10 Years of Blockchain — from PoW to SPoS

V Systems
V Systems
Published in
4 min readFeb 28, 2019

PoW is no longer a choice for scalable blockchains

It’s been a little over 10 years since the creation of blockchain and Proof of Work (PoW) mechanism by Satoshi Nakamoto.

The key innovation of PoW stemmed from the connection between cost and reward, where miners are given mining rewards for their work dedicated to validating the data written into the blockchain. As a PoW blockchain grows, like the Bitcoin Blockchain does, it is becoming increasingly costly for miners to generate blocks. Mining rewards are no longer enough to compensate for the work (e.g. electricity and computational power) spent on the mining process.

Sunny King created PoS in 2012 with Peercoin project

This concern over scalability has in fact been lurking for some time already. It has yet gone mostly unnoticed in the early days, except for Sunny King, who stepped up and created Peercoin and Proof of Stake (PoS), a mechanism that selects the creator of the next block via a combination of random selection and coin stake.

Back in 2012, Sunny King conceived the idea of a consensus algorithm that relies on coin stake, which did not only remove the wasteful energy consumption, but also hugely increased the scalability and security of blockchain.

Bank of International Settlement shares Sunny King’s view on blockchain back in 2012

A recent report published by the Bank of International Settlement echoed Sunny King’s initial skepticism on PoW. Miners’ income (made up of block rewards and transaction fees) is falling as the supply of bitcoin grows. With the transaction market inability to generate an adequate level of income, and the next block reward halving set in 2020, this downward trend of miners’ income is destined to continue. The rewarding mechanism posts a great threat to scalability, energy efficiency and 51% attack risk.

‘Beyond the doomsday economics of “proof-of-work” in cryptocurrencies’ by Raphael Auer https://www.bis.org/publ/work765.pdf

What is next? SPoS

Having learned the experience, Sunny King feels there are still massive room for improvement in the PoS space. He returns in 2018 with a newly developed consensus mechanism based upon the original PoS — Supernode Proof of Stake (SPoS).

Under SPoS, Sunny King creates a new way of measuring coin stake — Minting Average Balance (MAB). It merges the concepts of Weighted Average Balance (WAB) and the current coin balance, and takes the minimum of the two. Not only does it ensure the fairness of calculation, it also reduces the complexity and disadvantages associated with “confirmed balance”, a hugely ineffective algorithm especially in a high block height environment.

The design of supernodes also makes SPoS both performance and scalability oriented. Supernodes take on the duty of minting and act as minting pools. They are very stable by design as they produce blocks at a constant rate, rather than randomly like traditional nodes, making it inherently more scalable and secure, all while bringing industrial level TPS and high concurrency.

Empowering all coin owners creates a built-in force for equilibrium

An even more intriguing concept is the way coin holders are able to participate in the ecosystem governing process. SPoS algorithm gives coin holders the choice to select a supernode of their wish and perform coin leasing, where the coins would be used for minting purposes. After the minting process, supernodes will share the minting rewards to the respective coin owners.

Coin safety is guaranteed through cold minting technology. VSYS Coin never leaves the coin owner’s wallet even when it’s leased to a supernode. Coin holders can also withdraw the lease at any time upon their wish, giving them full flexibility and ownership of their coins.

And on the supernode side, an equal minting right given to each of them will eventually encourage the market to reach an equilibrium, just as the simple demand and supply theory in economic studies. The equilibrium lease rate of supernodes will act as a built-in force to make the ecosystem viable in a long run.

All of these design specifications are put in place to achieve one core objective — to make blockchain truly stable, sustainable, and scalable. Unlike PoW where the blockchain would get more and more unstable and insecure as the ecosystem expands, SPoS’ design brings a much safer and more scalable layer to blockchain.

We are already seeing the massive influence and adoption of PoS in the market. SPoS will be nothing less. This evolved twin version of PoS will soon transform the existing PoS models and one could not help but wonder what it could bring to the game. Stay tuned as we unfold more of Sunny King’s creations here on our Medium blog.

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V Systems
V Systems

A blockchain platform that supports the efficient and agile development of decentralized applications. Visit our website at www.v.systems