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(IJCH) Get Smart: A PoW (Proof of Work) & PoS (Proof of Stake) Primer. "Why are more upcoming and existing Cryptocurrencies (e.g., Ethereum) going PoS?"

IJCH - Inside JaiChai's Head (meaning: My warped, personal opinions and musings)

From the Author

Salutations.

I am JaiChai.

And if I haven't had the pleasure to make your acquaintance, it's always nice to meet a fellow Steemian.

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Purpose

This article was written for all cryptocurrency enthusiasts. For the seasoned pundit, it is a brief, straight forward review. For the neophyte, this post will answer the questions:

What's the big deal about PoW (Proof of Work) and PoS (Proof of Stake)?

And why the heated debate over them?

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PoW - Proof of Work

The vast majority of cryptocurrencies use PoW in their consensus mechanism schemes for network security, anti-spamming and choosing which miner is awarded the current block.

All miners around the globe race to be the first one to solve a complex cryptographic puzzle to "mine" the next block and receive ALL the accompanying cryptocoins within the block.

When the miner solves the puzzle, he presents it to the network. The network verifies that it is correct or incorrect. If correct, it is deemed fit to add to the blockchain and the miner gets his reward.

In short, solving the puzzle is very hard; while verification is simple via the decentralized network.

This process is the revolutionary brainchild of Satoshi Nakamoto and a response to the Worldwide Financial Crises of 2008.

It [the Bitcoin Protocol] solved the Byzantine Problem (Double Spend) in a way that was Trustless (No third party - AKA: Members of the Global Financial Empire - is required) via decentralization of the verification process.

BUT...

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PoW is a VERY power hungry process, leaving a GIANT carbon footprint.

For example, as of last month (November 2017), the annual power cost for mining bitcoin was ~$1.5 Billion.

This means that bitcoin's energy consumption eclipses that of whole countries (e.g., Slovakia, Bahrain, Ireland and many more).

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PoW - The Mining Mafia's Best Friend

PoW is NOT egalitarian.

Why do I say that?

Because the more affluent mining pools can afford growing colonies of expensive, lightning fast ASIC mining rigs; hence, they have a HUGE advantage over the other, less rich home miners and small mining pools.

Additionally, with over 67% of bitcoin's hash power controlled by only five major mining pools, collusion could easily result in a 51% attack on the network.

Lastly, with this concentration of network control, bitcoin's original promise of true decentalization has become a pipe dream.

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PoS - Proof of Stake

Proof of Stake basically turns the mining process virtual and replaces miners with validators.

It is not new. In fact, Peercoin successfully has employed it for years.

What is PoS?

"The blockchain keeps track of a set of validators, and anyone who holds the blockchain's base cryptocurrency (in Ethereum's case, ether) can become a validator by sending a special type of transaction that locks up their ether into a deposit. The process of creating and agreeing to new blocks is then done through a consensus algorithm that all current validators can participate in."

https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ

As the moniker implies, these "validators" validate (fulfill the same duties as what PoW miners do).

And their locked up stake serves as a sort of collateral, "wager" or "bet" that, if they discover a block and it is added to the blockchain, they receive a reward commensurate to the size of their bets.

In other words, they are required to submit a stake (an amount of their own coins) in order to claim any rewards - in the form of transaction fees.

This is much more power efficient - I mean in the magnitude order of thousands of times more efficient! - than mining.

Furthermore, unlike PoW, where "sharding" (drastically increasing scalability and decreasing transaction time by horizontally dividing databases to create multiple, ultra-fast, robust nodes) is not viable because small nodes would be crushed by larger nodes, PoS provides a perfect environment for the huge scalabilty and hyper transaction time benefits of sharding.

BUT...

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Although the economic disincentive for malicious behavior is built-in to the PoW scheme, no such disincentive exists in pure PoS.

If a validator "bets" on every available or possible block of any chain, he can do so with no repercussion or financial disincentive.

Simply put, he has nothing to lose. It's win/win for the validator - no matter what malicious (hard-forking) actions he may do.

This is what's called the “Nothing at Stake” problem.

And this is why Ethereum has not implemented PoS until they developed a form of PoS (named "Casper) that effectively solves the "Nothing at Stake" problem by imposing a "slashing" of a validator's stake for any malicious behavior.

Stated differently, validators would lose their stake if they don't play by the rules and contribute to the health of its ecosystem.

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"Suicide", kamikaze validators are easily thwarted because they would be acting as lone attackers vice a swarm of attackers (i.e., collusion of miners in PoW).

My fellow Steemians, can you now see what the big deal is?

Bitcoin is supposed to be mined until the year 2140. And with the ENORMOUS mining infrastructure, it's no wonder why there is a very deep-pocket lobby against PoS.

I shall examine the Casper Protocol in more detail in a future post.

By JaiChai

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Many thanks for reading my post. And if you enjoyed it, please: Upvote, Follow, Comment and Resteem.

- JaiChai "My mind was a terrible thing to waste..."

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About the Author

He is a retired U.S. Military veteran. Believing that school was too boring, he dropped out of High School early; only to earn an AA, BS and MBA in less than 4 years much later in life – while working full-time as a Navy/Marine Corps Medic.

In spite of a fear of heights and deep water, he freefall parachuted out of airplanes and performed diving ops in very deep, open ocean water.

He spends his days on an island paradise with his teenage daughter, longtime girlfriend and three dogs.

Parting Shot -

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