Proof of Work vs Proof of Stake: Recently you might have heard about the idea to move from an Ethereum consensus based on the Proof of Work (PoW) system to one based on the so-called Proof of Stake.
In this article, I will explain to you the main differences between Proof of Work vs Proof of Stake and I will provide you a definition of mining, or the process new digital currencies are released through the network.
Also, what will change regarding mining techniques if the Ethereum community decides to do the transition from “work” to “stake”?
This article wants to be a basic guide to understanding the problem above. If you are looking for a more detailed walkthrough, please check out our blockchain courses on Ethereum.
Contents
What is the Proof of work?
First of all, let’s start with basic definitions.
Proof of work is a protocol that has the main goal of deterring cyber-attacks such as a distributed denial-of-service attack (DDoS) which has the purpose of exhausting the resources of a computer system by sending multiple fake requests.
The Proof of work concept existed even before bitcoin, but Satoshi Nakamoto applied this technique to his/her – we still don’t know who Nakamoto really is – digital currency revolutionizing the way traditional transactions are set.
In fact, PoW idea was originally published by Cynthia Dwork and Moni Naor back in 1993, but the term “proof of work” was coined by Markus Jakobsson and Ari Juels in a document published in 1999.
But, returning to date, Proof of work is maybe the biggest idea behind the Nakamoto’s bitcoin white paper – published back in 2008 – because it allows trustless and distributed consensus.
What’s trustless and distributed consensus?
A trustless and distributed consensus system means that if you want to send and/or receive money from someone you don’t need to trust in third-party services.
When you use traditional methods of payment, you need to trust in a third party to set your transaction (e.g. Visa, Mastercard, PayPal, banks). They keep their own private register which stores transaction history and balances of each account.
The common example to better explain this behavior is the following: if Alice sent Bob $100, the trusted third-party service would debit Alice’s account and credit Bob’s one, so they both have to trust this third-party is to go do the right thing.
With bitcoin and a few other digital currencies, everyone has a copy of the ledger (blockchain), so no one has to trust in third parties because anyone can directly verify the information written.
Proof of work and mining
Going deeper, proof of work is a requirement to define an expensive computer calculation, also called mining, that needs to be performed in order to create a new group of trustless transactions (the so-called block) on a distributed ledger called blockchain.
Mining serves as two purposes:
To verify the legitimacy of a transaction, or avoiding the so-called double-spending;
To create new digital currencies by rewarding miners for performing the previous task.
When you want to set a transaction this is what happens behind the scenes:
Transactions are bundled together into what we call a block;
Miners verify that transactions within each block are legitimate;
To do so, miners should solve a mathematical puzzle known as proof-of-work problem;
A reward is given to the first miner who solves each blocks problem;
Verified transactions are stored in the public blockchain
This “mathematical puzzle” has a key feature: asymmetry. The work, in fact, must be moderately hard on the requester side but easy to check for the network. This idea is also known as a CPU cost function, client puzzle, computational puzzle or CPU pricing function.
All the network miners compete to be the first to find a solution for the mathematical problem that concerns the candidate block, a problem that cannot be solved in other ways than through brute force so that essentially requires a huge number of attempts.
When a miner finally finds the right solution, he/she announces it to the whole network at the same time, receiving a cryptocurrency prize (the reward) provided by the protocol.
From a technical point of view, the mining process is an operation of inverse hashing: it determines a number (nonce), so the cryptographic hash algorithm of block data results in less than a given threshold.
This threshold, called difficulty, is what determines the competitive nature of mining: more computing power is added to the network, the higher this parameter increases, increasing also the average number of calculations needed to create a new block. This method also increases the cost of the block creation, pushing miners to improve the efficiency of their mining systems to maintain a positive economic balance. This parameter update should occur approximately every 14 days, and a new block is generated every 10 minutes.
Some functions of the proof of work system are different because created specifically for each blockchain, but now I don’t want to confuse your ideas with too technical data.
The important thing you need to understand is that now Ethereum developers want to turn the tables, using a new consensus system called proof of stake.
What is Proof of stake?
Proof of stake will make the consensus mechanism completely virtual. While the overall process remains the same as proof of work (POW), the method of reaching the end goal is entirely different. In POW, the miners solve cryptographically hard puzzles by using their computational resources.
In POS, instead of miners, there are validators. The validators lock up some of their Ether as a stake in the ecosystem. Following that, the validators bet on the blocks that they feel will be added next to the chain. When the block gets added, the validators get a block reward in proportion to their stake.
Ethereum PoS
Ethereum finally transitioned from PoW to PoS on September 15, 2022, via an event called the “Merge.” During the Merge, the original PoW Ethereum chain combined (or merged) with the PoS beacon chain, which has been operational since 2020. The Merge was done in various stages to ensure that the transition went off without a hitch. Prior to the mainnet deployment, the Merge was successfully executed on various Ethereum testnets, such as Ropsten and Goerli. There were multiple delays in the Merge implementation since the developers wanted to perfect the launch as much as possible. Ethereum stakers must stake at least 32 ETH in the protocol to participate in the consensus process.
Following the Merge, Ethereum will go through various updates, such as the Verge, Surge, Purge, and Splurge, making Ethereum faster and significantly more efficient. Following the Merge, many have criticized Ethereum for becoming more centralized since Lido Finance and Coinbase own >40% of the staking power. However, it must be noted that before the Merge, three mining pools owned >50% of the overall network hashrate in Ethereum.
How are forgers selected?
If Casper (the new proof of stake consensus protocol) will be implemented, there will exist a validator pool. Users can join this pool to be selected as the forger. This process will be available through a function of calling the Casper contract and sending Ether – or the coin who powers the Ethereum network – together with it.
“You automatically get inducted after some time,” explained Vitalik Buterin himself on a post shared on Reddit.
“There is no priority scheme for getting inducted into the validator pool itself; anyone can join in any round they want, irrespective of the number of other joiners,” he continued.
The reward of each validator will be “somewhere around 2-15%, ” but he is not sure yet.
Also, Buterin argued that there will be no imposed limit on the number of active validators (or forgers), but it will be regulated economically by cutting the interest rate if there are too many validators and increasing the reward if there are too few.
A safer system?
Any computer system wants to be free from the possibility of hacker attacks, especially if the service is related to money.
