Proof of Work vs Proof of Stake - P.3

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In a Proof of Stake utilized system, there won’t be any math to solve, nor a bounty to claim.

Proof of Work vs Proof of Stake - P.1

Proof of Work vs Proof of Stake - P.2

In a Proof-of-Stake utilized system, there won’t be any math to solve, nor a bounty to claim. Instead, “miners” will now become “forgers” or “validators”, and their income will come primarily from transaction fees. In a PoW system, Miners don’t really need to possess the blockchain-based currency, but in a PoS system, validators are required to have a certain amount of crypto.

So how does PoS work?

In a PoS system, anyone who wants to be a “validator” will need to deposit a certain amount of crypto into the blockchain, called “stake”. The system will choose from the “validator pool” someone to process a transaction and then the result will be validated by multiple parties. The choosing process will be based on the value of the validator’s staked asset, the percentage of the staked asset compare to the whole pool, combined with factors like the duration of possessing the crypto, its source, the total sum in the validator’s personal wallet,…. And the chosen “validator” will receive the amount of fee equivalent to the point credited to them by the system.

From the above explanation, in order for someone to take control of a PoS blockchain, instead of taking over 51% computers, the hacker would need to own 51% of the stake pool. And for someone who owns such a huge quantity of the cryptocurrency, Harming the system would not be such an enticing idea. Especially since it would tarnish the reputation of the currency, consequently affecting the validator’s fortune.

Researched undertaken since 2014 on the Ethereum blockchain, currently, on the testnet, the minimum “stake” required for someone to become a validator is 1500 Ether (ETH), but this threshold is expected to decrease in the future.

The value of PoS to Ethereum

Eco-friendly

In fact, one of the biggest selling points of PoS is that it is environmentally friendly as it removed the gigantic computational requirement like in the case of PoW. The map below compares the electricity consumption of the Bitcoin system to every country in the world, orange is used to  indicate countries that consume less and countries that consume more are in black.

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Or for a  more practical comparison, let’s collate Bitcoin consumption with another payment service, let’s say Visa:

proof of work, proof of stake, pow, pos, ethereum, blockchain, cryptocurrency

The contrast is clear.

And by removing the “mining” process, the required operational electricity for a blockchain will significantly drop, making cryptocurrencies more effective and sustainable.

Financial security

According to Etherchain.org, currently most computational capacity of Ethereum is coming from a small number of processing pools, as shown below:  

proof of work, proof of stake, pow, pos, ethereum, blockchain, cryptocurrency

In a traditional PoW system, only two to three pools need to collude, and the whole system is compromised.

But this risk will be solved  through PoSbecause instead of stressing on computational power, “miner” or ‘validator” will now be kept in check by financial incentives (the validators wouldn’t want to lost their staked asset due to violating the rules, or devaluing their staked asset by damaging the crypto’s reputation).

Ethereum’s future and the Casper update

In the upcoming Casper update, Ethereum is planning to implement Proof of Stake in place of the current Proof of Work solution. Currently, Casper is on the testnet, arousing lots of expectation around the blockchain. In the past, PoS has been implemented on various blockchains, like Peercoin, but this solution has never been used on such a large scale like Ethereum. Hopefully, when the Casper update becomes a success, more and more cryptocurrencies will move from the expensive PoW to the more advanced PoS.

Written by nami.today

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