Crypto Education
Proof of Who In The What Now ?
Proof of Stake (PoS) and Proof of Work (PoW) explained
Introduction
This article will discuss the technology of the long established Bitcoin network and the technological leader of decentralised networks Avalanche.
If you would prefer the T.L.D.R (Too Long Don’t Read) explanation, PoS is an energy efficient form of security and validation shared across a decentralised public network. PoW is a form of security and validation achieved through competition/lottery across a decentralised public network.
Both are used to protect the network and synchronise data ensuring the network record remains secure.
Avalanche Proof of Stake
- Avalanche Consensus
- Energy and cost efficient Sybil deterrence mechanism
- Network operators are called validators
- Allows for creation of decentralised applications
- Allows for more scalability and faster transaction times with subnets
- Validators rewarded for maintaining the safe state of the network.
Bitcoin Proof of Work
- Nakamoto consensus
- Requires more energy due to its form of Sybil deterrence mechanism
- Network operators are called miners
- Does not allow for creation of decentralised applications
- Does not allow for more scalability with subnets
- Miners compete to create blocks by committing computational resources to the network and receive rewards for completing blocks.
For a slightly more detailed explanation to begin I must define a decentralised public blockchain network. There are a variety of blockchain networks but all can be described as a database of information in an electronic format. The network is comprised of many computers or ‘nodes’ that hold a record of the data base, confirm the present record is correct and commit new information to the record. A typical database structures its data in tables, this type of database structures data in blocks.
When a block is filled with data it is added to the record. Each block contains a code known as a Hash value that is created based upon the data within it, the Hash value of the block it has been built upon and a timestamp. A Hash is a function which converts input data into a fixed length encrypted output.
Each new block adds to the chain of data. If the data recorded were to be altered it would change the Hash value and Break the chain. Not only would the Hash value of the block become altered so too would the values of all blocks that follow. If an individual node were to attempt to alter the record it would be instantly identified as the network is in a constant state of cross referencing copies of the data. This would result in immediate network rejection. In order for the record to be altered the network majority would have to agree to the change. This is known as a 51% attack.
Operating a decentralised public network helps on two fronts. First off, instead of information being stored on 10,000 servers in one or few locations, the information is shared across many computers or ‘nodes’ in many locations. This removes central points of failure for the database.
Secondly, in a public network the database is shared amongst a collective of computers that invite participation as it strengthens the network by removing a central point of control. The more participants the harder it is to gain control over a majority. With a majority of the network required to participate in attempting to alter the networks history, the incentive for such an action is removed. Honest and dedicated contribution is rewarded, dishonest contribution is not recognised and will result in penalty.
PoS and PoW are both a combination of consensus and Sybil deterrence mechanisms. Fault-tolerant security mechanisms and rules that decentralised networks follow to achieve agreement on the record of the network.
Avalanche Proof of Stake continued
PoS can be viewed as an evolution of decentralised public database networking. Offering energy efficiency, scalability and faster transaction times. Designed to expand the potential that was created by the development of PoW systems through improving efficacy and utility for such technology.
Avalanche is a secure network that allows low barriers to entry for the creation of decentralised applications (DApps) such as those used in decentralised finance (DeFi).
A PoS network consists of validators, rather than miners, whose job it is to record new network activity and maintain a record of previous activity. Rather than committing computational resources to competing for the right to create a block of data, validators place a stake in the network. Validators are rewarded for maintaining the network. For example the Avalanche network validators will receive a staking reward if they are online and responsive for more than 80% of their validation period.
PoS networks are more energy efficient, Avalanche uses just 0.0005% of the energy consumed by Bitcoin. One means of achieving this is the protocol laying dormant when there is no work to be done. PoW nodes constantly need to work.
PoS networks are more scalable, Avalanche leads the way through use of a network of chains running in parallel known as subnets.
PoS networks are faster, Avalanche can currently process 4,500 transactions per second with a transaction confirmation time of one second. The Bitcoin network processes 3–7 transactions per second with confirmation time of 10 minutes.
Bitcoin Proof of Work continued
The Bitcoin network is a shared ledger of account through which individuals can securely store and send its native currency.
PoW as used by Bitcoin was the first decentralised public blockchain network to gain mass adoption. PoW is a type of system that deters malicious practice in part through the requirement to commit computational effort to engage with the underlying operation of the system.
In the case of the Bitcoin network, those who support the operational base undertake the computation required to identify the necessary code aka Hash value to build the next block of data. This computation involves storing a record of the the network to date to identify the required Hash value. The idea is not to prove a computational puzzle is solved, albeit the result, rather deterring manipulation of data by requiring the commitment of large hardware and thus energy and cost resources to do so.
The first computer to solve the puzzle and create a new block, to add to the chain, is rewarded by the network with a predetermined amount of Bitcoin. The puzzle is verified by all other nodes on the network before the new block can be added to the existing chain. This process is generally referred to as ‘mining’. The more ‘miners’ on the network, the more power and security the network will have.
PoW has proven to be a reliable method to reach and maintain consensus and authenticity through a decentralised network. It laid the way for many new iterations of PoW such as Ethereum. PoW has a track record of handling Billions of dollars in value in transactions on a regular basis, without database related exploit. The growth of these networks and their use has identified the areas in which the technology needed to be more efficient. More importantly the past decade has shown that decentralised public blockchain networks are secure.
PoS vs PoW ?
Avalanche was developed not as a competitor to Bitcoin or other PoW Chains but as a natural progression of technology. It is a leap forward in how we can securely network with one another just as Nakamoto consensus and Bitcoin was. Avalanche continues to move from strength to strength while other networks follow its lead. It continues to operate without the loss of uptime and other stumbling blocks competitors face.
With Bitcoin now included as an asset that can be bridged into the Avalanche network its utility has been expanded. The recent combination of the asset which set the stage with the network that is setting the standard was a major occurrence. In little more than a decade, what begun as a secure shared ledger of account has developed into an ever developing ecosystem of secure decentralised applications (DApp’s).
Conclusion
The utility of other forms of technology offered by platforms such as Avalanche is just beginning to be explored. The next decade will be interesting as non fungible tokens (NFT’s) and DApp’s continue to evolve and other uses for decentralised public databases are identified and practiced.
Both of these systems are sure to be adjusted and fine-tweaked as developers learn and look to the future. Avalanche will continue to drive technological development with fundamental improvements in the pipeline at the protocol level. Bitcoin network operators will continue to find more efficient means of operation be it through renewable energy sources or more efficient hardware.
Both systems are representative of an opportunity for change to our current financial systems and procedures, steps which have enabled and progressed the decentralisation of many processes throughout the world.
Dont forget Just because a network is secure does not mean the applications which run on it will operate that way. Recent lessons in crypto economic collapse have shown us that you may build an insecure economic system on a secure network. Always do your own research.
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