So, the main problem is: proof of stake is safer than proof of work?
Experts are worried about it, and there are several skeptics in the community.
Using a Proof-of-Work system, bad actors are cut out thanks to technological and economic disincentives.
In fact, programming an attack to a PoW network is very expensive, and you would need more money than you can be able to steal.
Instead, the underlying PoS algorithm must be as bulletproof as possible because, without especially penalties, a proof of stake-based network could be cheaper to attack.
To solve this issue, Buterin created the Casper protocol, designing an algorithm that can use the set some circumstances under which a bad validator might lose their deposit.
He explained: “Economic finality is accomplished in Casper by requiring validators to submit deposits to participate, and taking away their deposits if the protocol determines that they acted in some way that violates some set of rules (‘slashing conditions’).”
Slashing conditions refer to the circumstances above or laws that a user is not supposed to break.
Security Aspects in PoW and PoS
Examination of security features inherent in both consensus mechanisms
Two popular consensus mechanisms that are often compared are Proof of Work (PoW) and Proof of Stake (PoS). Let’s take a closer look at the security features inherent in both approaches.
In Proof of Work, miners compete to solve complex mathematical puzzles in order to validate transactions and add them to the blockchain. This process requires significant computational power and energy consumption. The security lies in the fact that for an attacker to successfully manipulate the blockchain, they would need to control more than 50% of the network’s computing power. This is known as the “51% attack” and is highly unlikely due to the massive resources required.
On the other hand, Proof of Stake relies on validators who hold a certain amount of cryptocurrency as collateral or stake. Validators are chosen randomly based on their stake, and they have a higher chance of being selected if they hold more coins. In this system, attackers would need to acquire a majority stake in order to manipulate transactions. However, this would require purchasing a significant amount of cryptocurrency, which can be expensive and impractical.
Discussion on vulnerabilities associated with each approach
While both PoW and PoS have their own strengthsThey also come with vulnerabilities that attackers could potentially exploit.
In Proof of Work, one vulnerability is the possibility of a 51% attack. If an attacker gains control over more than half of the network’s computing power, they could potentially rewrite transaction history or double-spend coins. Another concern is mining centralization, where large mining pools dominate the network’s computational power. This concentration creates potential risks such as collusion or manipulation by these centralized entities.
Proof of Stake has its own set of vulnerabilities as well. One such vulnerability is known as the “nothing-at-stake” problem. Since validators don’t have to invest significant computational resources like miners in PoW, they could potentially validate multiple conflicting blocks simultaneously without any cost. This creates a risk of network fragmentation and reduces the security of the blockchain.
Analysis on the resilience against various attack vectors
Both PoW and PoS consensus mechanisms have been designed to be resilient against various attack vectors, but they approach security in different ways.
In PoW, the massive computational power required to solve puzzles makes it highly resistant to brute force attacks.
Impact on Energy Consumption
Evaluation of Energy Consumption Levels
There is a clear distinction between Proof of Work (PoW) and Proof of Stake (PoS) systems. In PoW, miners must solve complex mathematical puzzles to validate transactions and secure the network. This process requires significant computational power and consumes a substantial amount of electricity. On the other hand, PoS operates differently by allowing participants to validate blocks based on their stake in the cryptocurrency. This eliminates the need for intensive computational work, resulting in significantly lower energy consumption compared to PoW.
Comparison Regarding Environmental Implications
The environmental implications of PoW and PoS are quite contrasting. Due to its energy-intensive nature, PoW has been criticized for its high carbon footprint and contribution to climate change. The massive amounts of electricity required for mining operations often come from non-renewable sources such as coal or natural gas, further exacerbating environmental concerns.
In contrast, PoS offers a more environmentally friendly alternative. Since it does not rely on extensive computational work, it consumes considerably less energy compared to PoW systems. As a result, the carbon emissions associated with validating transactions are significantly reduced. This makes PoS a more sustainable option that aligns with efforts towards mitigating climate change and promoting greener practices.
Consideration of Potential Solutions
While PoS presents a more energy-efficient approach compared to PoW, there are still potential solutions that can further mitigate energy usage in PoW systems. One such solution is the exploration of renewable energy sources for powering mining operations. By transitioning towards renewable sources like solar or wind power, the environmental impact can be minimized while maintaining network security.
Another potential solution lies in implementing technological advancements that optimize mining hardware’s efficiency. By developing more efficient algorithms or utilizing specialized hardware designed specifically for mining purposes, the overall energy consumption can be reduced without compromising network security.
Some cryptocurrencies have started exploring hybrid consensus mechanisms that combine the benefits of both PoW and PoS. These hybrids aim to strike a balance between security, energy efficiency, and decentralization. By incorporating elements of PoS into a PoW system, it is possible to reduce energy consumption while still maintaining robust network security.
Choosing Between PoW and PoS Cryptocurrencies
One crucial factor to consider is the consensus mechanism it employs. Two popular mechanisms are Proof of Work (PoW) and Proof of Stake (PoS). Understanding the trade-offs between these two mechanisms is essential for making an informed decision. Let’s explore the factors to consider when choosing between PoW and PoS cryptocurrencies.
Factors to Consider When Selecting a Cryptocurrency
Security: One of the primary concerns in any cryptocurrency system is security. PoW cryptocurrencies, such as Bitcoin, have proven their robustness over time. The computational power required for mining makes them highly resistant to attacks. On the other hand, PoS cryptocurrencies rely on validators who hold a certain stake in the network. While they offer different security models, it’s important to assess which mechanism aligns better with your project’s security requirements.
Efficiency: Another aspect to evaluate is efficiency. PoW systems require significant computational resources, resulting in high energy consumption and slower transaction speeds compared to PoS networks like Ethereum 2.0. If scalability and faster transactions are crucial for your project, a PoS mechanism might be more suitable.
Decentralization: Decentralization ensures that no single entity has control over the network, promoting transparency and trustlessness. While both PoW and PoS aim for decentralization, there are nuances to consider. In PoW systems, miners compete against each other using computational power, leading to a distributed network of nodes securing the blockchain’s integrity. In contrast, PoS networks rely on validators who often need a minimum stake in tokens or coins to participate actively in consensus decisions.
