PoW vs. PoS!
In this article, we are going to mention the differences between the Proof of Work module and the Proof of Stake module. At this time we took a closer look at the press and we decided to go with a clarification for those kind readers/supporters/investors.
As we mentioned in the former articles about the Proof of Stake you may find them linked at the bottom of the story.
Before we clarify this consensus we have to go deep and clarify the first place where consensus is a must.
In a conventional data storage system, record keeping is usually the domain of a third party. There is a central database of information that is a single source of truth. In the case of financial transactions, this means a bank keeps a ledger of transactions and has final say over what your balance is. For other information exchanges, you need to trust gmail’s servers, your insurance company’s records, or your country’s elections committee.
Of course, centralized, single source of truth systems also mean there’s a single source of failure. We’ve seen countless companies lose customer information when their systems are hacked. In other cases, bad actors can infiltrate and change data or manipulate results.
Blockchains overcome this weakness by giving a copy of the data to everyone on the network. Through the public ledger, anyone on the network can see and verify its accuracy. However, since it’s a shared ledger, updates to the record need the approval of everyone on the network. This is where consensus mechanisms come in.
A good consensus algorithm establishes an agreed-upon state for the blockchain amongst the nodes on the network. It usually does so by rewarding one node or a group of nodes for doing the work of compiling an accurate, legitimate new block. Once the new block is created, the network can then choose to accept it, reward the creator, and begin working on the next block.
What is Proof of Work?
Proof of work is the first and currently most popular consensus algorithm for blockchain applications. Satoshi Nakamoto devised proof of work as a series of cryptographic puzzles for a computer to solve in order to create a new block. These puzzles are known as cryptographic hash functions, and they’re only solvable using guess-and-check, even for computers. The computers attempting to solve the puzzle must check trillions of wrong answers before they find a correct answer. Even with thousands of computers working on the same problem, it still takes ten minutes on average for one computer to find a correct answer.
The computer that finds the answer receives a reward, but the thousands of other computers working on the problem just wasted their time and energy. This is the wasted electricity that the news articles report on. As soon as a computer finds a correct answer and the network accepts it, the entire network begins working on compiling a new block and solving a new puzzle.
Of course, if you have the fastest computers or the most computers (or both), then you’re more likely to find a correct answer and win the reward. As such, huge warehouses have sprung up across the world with hundreds of specially designed computers known as ASICs all mining Bitcoin at the same time. These major companies win many of the mining rewards and therefore continue to concentrate wealth. Over time, this could essentially mean that a centralized institution “runs” Bitcoin, compromising the original vision and security of the network.
The same problem applies to any other blockchain platform that uses proof of work. While many of these platforms use modified algorithms to limit the effectiveness of specialized ASIC computers, they’re still subject to energy waste and other challenges of centralization.
What is Proof of Stake?
The problem with proof of work, beyond wasted energy, is there’s no mechanism for punishing bad actors. If someone creates a fraudulent block or chain of blocks, the network will likely reject their attempt, but the network has no way to punish that bad actor and disincentivize them from trying again. We can’t fry the expensive hardware or charge them extra on their electricity bill.
In the interest of saving energy and creating a disincentive for bad actions, proof of stake moves the incentive and punishment system entirely inside the blockchain. Instead of making an investment in expensive hardware and electricity, proof of stake participants make an investment in the token itself. They set aside a certain amount of wealth as collateral, and based on the amount of collateral they wager the network randomly selects someone to build the next block.
If the block builder creates a fair, valid block, then they will receive a reward, vested over a time period long enough for the network to verify the transactions inside the block. If the block builder is dishonest, however, they will lose their collateral, restricting their ability to participate in future rounds of PoS.
Let’s check these on the table below,
To be fair, we gathered our team and did all the necessary researches at the end we have decided to go with the Proof of Stake module.
To the greener and easy to use systems! To the moon!
Don’t forget to check our other stories about PoS Consensus!
