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Proof of work (PoW) and proof-of-stake (PoS) are the two main types of consent algorithms used by most blockchain-based cryptocurrency platforms to verify transactions. Transactions in digital currency are transmitted over a blockchain network, which usually consists of a large number of computer machines and an immutable distributed ledger.
Compete to validate blocks, verify transactions
The distributed ledger is called blockchain and contains a permanent record of all transactions that have been successfully processed on a cryptocurrency network.
To verify a transaction, full-node operators of a criptoasset platform must reach a consensus about the authenticity of a transaction. Transaction sets or multiple transactions are grouped into blocks and all nodes participating in a cryptocurrency network compete for the opportunity to validate each block.
Block validation is a competitive process because the network nodes selected to verify transactions are rewarded with transaction processing fees and / or newly minted digital currency. Full-node operators on most cryptocurrency networks have to spend their personal resources in an attempt to be potentially chosen to validate a block.
Block Validators: PoW Miners vs. PoS Forgers
In PoW-based networks, a block validator is called a miner because it uses their computing resources (electricity and computer hardware) to solve complex mathematical puzzles. The first miner on a PoW-based cryptocurrency platform to solve these difficult math problems and validate a transaction block is rewarded with new transaction fees and digital currency just created.
In comparison, on a PoS-based cryptocurrency network, there is no mining process and block validators are called forgers. To have the option to be selected to validate the blocks on a PoS-based cryptography platform, a forger must point their coins / tokens or digital currency.
PoS: Forger with lower hash values based on preference
Counterfeiters that target larger amounts may have a better chance of being selected to validate a block, but other factors are taken into account when choosing block validators on a PoS-based cryptographic network. For example, falsifiers with lower hash values (used to record transactions on a blockchain) are more likely to be selected to verify transactions.
But this may not be one of the criteria used to choose a block validator on all PoS-based cryptographic platforms. Many PoS networks also select counterfeiters based on the length of time each user has placed their coins or tokens. Users who have bet for the longest period of time may be given preference when selecting the most suitable block validator.
Which offers greater security, efficiency and is more effective?
So which consensus algorithm, PoW or PoS, is better to protect a cryptocurrency network? Furthermore, which algorithm works more efficiently (in terms of resources) and effectively when it comes to ensuring network security and selecting the most suitable block validators?
One of the most frequently cited advantages of a PoS-based system on a PoW network is that the former is more energy efficient. This is because there is no energy-intensive mining activity involved in the validation of the blocks on a PoS network.
PoS advocates also argue that the economic incentives for counterfeiters are more in line with their commitment to the native cryptocurrency of the network. For example, in a PoW-based network, a miner can not initially own one of the coins he is digging, and can only be motivated to validate blocks in order to gain the largest possible amount of digital currency.
In comparison, block validators in a PoS-based system must actually support the cryptocurrency in which they are awarded. In other words, counterfeiters must have a stake in the network, which means they must actually own the digital currency they are testing.
Planned transition of Ethereum from PoW to PoS
When comparing PoS and PoW, one of the main differences between the two consensus mechanisms is that in the first case there are no block rewards. Most PoS-based cryptographic platforms create the total amount of digital currency at the beginning and the maximum coin supply does not usually change. However, there are over 1,000 cryptocurrencies and it is possible that some versions of PoS may issue more coins after their genesis block has been produced.
As mentioned, there are no blocking rewards in PoS encryption networks, but counterfeiters are compensated (TX commissions) to help verify transactions. As enthusiasts of encryption know, the developers of Ethereum are planning to move from PoW to a PoS-based network consent protocol (for Ethereum). One of the main problems with PoW is that it consumes a fairly large amount of electricity.
Estimates of Bitcoin energy consumption
According to the Digiconomo Bitcoin energy consumption index, the world's largest PoW-based network (the index also includes electricity consumed by the Bitcoin Cash (BCH) network), peak cryptocurrency currently consumes around 47 TWh of electricity annually. Significantly, 16 "US families [can be] powered for 1 day by the electricity consumed for a single [bitcoin] transaction."
Even if others have reported much lower estimates for the total energy consumed (per year) by the Bitcoin and Ethereum network due to mining, the developers of Ethereum could consider switching from PoW to PoS because it is considered a greener and less expensive way to reach a distributed consensus. However, the Bitcoin Core developers are severely opposed to the use of PoS, claiming that the protocol is not secure (among other problems).
If / when the developers of Ethereum decide to activate Casper, which is the Poere version of Ethereum, a validation pool will be created. To be selected as a forgery, users will need to join this group. This will be done by calling Casper's contract and sending a certain amount of ether (ETH). Such as has explained from the co-founder of Ethereum Vitalik Buterin: "There is no priority scheme to be included in the validator pool itself, anyone can participate in any round they want, regardless of the number of other participants."
Subject to change, Buterin said that the award for each transaction validator, after Casper went live, will be "somewhere around 2-15%" in the year. Continuing to explain other details, the Russian-Canadian programmer wrote in a post Reddit (a year ago): "You are automatically induced [into the validator pool] after some time. You can start by sending a special type of message; leave the validator pool after a while, then you can call another function after ~ 4 months to get your money back, in addition to the prizes (or, if you've been cut, you do not get anything) . "
Many implementations of PoS
While there are many other blockchain-based digital asset platforms that also use the PoS consensus mechanism – given that Peercoin was the first cryptocurrency to implement the PoS in 2012 – we focused on Ethereum in this article. The Nxt platform also uses PoS, however, its ongoing development has slowed considerably since it was launched at the end of 2013. Other cryptocurrencies like BlackCoin, Nav Coin, Qora, among others use / use PoS but their platforms have not been adopted by a significant number of users.
EOS, Tron (TRX) and some other major cryptocurrency platforms use a variant of PoS called "delegated-proof-of-stake" (DPoS) that we will discuss in a future post on CryptoInsider. In subsequent posts, we will also address security issues involving both PoS and PoW. As reported by CryptoInsider, Coinbase's San Francisco-based exchange found that Ethereum Classic (ETC) -based PoW-based security was compromised. Reportedly, a bad actor could have taken control of a large quantity of ETC hashrates to launch a 51% attack.
The management of Coinbase had interrupted ETC deposits and withdrawals, stating that the hacker was exploiting the Ethereum Classic network by committing a double expense. While some argue that it may be prohibitively expensive to launch 51% attacks on PoW networks, such attacks have increasingly been carried out on lower-cap currencies last year. There are also some security issues that are found in the PoS networks that we will discuss in another post.
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