Trade-offs Between Security, Efficiency, and Decentralization
Choosing between Proof of Work and Proof of Stake involves striking a balance between security, efficiency, and decentralization.
Security vs Efficiency: While both mechanisms offer security, PoW is known for its proven track record. However, it comes at the cost of high energy consumption and slower transaction speeds. PoS networks, on the other hand, provide faster transactions and consume significantly less energy but may be perceived as less battle-tested.
Efficiency vs Decentralization: PoS networks generally offer better scalability and higher transaction throughput compared to PoW systems. However, some argue that they may sacrifice decentralization due to the concentration of power in the hands of validators with large stakes.
Conclusion
In conclusion, the debate between proof of work (PoW) and proof of stake (PoS) consensus mechanisms is a critical one in the world of blockchain technology. Both PoW and PoS have their advantages and disadvantages, with PoW being more secure but energy-intensive, while PoS offers energy efficiency but may be prone to centralization. Understanding these differences is crucial for anyone looking to invest in or develop cryptocurrencies.
It is clear that there is no one-size-fits-all solution. The decision should be based on the specific needs and goals of a project. While PoW has proven itself over the years with the success of Bitcoin, PoS is gaining traction as a more sustainable alternative. As the blockchain industry continues to evolve, it is essential for developers and investors alike to stay informed about these consensus mechanisms and their implications.
To make an informed choice, take into account factors such as security requirements, environmental impact, scalability, and decentralization goals. Consider consulting experts in the field or engaging in further research to deepen your understanding. By doing so, you can contribute to the advancement of blockchain technology while aligning with your own values and
FAQs
What is proof of work (PoW) and proof of stake (PoS)?
Proof of work (PoW) is a consensus algorithm used in blockchain networks, where participants solve complex mathematical puzzles to validate transactions and create new blocks. Proof of stake (PoS), on the other hand, relies on participants “staking” their cryptocurrency as collateral to be selected as validators and create new blocks.
How does proof of work ensure security?
In proof of work, miners compete to solve mathematical puzzles, requiring significant computational power. This competition makes it extremely difficult for any malicious actor to control the network since they would need more computational power than all honest participants combined.
What are the advantages of proof of stake over proof of work?
Proof of stake offers several advantages over proof of work. It consumes significantly less energy since there is no need for extensive computational calculations. It reduces the risk of centralization by not favoring those with more resources like mining hardware.
Does proof of stake have any drawbacks?
One potential drawback is the “nothing at stake” problem, where validators have no cost associated with validating multiple chains during a fork. However, this can be mitigated through various mechanisms such as slashing or penalties imposed on validators who act maliciously.
Which consensus algorithm is better: PoW or PoS?
The choice between PoW and PoS depends on various factors like network goals, scalability needs, and environmental concerns. While PoW has proven its security over time, PoS offers energy efficiency and scalability advantages. Ultimately, it’s up to developers and stakeholders to evaluate which algorithm aligns best with their specific requirements.
Ameer’s the co-founder of blockgeeks. He’s an investor and blockchain evangelist, meaning he’s all about investing to bring transparency across the world. You can call him a serial entrepreneur with a couple of startups up his sleeve and tonnes of them in his mind. With over 160K subscribers on youtube, Ameer hosts his own show called #ameerapproved, where he talks about entrepreneurship and shares the latest crypto market updates. He has been a contributor at HuffPost, Due.com, Cryptominded, and VentureBeat. His clients are mostly tech startups that are operating on blockchain technology. Right now Ameer’s thinking about NFTs and their use cases. He might as well talk about it in his next youtube video. You can connect with Ameer on Linkedin and Twitter.
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Duval Robinson
#5993
🙂
Duval Robinson
#5992
Liking this one… very detailed
Sushrut Deshmukh
#5840
The discussion whether PoW is better than PoS or vice versa, with all their relative advantages and disadvantages needs to be discussed with a larger audience. For afterall Blockchain is all about consensus, then why not a consensus within a larger community.
If PoW requires huge computing power as a consequence high consumption of electricity, then people must be encouraged to use alternate renewable energy sources. This cannot be a reason to sacrifice the security it provides Visavis less consumption of power associated with PoS.
Entry barriers with PoW are high so not anyone can just join the network to validate the transactions which can be the case with PoS.
The very idea of Blockchain is decentralized trustless transactions without the involvement of third parties, so then what purpose Casper and such serve ?
A
Anis Dabdi
#5449
can someone anwser my questions
what did you mean by bets ?
is the forgers create blocs like in the POW ? and how they create it technically?
is the forgers have to stake and in the same time instale a node in his computer ?
is that node a piece of code that validate & confirm txs automaticaly ?
is the forgers has the ability to on/off that node ? and what happens if they do that ?
how this node can know if this tx are valide/legal or not ?
is this node use some computer ressources ? CPU … ?
how the other supply of coins in POS protocol minted or released ? (in total supply)
how the validator can create an invalide bloc ?
s
#4698
It looks like Vitalik and Ethereum team have a plethora of interwoven and conflicting interests to solve. I will start with the biggest agency problem everyone is ignoring: 1) How to give the VC’s bankrolling Ethereum a clean exit with expected returns of >20x on exit. They will be pushing hard for POS as it will create scarcity of ETH and push up their token holdings vastly for an exit. We should not ignore that the VC’s interests and ETH community interests might be wholly orthogonal to each other. 2) How to keep the little guy vested and reward his/her loyalty to maintaining the integrity of the blockchain? Is this not the whole point of blockchain? Decentralized and distributed custodians of trust? Heads up! That ideal is long dead with mining pools creating hidden centralized power structures whose interests might not always be best aligned to the future of ETH nor the little minnows contributing to their pools. So, while moving this hidden centralized (concentration of control) to POS will certainly free up restrictions for the Ethereum developers to make changes, it will not democratize anything. 3) Who is being rewarded for what economic value? This is a fundamental question that needs to be clarified. Simply having ‘staking pools’ as trust agents is going to create other imbalances. Who is going to pay for the processing of trust (transaction verification)? What is the infrastructure going to look like? Or is that also going to get centralized as we already have in banks and effectively shafting all the minnows? If someone ‘stakes’ a very large amount of ETH, but has no supporting hardware to process transactions, what is his/her economic value? When you buy bonds/equity and get a yield, you are lending money to another entity that will invest that money… Read more »
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James Lyndon
#4542
mining pools have far more than 1000eth, the pools will act as the forgers and people will contribute to the mining pool. As a result the system for most miners will stay relatively the same.
