the validity of the information being added to the ledger, to prevent double spending and other invalid data from being appended to the blockchain and to keep the network from being derailed through forking. There are a number of different consensus mechanisms out there. The most popular are the Proof of Work and Proof of Stake systems. All of them aim to solve the Byzantine Generals’ Problem but none of them provide a perfect solution.
What is the Byzantine Generals’ Problem
The definition of the Byzantine Generals’ Problem is best defined on CoinCentral as “a term etched from the computer science description of a situation where involved parties must agree on a single strategy in order to avoid complete failure, but where some of the involved parties are corrupt and disseminating false information or are otherwise unreliable.”
The Byzantine armies surround a city, ready to invade but they need to attack at the same time. The city is not strong enough to fight back against the entire Byzantine army. But the Byzantine army will only win if they attack at the same time. To make a decision, the generals of each army have to send a messenger back and forth to deliver the message. If the messenger gets caught or sends the wrong message, the Byzantine army will fail. There is no way to guarantee the authenticity of the message. How do they create a trustless system that ensures victory in attacking the city?
Proof of Work (PoW)
The first solution to the Byzantine Generals’ Problem was with Bitcoin’s Proof of Work (PoW). To verify a transaction and add it to a block, it needs expensive computation and mining. This has a number of problems as it consumes a high amount of electricity and energy worldwide. Companies running on PoW are not as decentralised due to the better opportunities given to individuals that have faster and more powerful ASICs. So bigger mining pool can team up with one another to launch a 51% on the network.
Proof of Stake (PoS)
Compared to Proof of Work, Proof of Stake is an alternative that requires less cost and energy. This mechanism achieves a general agreement on blocks while also retaining a large validator pool for security. Proof of Stake is based on validators staking and locking a number of tokens in escrow, thereby giving them the right to become a validator. With PoS, a validator can put his or her money in different chains without fear of punishment, a problem called “nothing at stake”. Blockchains like Finterra’s GALLACTIC Blockchain have already found a way to tackle this issue through a process called “token slashing”. If a validator is caught acting in a violating manner, their staked GTX (GALLACTIC’s tokens) are forfeit and destroyed. This model gives validators incentive to cooperate and refrain from acting in a malicious manner.
Moving forward
In any centralised system, a central authority maintains and updates a database. In comparison, public blockchains that operate as decentralised systems work without a single authority. They involve contributions from hundreds of thousands of validators who work on verifying and authenticating transactions that are taking place on the technology. This blockchain solution reduces risk of corruption and fraud.
So, which consensus mechanism is the best? We can only leave that up to the individual, but PoS seems to be inching ahead until a more viable option surfaces.
