What is Proof of Stake and how is it different from Proof of Work

Proof of work And Proof of Stake

‘Bitcoin mining’ is a popular phrase these days. It is a process in which miners use computational power, especially graphics cards, to mine bitcoins rewards. But this is an energy-intensive process. It is estimated that the global electricity consumption of bitcoin mining per year is greater than the electricity consumption of the entire nation of Finland.[1]

What is Proof of Work (PoW)?

What is happening behind this process of bitcoin mining is the confirmation of transactions and the addition of blocks to the blockchain (after every 10 minutes in the case of bitcoin). This process is known as Proof of Work. The basic purpose of this is to ensure that transactions on the chain cannot be tampered with (anyone wishing to tamper with the blockchain ledger would need control of 51% of all the computational power mining on that chain[2]). 

Proof of Work is clearly not an ideal solution, and as the world moves more towards environment-friendly policies, such energy-intensive methods will be actively discouraged. An alternate solution is needed, and that is what Proof of Stake essentially is.

What is Proof of State (PoS)?

Proof of Stake does not require computational power by miners to prove transactions. Instead, a set of validators do the job of approving transactions and adding blocks on the chain. The basic difference between PoW and PoS comes from this process of validation: the chances of a miner adding a block to the chain (and earning the resulting rewards) depends on her computational power, while the chances of a staker adding a block to the chain depends on the amount of coin staked in the system. 

Which is more secure?

Bitcoin’s underlying blockchain is considered to be immutable as it has never been hacked/tampered with, in its history of over a  decade. This is largely due to the security provided by its Proof of Work system. This immutability is the reason behind blockchain’s massive success as a tool for future decentralized projects.

But there is a problem with the Proof of Work system, and that problem occurs somewhere in the future. When bitcoin was initially introduced, the computational power of a single personal computer was enough to mine numerous BTC every day. Today, a large mining farm with the computational power tens of thousands of times that of a personal computer would be needed to mine that same amount of BTC. And this trend will only continue in the future as well, and a point might come when the cost of mining coins will outgrow the value of coins mined with it. At this stage, most miners will most likely quit mining for that blockchain and a large mining farm could potentially get enough computational power to alter the base blockchain ledger even.

A similar problem could also occur in the case of PoS. A very rich investor could potentially buy 51% of all assets of that coin and gain the validation power to alter that chain’s ledger. But there is a slight difference here, a compromised blockchain will lose its market value on the market. This means that anyone who has invested (staked coins) in that blockchain will lose money. The actor who staked 51% of the coins in that chain will lose money. The person/group with the most power to alter the blockchain will have the least benefit from doing so. This makes PoS more resilient than PoW in the long term.

Rollover Proof of Stake (rPoS)

Antlia uses a slightly different, and in a way a slightly improved, version of the Proof of Stake mechanism. In this system, the validators aren’t chosen simply based on the amount of coin staked in the chain, but also on other factors such as health, liveness, and safety.[3] Validators would be ranked according to these factors, and the bottom 10% would be replaced by newer validators, hence performing a rollover of the validator base. This would add additional security to the traditional Proof of Stake method proposed by Etheruem.

Concluding Remarks

The Proof of Work mechanism was revolutionary for its time, it created a blockchain ecosystem that has never been compromised. But it is also fast becoming outdated and too expensive to maintain. Its monetary and environmental costs will soon make it undesirable to a majority of  stakeholders and hence a new alternative would be needed.

The Proof of Stake mechanism is that alternative. It is more energy efficient and predictably has a more secure and stable future compared to PoW. But the PoS mechanism can also be improved and made to be even more efficient as Antlia’s rPoS mechanism shows. In a rapidly advancing world, technologies like the blockchain and their underlying mechanisms need to improve rapidly as well, otherwise they risk becoming obsolete.

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