G
Gunnar Forsgren
#4515
A later article https://blockonomi.com/ethereum-casper/
explained how small players would exist in a scenario of high stakes required;
“For instance, Ethereum founder Vitalik Buterin has recently thrown around a guesstimate of needing approximately 1,000 ETH to be one of the network’s inaugural stakers. He said that number could be dropped down to as low as 10 ETH over time.
Whatever the number ends up being, users will still be able to band together and create “staking pools,†just like there are robust mining pools in the Bitcoin and Ethereum communities today.
You’ll simply pitch your desired amount of ether in, lock in down with your peers, and rake in the dividends together (to be shared proportionally, of course).â€
One motive for the POS scheme part from saving energy is the ability to speed up transactions. Such a direction takes some power out of the arguments that blockchain processing would make cryptocurrency impractical for many applications that need to occur frequently.
L
Larry Jackson
#4500
Proof-of-Stake – ARE YOU SURE it’s a good IDEA??? GPU mining business would stop and miners would concentrate in other currencies possibly getting rid of ethereum. It would most likely dramatically decrease ethereum’s value. Moreover – it would be controlled by the richest minorities which is a typical scenario for self-oriented future plans and corruption. I’d suggest to stay at Proof-of-Work model and evolve the power and possibilities.. smart-contracts will cover expensive computer calculations, for instance, by powering autonomous AI technologies which could consist of sience research, transportation, robotics, etc, etc.. Much higher demand for electricity which becomes too expensive? – Tesla is solving that problem… People, why would we still keep on living by the old system model where the earth is for god’s and slaves.. i like philosophy of Jacque Fresco and even ethereum could be the key to it.. not by the governments – by the people..
Ivan Karamihailov
#5155
please larry, never ever write the marxist name of ja-fre in crypto-oriented forums – all the perversed evildoers stalin putin saddam khadaffi are marxists, same as the rulers of greece, who defaults constantly parasiting on the hard worked money of germans and other europeans. never ever believe to drug-addicted marxists who dream of total control of every and all individuals, much worse than description in “1984”. obviously you have not personal experience of the science of hatred named “marxism” even didnt visit the obscured meetings for “educating” where jung neomarxists “educate” naive goodthinkers – all they do is trainthemselves to manipulate listeners, and to explain that this is good – same as the whole-time behaviour of the human-haters in all times and all places. you dont need to believe me despite i lived more than 30 years under marxistic slavery, just look at one of the biggest oil-producers in the world – for less than ten years marxists ruined it and today there is total misery for normal people there, and even in their capital is deadly danger to get out on the street after a sundown without personal army of heavy armed bodygurads or sitting in panzer. the ruined venezuella. earlier same marxists ruined chili, saved by a real patriot, the right hand of the chilean marxist aliende named pinochet – he took the power away from marxists, invited the most educated and inteligent economical and financial experts on earth and made a miracle getting his homeland from the edge of the waterfall to the place and state of the first and most wealthy and prosperous country on the whole continent – south america. go on the other side of the globe – and observe normal prospering country divided by greedy marxists – korea. and compare both parts, who… Read more »
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Alec Chalmers
#4472
POS is an unfortunate, but possibly accurate acronym.
A
Adrian Lazar
#4374
Hi.the system in a way Look ok.the problem what i SEE is that validators will ne constrain to buy 1000 ethereum.this will Allow only rich persons to become validators.this condition is wrong!!
J
James Lyndon
#4541
mining pools have far more than 1000eth, the pools will act as the forgers and people will contribute
d
#4344
Isn’t the goal decentralization and consensus for validation?
How does rewarding those that have the most ether accomplish that?
s
#4304
I would say that the comments on this article are an indication of what the general public thinks about POS vs POW. The strongly worded comments likening Ethereum’s potential change to POS to a scenario where the rich get richer are widely ignored and any direct responses just accentuate the fact that yes, a change to POS will favor the rich. If Vitalik Buteren does not take the opportunity to explain to the average joe why we shouldn’t think of POS as a means to an end for wealthy investors to become wealthier, than he is agreeing that it is true. The absence of an answer is the same as confirmation that the widely held beliefs about POS are nothing but true. I would also like to comment on the state of journalism in this country. Most of us get our news from the internet. This article attempted to explain a very complicated topic to the uninitiated public. The framework of the article was excellent. However, without the function of an editor proofreading the article and putting it into proper English, the very topics which the article comes close to helping joe public understand technologically advanced topics are lost in a turn of improper English within a word here or there. The article is clearly written in the vernacular of a non-native English speaker. I mean no offense, in fact the opposite. Like I said, the topics broached are very difficult to understand and the author goes about explaining things in a terrific fashion. However, the final copy of the article MUST be proofread and edited to eliminate the errors in its grammar. Having done so would have turned the existing article front a 7 to a 9, a very distinct difference.
s
#4303
So basically, once Ethereum changes to Proof Of Stake, a scenario will unfold wherein people who hold small amounts of Ether will what? Be treated as a headbanging moron in an upscale fancy club? This does not seem fair. It immediately brings to mind a ponzy scheme where the people in one specific category, the haves, or the major players in the market, will be able to use the investments of people in another category, smaller players, or have-nots, to drive the value of this second categories investments into worthlesslessness. This defeats the very idea behind why crypto currencies are catching on in today’s world…the decentralization, the trustless system, the blockchain treating everyone equally because each transaction, whether small or large, is only verifiable if the community says it’s verifiable. If Ethereum changes to a system that only rewards the larger players, I am not an economist but I must say that it is easy to imagine that at that point the idea behind blockchain technology, decentralized transactions and ledgers, a trustless system, an alternative to fiat currencies that have turned out country into the absolute shithole it is will all become a moot point. And then, what would be the point in a alternative/digital currency? The point now is to replace the broken system with all if it’s wealth imbalance favoring the rich to get richer and leaving the less rich to have virtually no chance at attaining anything in this country (I realize that crypto currencies obviously have technological advantages as well but the main groundswell of interest and support of crypto currencies comes not from people who think Visa must be replaced because of the fees they charge to handle transactions, but rather from people who want a form of currency that is obtained via fairness and… Read more »
W
William Tucker
#4055
You need money to make money. By requiring a balance of Ether, or whatever coin, it eliminates forgers with little stake possibly looking to cause trouble. Think of it like a fancy bar/club. They don’t want headbangers coming in, so they charge more to get the crowd they want. Similar with PoS…”show us your serious and you’ll be rewarded”
A
Adrian Lazar
#4375
Yes but 1000 ehtereum ia huge(700000 dolars)!!!!
