Different Types of Consensus Mechanisms - Steemit Crypto Academy Season 4 - Homework Post for Task 6
(1) What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?
A consensus mechanism or algorithm is the interconnection of networks used by Blockchain participants to agree on information that will be stored in the Blockchain. It states how validator nodes makes sure that a transactions is ok. The reason why they do this is because they want to achieve group consensus on the quality of the data stored in the Blockchain.
As most Blockchain's are managed by a decentralized network of computers rather than by a central authority, all computers in the network must have one method which they will use to agree on the information to record in the Blockchain. That group consensus mechanism is generally defined by the predefined set of rules governing the Blockchain.
The consensus algorithm or mechanism informs the whole system how to work together as one in order to question and decide on the quality of transactions and blocks and to keep the Blockchain save from fraudulent attacks.
Different consensus mechanisms exist but the most common ones are PoW and PoS, used in a permission-less networks and BFT in permission networks.
In this homework task, we are going to go over the differences, advantages and disadvantages of PoW and PoS mechanisms. And we are going to determine which is more scale-able.
What is the difference between PoW & PoS?
Proof of Work (PoW)
PoW is a phrase used to describe a system that requires convenient amount of power in order to prevent the occurrence of careless or harmful uses of computing power. For example, sending spam emails or launching service attacks that are denied within the system. The PoW concept was adapted to securing digital money by Hal Finney in 2004 through the idea of "re-usable proof of work" using the SHA-256 hashing algorithm. 1 It became popular in 2009 as Bitcoin adapted the idea. Many cryptocurrency are using it today.
PoW is different from PoS in that:
- It expects nodes to show proof that they have the needed computer power to achieve consensus in a decentralized way and the ability to protect the Blockchain network from being overtaken by fraudster.
- It judges a transaction based on conscious choices or an unusual change of mind by a node rather than any system. For Bitcoin, the conscious interaction of the SHA-256 hashing mechanism is involve. The winner during the interaction then hash and record the transaction from the mempool into the next block.
- It needs huge amount of energy to power many computers used in mining.
- Because of it decentralized, and peer-to-peer design, PoW requires exclusive access to large amounts of data to try to overtake network.
Proof of Stake (PoS).
Proof of Stake is a consensus mechanism which protects a Blockchain network from fraudulent activities. It does this by indiscriminately assigning nodes to judged and allow a transaction based on the number of coins they have in their wallet. The more the coins, the more the nodes mining power and the more he or she is allow to judge and allow block transactions. It was created to solve the main limitations of Proof of Work and adds some other new necessary features lacking in the PoW.
PoS is different from PoW in that
- It validate transactions based on the amount of coins (Stakes) in the wallet of the node.
- It validate block transactions in a process called forging whereas PoW does it in a process called mining. For example, If you own 5% of all coins and put them into the stake, your stake will forge 5% blocks in the network.
- It allows Blockchain users with more coins in their wallet to vote for important decisions in the network.
Advantages & Disadvantages?
Advantage of PoW
PoW is advantageous in that:
- It is the original consensus mechanism in Blockchain technology. Any other one like the PoS is an alternative from PoW.
- It achieves a consensus in a decentralized manner, making it impossible for one man to make decisions on behalf of the network.
- It promotes peer-to-peer transactions in a well secured manner, without needing a trusted third person.
- It protects the network from being overtaken by fraudster, especially from the outside.
Disadvantages of the PoW
The PoW is disadvantageous in the following ways:
- It's vulnerable to a potential time when there will be few miners available due little to no block reward from mining. The only fees that will be earned will come from transaction fees which will also reduce over time as users will pay lower fees for transactions. With fewer miners, the Blockchain network risk a potential area for 51% miners attack.
- It uses more electricity during mining. This causes a big problem to the environment, thus making PoW unsustainable.
- Miners spend much money in computing and electricity to compete in block creation.
Advantages of the PoS
PoS is advantageous in the following ways.
- Consumes no electricity since transaction validation is not by using energy to solve PoW computing puzzles. This makes PoS far less resource incentive.
- It is less risky when it comes to the potential of validators' attacking the network. This is because it structures compensate in a way that makes an attack less advantageous to a forger.
- It's more scale-able than PoW.
Disadvantages of the PoS
The PoS is disadvantageous in the following ways:
- It was created to address the scalability and environmental sustainability surrounding the PoW protocol.
- Limiting forgers' power to the amount of coins in their wallet favours the rich over the poor. For example, a forger with 2% coins will only 2% transactions in a block and be rewarded based on that, while a forger with 5% will forged 5% transactions and will be reward base on his or she stakes. That disfavour s the first forger while favouring the second.
- There's a greater chance of a 51% attack in smaller altcoins and incentives to store-up coins and not use them in forging block transactions.
- It's centralized, giving the ability to decide to those with much coins in their wallet.
Which one is better in scaling Capacity?
I think PoS is more scale-able since it was created to solve the scalability and environmental sustainability concerns of PoW. It takes PoW approximately 10 minutes to generate valid hash to validate a transaction, but PoS is more efficient and dynamic, using less time to forge a great number of transactions.
Example
Examples of Blockchain network that uses PoW
Bitcoin uses the PoW consensus mechanism to validate block transactions. It does this basing highly on the SHA-256 hashing function in other to validate and confirm new Bitcoins issue into circulation as stated above.
Litecoin and others equally uses this consensus mechanism to validate transactions.
Examples of Blockchain network that uses PoS
Peercoin, NXT, Blackcoin, and Shadowcoin uses the Proof of Stake consensus mechanism.
Conclusion
As seen above, each of the consensus mechanism is having it downside and upside. This means that for a Blockchain network to function well, it need to consider which of the consensus mechanism is going to best suit it transaction and made a choice based on the above mentioned advantages and disadvantages. But if it will based it judgement on the scalability of the mechanism alone, then the PoS stands out for the said purpose.
Thanks for reading
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