Amrik Mahal
#3829
Proof Of Stake seems to be leading towards a scenario where the power would rest in the hands of a few. Does not sound good. Not sure if i am missing something here.
c
#4395
Mining will also centralized at the end. Anything competing in nature, the few of the strongest will get stronger and stronger and the rest will fail to compete. This is because of rising mining cost in which big mining farm is more efficient and the less efficient mining farm will fail to profit from higher difficulty. That is the nature of the system.
t
#3533
so…with PoS, they way i see it, the people who already have ethereum to burn are going to control everything, and the ones who got into the mining game too late are basically screwed? the rich getting richer….
#3646
That is already the case. The “mining for the common man” ship sailed away years ago.
r
#3700
so we need to make it available for the common man again and not the other way around, or other wise it will again be a centralized rather than a decentralized network which is very bad as it collapse the very basic idea of decentralized blockchain.
d
#4345
Agreed. The point is decentralization and validation, right? Absolute power corrupts absolutely.
J
James Lyndon
#4540
why do mining pools not exist all of a sudden? people can still get paid by contributing to a mining pool who acts as the forger
a
#3414
The idea behind proof of stake has rejected by the majority of the people because bitcoin is already considering a ponzy and exchanges are being closed by the governments like China, so if this happens then this will have a bad impact on cryptocurrency. People will for sure consider it a ponzy as the proof of stake means invest and get paid, means more money you will invest, more chances will be you will get paid. so it will be just worthless and people will lose their faith regarding cryptocurrency.
d
#4346
I agree. Once trust or loss happens people will exit the cryptocurrency market in droves. The floats and liquidity are low and these will be driven down rapidly (remember dot.com bubble/bust). But, blockchain is not going away. That is the real play here. Mining is done unless you have a solar farm to support thousands of GPU’s you need due to exponentially increasingly difficult algorithms to solve. So in effect and actuality Mining has already been centralized in just a few short years. Only the early miners will see big profits. No different than the Gold Rush in California and Alaska. Those late to the party got stuck with the bill. But the early miners and the mining supply companies made a fortune. I would say if you didn’t start mining a couple years ago, then you are too late to join the “mining party”.
As far as PoS I don’t understand the value it adds besides reducing electrical costs. Maybe the future is better “mining equipment” (aka something that solves complex algorithms) that doesn’t use electricity???….
a
#3191
So what a person buys a dozen coins and puts them as a collateral to a process that he doesn’t even control or understand?
Who owns and operates the computer that actually updates the blockchain?
#2875
PoS vests control over the currencies on those with most stakes. In other words, the “interest” rate as incentive or disincentive, might take a back seat to the desire to control most of the currencies that have been made available beforehand. So the PoS brings into the Cryptocurrency centralizing dynamics that the system cannot control. It sets up the whole Cryptocurrency system for some kind of a “central banking” capture. The question to be answered is how can this be avoided?
T
The Lynx
#2753
NXT has been using POS successfully for some time now. Block generations with their transaction fees are competed for and is directly proportional to the number of coins a wallet has. No need to run and maintain a miner; just buy some coins and forge instead. No need to worry about upgrading obsolete equipment and the like. I think POS is the way of the future.
#2655
The way I understand PoS, the more Ether you have the more chances you have to be selected as forger? Is there any hope for the rest of the aspiring new forgers with minimal Ether holdings? Is there a minimum stake required to qualify as a potential pick by the validator pool?
A
Adrian Lazar
#4376
As I see on there site minimum amount will be 1000 ETH!!!what is huge around 700000 dolars!!!!
J
James Lyndon
#4538
Mining pools…
J
James Lyndon
#4539
Mining pools will still be a thing and they will be selected as forgers
N
Neeraj Murarka
#2611
I don’t understand proof of stake despite this explanation. Why would I trust this validator/forger? Are they not incentivized to accept tx’s that favour them? How are they monitored and disciplined? Doesn’t PoS make the rich, richer and create a total imbalance of power?
J
James Lyndon
#4537
people will still have mining pools, the pools will be given the forgers privileges
B
Bernd-Axel Hugelmann
#2284
Proof of space time might be a solution. But I guess there’s some work ahead.
Otherwise quantum entanglement would be my first guess …. but …. maybe I am even too far ahead in the future 🙂
Satya "Venu" Gopal Malyala
#2283
Nice article, but I am afraid the story of PoS is not coming out clear. I am not clear how a PoS would work. For example, I don’t think there will be a nonce and hash mechanism (?!). So how will blocks be added to the chain ? How will they be immutable ? Just because a forger ‘A’ has higher stake, why should I believe him/her ? It is possible that ‘A’ is trying to dupe all other smaller players “B to Z” for ulterior reasons ? Are there situations like forking in PoS ? what are those Slashing conditions ? IS it possible that a forger might ending being on the wrong side unwillingly ? How is that handled ? When will a consensus emerge or something is forged correctly or incorrectly ? What will happen if a later audit found that a consensus made earlier needs to be reversed ? It would be nice if this is compared by providing a use case and compare how it would be done in PoW Vs PoS. Everyone understands the economic benefits of POS, what people like me are not getting it is, how is the consensus achieved ?
a
#3323
I’d append a question into your list if I may, about the role of miners in a PoS system, if there is any…
Is the mining era close to its end?
I am trying to figure out the economical impact of this switch from PoW to PoS.
As far as I understand, with PoS there is no need of miners, and there is no need in general of computational effort. Am I right? This means that there won’t be dedicated nodes for mining.
J
James Lyndon
#4535
Miners will still need to validate transactions, its just they take a set percentage fee of the amount being exchanged. The reward will be taken as a cut rather than being make from nothing. This therefore creates a finite amount of the currency which makes it more stable.
r
#3699
I also want to add that it will make rich more richer by eating out all small players which is very bad model as it will again move towards centralization rather than a decentralized network.
J
James Lyndon
#4536
Mining pools will still exist, with the current system the more powerful groups get more rewards so people join mining pools, the same would be for for PoS its just the reward is as a cut from the blocks transaction value.
Ross Demush
#4824
I can not agree! Plus the switch from PoW to PoS has it’s positive benefits mentioned in this article: PoS should solve the issue of unnecessary energy wasting; more people will be encouraged to participate in the validation process (no competition in solving computational puzzles will mean no demand for advanced mining hardware).
h
hello peach
#4886
I’d say it’s far less likely for people to join mining pools in a PoS system, for PoW you just contribute your computing power to the pool and can leave a pool anytime you want if you find the pool has some suspicious activities. For PoS you need to deposit your ether to the mining pool’s account first, then the mining pool deposit the ether to a certain locked account to join the validator pool. That’s a LOT of stake and trust you need to put to the mining pool. And depending on the implementation of the reward system, mining pools may not have any reason to exist any more, if anyone who join the validator pool can get some interests as reward, then why trust your ether to a mining pool, you can just join the validator pool yourself.
Elias Baixas
#2282
The main question for me, is what are the “Slashing conditions” and how are they implemented.
Any pointers to that info?
Excel·lent article, by the way 🙂
Dmitry Buterin
#2279
PoS is the future!
a
#4840
You all missing a fundamental piece. the real value of any currency is the people perception. the value of any digital currency currently exists coming from perception of the miners. you need to have more individuals involved in this. by adding more machines but less people you are just creating inflation. To the subject from going pow to pos its like changing reality to fantasy. You will end up with bunch of numbers but no value. You need to be thinking how to get more people involved in this and have them believe there is a value in digital currency that will create value. Don’t be fooled with greed. Bitcoin does not have the potential to be a universal not even global currency but it showed us that such thing is possible.
A consensus is a dynamic way of reaching agreement in a group; a consensus mechanism is a method to reach consensus.
Answer Link
answered
Blockgeeks
1) Q: What is proof of work?
1
1) Q: What is proof of work?
asked
Ameer Rosic
1 answers
1 votes
1
Proof of work is a requirement to define an expensive computer calculation, also called mining, that needs to be performed in order to create a new group of trustless transactions (the so-called block) on a distributed ledger called blockchain. Miners are rewarded with crypto.
Answer Link
answered
Blockgeeks
1) Q: What is proof of stake?
1
1) Q: What is proof of stake?
asked
Ameer Rosic
1 answers
1 votes
1
In POS, instead of miners, there are validators. The validators lock up some of their crypto as a stake in the ecosystem. Following that, the validators bet on the blocks that they feel will be added next to the chain. When the block gets added, the validators get a block reward in proportion to their stake.
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answered
Blockgeeks
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Liking this one… very detailed
The discussion whether PoW is better than PoS or vice versa, with all their relative advantages and disadvantages needs to be discussed with a larger audience. For afterall Blockchain is all about consensus, then why not a consensus within a larger community.
If PoW requires huge computing power as a consequence high consumption of electricity, then people must be encouraged to use alternate renewable energy sources. This cannot be a reason to sacrifice the security it provides Visavis less consumption of power associated with PoS.
Entry barriers with PoW are high so not anyone can just join the network to validate the transactions which can be the case with PoS.
The very idea of Blockchain is decentralized trustless transactions without the involvement of third parties, so then what purpose Casper and such serve ?
can someone anwser my questions
what did you mean by bets ?
is the forgers create blocs like in the POW ? and how they create it technically?
is the forgers have to stake and in the same time instale a node in his computer ?
is that node a piece of code that validate & confirm txs automaticaly ?
is the forgers has the ability to on/off that node ? and what happens if they do that ?
how this node can know if this tx are valide/legal or not ?
is this node use some computer ressources ? CPU … ?
how the other supply of coins in POS protocol minted or released ? (in total supply)
how the validator can create an invalide bloc ?
It looks like Vitalik and Ethereum team have a plethora of interwoven and conflicting interests to solve. I will start with the biggest agency problem everyone is ignoring: 1) How to give the VC’s bankrolling Ethereum a clean exit with expected returns of >20x on exit. They will be pushing hard for POS as it will create scarcity of ETH and push up their token holdings vastly for an exit. We should not ignore that the VC’s interests and ETH community interests might be wholly orthogonal to each other. 2) How to keep the little guy vested and reward his/her loyalty to maintaining the integrity of the blockchain? Is this not the whole point of blockchain? Decentralized and distributed custodians of trust? Heads up! That ideal is long dead with mining pools creating hidden centralized power structures whose interests might not always be best aligned to the future of ETH nor the little minnows contributing to their pools. So, while moving this hidden centralized (concentration of control) to POS will certainly free up restrictions for the Ethereum developers to make changes, it will not democratize anything. 3) Who is being rewarded for what economic value? This is a fundamental question that needs to be clarified. Simply having ‘staking pools’ as trust agents is going to create other imbalances. Who is going to pay for the processing of trust (transaction verification)? What is the infrastructure going to look like? Or is that also going to get centralized as we already have in banks and effectively shafting all the minnows? If someone ‘stakes’ a very large amount of ETH, but has no supporting hardware to process transactions, what is his/her economic value? When you buy bonds/equity and get a yield, you are lending money to another entity that will invest that money… Read more »
mining pools have far more than 1000eth, the pools will act as the forgers and people will contribute to the mining pool. As a result the system for most miners will stay relatively the same.
A later article https://blockonomi.com/ethereum-casper/
explained how small players would exist in a scenario of high stakes required;
“For instance, Ethereum founder Vitalik Buterin has recently thrown around a guesstimate of needing approximately 1,000 ETH to be one of the network’s inaugural stakers. He said that number could be dropped down to as low as 10 ETH over time.
Whatever the number ends up being, users will still be able to band together and create “staking pools,†just like there are robust mining pools in the Bitcoin and Ethereum communities today.
You’ll simply pitch your desired amount of ether in, lock in down with your peers, and rake in the dividends together (to be shared proportionally, of course).â€
One motive for the POS scheme part from saving energy is the ability to speed up transactions. Such a direction takes some power out of the arguments that blockchain processing would make cryptocurrency impractical for many applications that need to occur frequently.
Proof-of-Stake – ARE YOU SURE it’s a good IDEA??? GPU mining business would stop and miners would concentrate in other currencies possibly getting rid of ethereum. It would most likely dramatically decrease ethereum’s value. Moreover – it would be controlled by the richest minorities which is a typical scenario for self-oriented future plans and corruption. I’d suggest to stay at Proof-of-Work model and evolve the power and possibilities.. smart-contracts will cover expensive computer calculations, for instance, by powering autonomous AI technologies which could consist of sience research, transportation, robotics, etc, etc.. Much higher demand for electricity which becomes too expensive? – Tesla is solving that problem… People, why would we still keep on living by the old system model where the earth is for god’s and slaves.. i like philosophy of Jacque Fresco and even ethereum could be the key to it.. not by the governments – by the people..
please larry, never ever write the marxist name of ja-fre in crypto-oriented forums – all the perversed evildoers stalin putin saddam khadaffi are marxists, same as the rulers of greece, who defaults constantly parasiting on the hard worked money of germans and other europeans. never ever believe to drug-addicted marxists who dream of total control of every and all individuals, much worse than description in “1984”. obviously you have not personal experience of the science of hatred named “marxism” even didnt visit the obscured meetings for “educating” where jung neomarxists “educate” naive goodthinkers – all they do is trainthemselves to manipulate listeners, and to explain that this is good – same as the whole-time behaviour of the human-haters in all times and all places. you dont need to believe me despite i lived more than 30 years under marxistic slavery, just look at one of the biggest oil-producers in the world – for less than ten years marxists ruined it and today there is total misery for normal people there, and even in their capital is deadly danger to get out on the street after a sundown without personal army of heavy armed bodygurads or sitting in panzer. the ruined venezuella. earlier same marxists ruined chili, saved by a real patriot, the right hand of the chilean marxist aliende named pinochet – he took the power away from marxists, invited the most educated and inteligent economical and financial experts on earth and made a miracle getting his homeland from the edge of the waterfall to the place and state of the first and most wealthy and prosperous country on the whole continent – south america. go on the other side of the globe – and observe normal prospering country divided by greedy marxists – korea. and compare both parts, who… Read more »
POS is an unfortunate, but possibly accurate acronym.
Hi.the system in a way Look ok.the problem what i SEE is that validators will ne constrain to buy 1000 ethereum.this will Allow only rich persons to become validators.this condition is wrong!!
mining pools have far more than 1000eth, the pools will act as the forgers and people will contribute
Isn’t the goal decentralization and consensus for validation?
How does rewarding those that have the most ether accomplish that?
I would say that the comments on this article are an indication of what the general public thinks about POS vs POW. The strongly worded comments likening Ethereum’s potential change to POS to a scenario where the rich get richer are widely ignored and any direct responses just accentuate the fact that yes, a change to POS will favor the rich. If Vitalik Buteren does not take the opportunity to explain to the average joe why we shouldn’t think of POS as a means to an end for wealthy investors to become wealthier, than he is agreeing that it is true. The absence of an answer is the same as confirmation that the widely held beliefs about POS are nothing but true. I would also like to comment on the state of journalism in this country. Most of us get our news from the internet. This article attempted to explain a very complicated topic to the uninitiated public. The framework of the article was excellent. However, without the function of an editor proofreading the article and putting it into proper English, the very topics which the article comes close to helping joe public understand technologically advanced topics are lost in a turn of improper English within a word here or there. The article is clearly written in the vernacular of a non-native English speaker. I mean no offense, in fact the opposite. Like I said, the topics broached are very difficult to understand and the author goes about explaining things in a terrific fashion. However, the final copy of the article MUST be proofread and edited to eliminate the errors in its grammar. Having done so would have turned the existing article front a 7 to a 9, a very distinct difference.
So basically, once Ethereum changes to Proof Of Stake, a scenario will unfold wherein people who hold small amounts of Ether will what? Be treated as a headbanging moron in an upscale fancy club? This does not seem fair. It immediately brings to mind a ponzy scheme where the people in one specific category, the haves, or the major players in the market, will be able to use the investments of people in another category, smaller players, or have-nots, to drive the value of this second categories investments into worthlesslessness. This defeats the very idea behind why crypto currencies are catching on in today’s world…the decentralization, the trustless system, the blockchain treating everyone equally because each transaction, whether small or large, is only verifiable if the community says it’s verifiable. If Ethereum changes to a system that only rewards the larger players, I am not an economist but I must say that it is easy to imagine that at that point the idea behind blockchain technology, decentralized transactions and ledgers, a trustless system, an alternative to fiat currencies that have turned out country into the absolute shithole it is will all become a moot point. And then, what would be the point in a alternative/digital currency? The point now is to replace the broken system with all if it’s wealth imbalance favoring the rich to get richer and leaving the less rich to have virtually no chance at attaining anything in this country (I realize that crypto currencies obviously have technological advantages as well but the main groundswell of interest and support of crypto currencies comes not from people who think Visa must be replaced because of the fees they charge to handle transactions, but rather from people who want a form of currency that is obtained via fairness and… Read more »
You need money to make money. By requiring a balance of Ether, or whatever coin, it eliminates forgers with little stake possibly looking to cause trouble. Think of it like a fancy bar/club. They don’t want headbangers coming in, so they charge more to get the crowd they want. Similar with PoS…”show us your serious and you’ll be rewarded”
Yes but 1000 ehtereum ia huge(700000 dolars)!!!!
Proof Of Stake seems to be leading towards a scenario where the power would rest in the hands of a few. Does not sound good. Not sure if i am missing something here.
Mining will also centralized at the end. Anything competing in nature, the few of the strongest will get stronger and stronger and the rest will fail to compete. This is because of rising mining cost in which big mining farm is more efficient and the less efficient mining farm will fail to profit from higher difficulty. That is the nature of the system.
so…with PoS, they way i see it, the people who already have ethereum to burn are going to control everything, and the ones who got into the mining game too late are basically screwed? the rich getting richer….
That is already the case. The “mining for the common man” ship sailed away years ago.
so we need to make it available for the common man again and not the other way around, or other wise it will again be a centralized rather than a decentralized network which is very bad as it collapse the very basic idea of decentralized blockchain.
Agreed. The point is decentralization and validation, right? Absolute power corrupts absolutely.
why do mining pools not exist all of a sudden? people can still get paid by contributing to a mining pool who acts as the forger
The idea behind proof of stake has rejected by the majority of the people because bitcoin is already considering a ponzy and exchanges are being closed by the governments like China, so if this happens then this will have a bad impact on cryptocurrency. People will for sure consider it a ponzy as the proof of stake means invest and get paid, means more money you will invest, more chances will be you will get paid. so it will be just worthless and people will lose their faith regarding cryptocurrency.
I agree. Once trust or loss happens people will exit the cryptocurrency market in droves. The floats and liquidity are low and these will be driven down rapidly (remember dot.com bubble/bust). But, blockchain is not going away. That is the real play here. Mining is done unless you have a solar farm to support thousands of GPU’s you need due to exponentially increasingly difficult algorithms to solve. So in effect and actuality Mining has already been centralized in just a few short years. Only the early miners will see big profits. No different than the Gold Rush in California and Alaska. Those late to the party got stuck with the bill. But the early miners and the mining supply companies made a fortune. I would say if you didn’t start mining a couple years ago, then you are too late to join the “mining party”.
As far as PoS I don’t understand the value it adds besides reducing electrical costs. Maybe the future is better “mining equipment” (aka something that solves complex algorithms) that doesn’t use electricity???….
So what a person buys a dozen coins and puts them as a collateral to a process that he doesn’t even control or understand?
Who owns and operates the computer that actually updates the blockchain?
PoS vests control over the currencies on those with most stakes. In other words, the “interest” rate as incentive or disincentive, might take a back seat to the desire to control most of the currencies that have been made available beforehand. So the PoS brings into the Cryptocurrency centralizing dynamics that the system cannot control. It sets up the whole Cryptocurrency system for some kind of a “central banking” capture. The question to be answered is how can this be avoided?
NXT has been using POS successfully for some time now. Block generations with their transaction fees are competed for and is directly proportional to the number of coins a wallet has. No need to run and maintain a miner; just buy some coins and forge instead. No need to worry about upgrading obsolete equipment and the like. I think POS is the way of the future.
The way I understand PoS, the more Ether you have the more chances you have to be selected as forger? Is there any hope for the rest of the aspiring new forgers with minimal Ether holdings? Is there a minimum stake required to qualify as a potential pick by the validator pool?
As I see on there site minimum amount will be 1000 ETH!!!what is huge around 700000 dolars!!!!
Mining pools…
Mining pools will still be a thing and they will be selected as forgers
I don’t understand proof of stake despite this explanation. Why would I trust this validator/forger? Are they not incentivized to accept tx’s that favour them? How are they monitored and disciplined? Doesn’t PoS make the rich, richer and create a total imbalance of power?
people will still have mining pools, the pools will be given the forgers privileges
Proof of space time might be a solution. But I guess there’s some work ahead.
Otherwise quantum entanglement would be my first guess …. but …. maybe I am even too far ahead in the future 🙂
Nice article, but I am afraid the story of PoS is not coming out clear. I am not clear how a PoS would work. For example, I don’t think there will be a nonce and hash mechanism (?!). So how will blocks be added to the chain ? How will they be immutable ? Just because a forger ‘A’ has higher stake, why should I believe him/her ? It is possible that ‘A’ is trying to dupe all other smaller players “B to Z” for ulterior reasons ? Are there situations like forking in PoS ? what are those Slashing conditions ? IS it possible that a forger might ending being on the wrong side unwillingly ? How is that handled ? When will a consensus emerge or something is forged correctly or incorrectly ? What will happen if a later audit found that a consensus made earlier needs to be reversed ? It would be nice if this is compared by providing a use case and compare how it would be done in PoW Vs PoS. Everyone understands the economic benefits of POS, what people like me are not getting it is, how is the consensus achieved ?
I’d append a question into your list if I may, about the role of miners in a PoS system, if there is any…
Is the mining era close to its end?
I am trying to figure out the economical impact of this switch from PoW to PoS.
As far as I understand, with PoS there is no need of miners, and there is no need in general of computational effort. Am I right? This means that there won’t be dedicated nodes for mining.
Miners will still need to validate transactions, its just they take a set percentage fee of the amount being exchanged. The reward will be taken as a cut rather than being make from nothing. This therefore creates a finite amount of the currency which makes it more stable.
I also want to add that it will make rich more richer by eating out all small players which is very bad model as it will again move towards centralization rather than a decentralized network.
Mining pools will still exist, with the current system the more powerful groups get more rewards so people join mining pools, the same would be for for PoS its just the reward is as a cut from the blocks transaction value.
I can not agree! Plus the switch from PoW to PoS has it’s positive benefits mentioned in this article: PoS should solve the issue of unnecessary energy wasting; more people will be encouraged to participate in the validation process (no competition in solving computational puzzles will mean no demand for advanced mining hardware).
I’d say it’s far less likely for people to join mining pools in a PoS system, for PoW you just contribute your computing power to the pool and can leave a pool anytime you want if you find the pool has some suspicious activities. For PoS you need to deposit your ether to the mining pool’s account first, then the mining pool deposit the ether to a certain locked account to join the validator pool. That’s a LOT of stake and trust you need to put to the mining pool. And depending on the implementation of the reward system, mining pools may not have any reason to exist any more, if anyone who join the validator pool can get some interests as reward, then why trust your ether to a mining pool, you can just join the validator pool yourself.
The main question for me, is what are the “Slashing conditions” and how are they implemented.
Any pointers to that info?
Excel·lent article, by the way 🙂
PoS is the future!
You all missing a fundamental piece. the real value of any currency is the people perception. the value of any digital currency currently exists coming from perception of the miners. you need to have more individuals involved in this. by adding more machines but less people you are just creating inflation. To the subject from going pow to pos its like changing reality to fantasy. You will end up with bunch of numbers but no value. You need to be thinking how to get more people involved in this and have them believe there is a value in digital currency that will create value. Don’t be fooled with greed. Bitcoin does not have the potential to be a universal not even global currency but it showed us that such thing is possible.