Proof-of-Work v Proof of Stake (Poll and Discussion)

Having been in the space for a while, a lot of people ask me questions like the following...​

1. "What is PoW"
2. "What is PoS"
3. "Which is better, PoS or PoW"
4. "Isn't PoW more centralized because of ASICs and miners?"
5. "Why would anyone use PoW with how much electricity is needed to produce a block and the environmental impact"

Throughout this thread, I will try my best to answer the following questions..​

1. "What is the difference between PoW and PoS"
2. "What are the benefits of PoS and PoW"
3. "What are the best arguments for PoS v PoW (both sides)"

Section 1:

What is Proof of Work?

Proof of work is a cryptographic algorithim that is most popularized by Bitcoin. In this algortithim, probability of blocks in a chain being solved are determined by the amount of WORK a miner puts in. This "work" is referred to as "hashes" or hashing power. For example, Bitcoin miners use ASICs miners to connect to the network and solve for blocks in the chain. Since most blocks require a long time for a single miner to solve (if ever), miners commonly come together in what is called a "pool". A mining pool is a group of miners who can be located across the globe, who bring their hashing power together to solve a block. Miners join pools because it is often safer and more profitable since more hashing power is being contributed to solving a block, thus, a higher chance of receiving a block reward. Pools that solve a block distribute the coins from a block reward to each miner based on the amount of hashing power a miner put towards the pool. If miner A contributes 1000TH/s in terms of hashing power to the pool, miner A will receive a larger portion of the reward than miner B, who only contributed 500TH/s.

What is Proof of Stake?

Proof of Stake is a system that bases the time a block is validated in a chain based on the person's "stake", or in other terms, the amount of coin or token they hold. For example, in a Proof of Stake system, validator A, who holds 1000 coins/tokens will receive higher payouts than Validator B who holds 200 coins/tokens. In a Proof of Stake system, there is no need for GPU, CPU, or ASIC mining, no need for large amounts of electricity, and no need for mining farms, and relies soley on the amount of tokens someone holds, or their "Stake"







Section 2: Examples

Example of PoW algorithim Coins

Bitcoin ( The most dominant PoW coin)
Litecoin (99% dominant in Script)
Dogecoin ( low dominance, merged mined with LTC)
Etc

Dominance = Hash rate


Example of PoS algorithim Coins/tokens

Ethereum (soon)
Dash (Takes a min. of 1000Dash to open a masternode)
Reddcoin
Etc






Section 3: Arguments for PoS

There are a few different arguments for the PoS model. For the sake of organization, I will split these arguments into a few sub sections.

3.1 Environmental Impact

One of the main arguments for PoS > PoW is that PoW uses large amounts of electricity, which is or can be harmful for the environment. Popular figure heads who hold this mentality are people like Vitalik Buterin, the Founder of Ethereum. Since PoS does not rely on miners who use electricity to validate the blocks in a chain, it is seen are a much better option due to its environmentally friendly approach. One way to think about this is that PoS = Solar and PoW = Oil/Natural Gas/Coal.

3.2 Decentralization v Mining

Another famous argument for PoS is the argument that PoS coins are more decentralized, since miners can hold a large share of PoW coin's hashing rate, which we will discuss in section 3.3. Although this is a popular argument, it is not really the best argument of PoS, since the PoW coins with the most hashing power, Bitcoin and Litecoin, both have a decent levels of decentralization. No one mining pool ( which again is made up of multiple miners around the world) has a majority of the hashing power, and in fact, the pool with the highest share of the hash rate only holds about 23% of the hashing power at the time of this posting.

Hashrate Distribution

Although the argument is flawed, it can still be thought of a legitamte since these pools can chance, and it is possible for the Bitcoin hashing power to shift to 1-3 pools, but it is very unlikely.


3.3 51% Attack Cost

The argument I hear the most for PoS is that performing a 51% attack on a PoS network would be much more expensive than a 51% attack on a PoW coin such as Bitcoin. Although performing a 51% attack on Bitcoin would cost an very large amount of money, ability to obtain the equipment, and high electricity cost, while maintaining the attack without anyone noticing for a long enough time to double spend or rewrite the chain, PoS proponent claim that it would still take more money to obtain 51% of the stake in a PoS coin to perform an attack. Although this is very simplified, we will move on because we will get back to all of the arguments soon.










Section 4: Arguments of PoW

Section 4.1 - Security and hashing power

One popular argument for PoW is that PoW is for more secure than PoS since PoW uses miner's hashing power to secure the network. This argument could go both ways, since obtaining 51% of the hashing rate could allow someone to perform a 51% attack, while hashing rate in general protects the network against attacks. We will get more into the 51% argument later on in Section 6, so stick around...


Section 4.2 - Decentralization because of miners

Another argument for having PoW > PoS is that having miners who can contribute to the network allows for a wider range of decentralization. For example, it is possible that 1 very wealthy individual can obtain 51% of the stake in a PoS system. While this can also be true in a PoW system, as one wealthy individual can obtain a large amount of ASIC miners or GPUs and obtained 51%, however, it is much harder to obtain, operate, and maintain a mining farm, than it is to simply buy 51% of a coin on an exchange. There are some obvious flaws in this argument, but we will also get back to this in section 6 and 7








Section 5: Catastrophic Events and the response of these Algo

This section is very interesting and most of this section is based on an article I read a while back by Hugo Nguyen Titled "Proof-of-Stake and the Wrong Engineering Mindset"

Proof-of-Stake & the Wrong Engineering Mindset – Hugo Nguyen – Medium


For the sake of saving time in this thread, I will just link some of the things said in the article, but i HIGHLY advice that you read this article for the full context.


The first part that I am glad Hugo points out is the event of an outage. One very bad things in PoS is that in a PoS system, if the network goes offline, node will start to connect back once they can. Because not all nodes are reconnecting to the network at the same time, side chains would be made. Unlike PoW, PoS does not have the proper system to tell which is the "real" chain and which is just a new independent chain. In a PoW system however, nodes that come back online will eventually merge into the "real" chain since these independent nodes will connect to the chain with the most hashing power...

For a more detailed version of what I said, Please refer to this spoiler...

​

Spoiler: Quote 1

In PoW, the nodes will automatically self-organize & eventually gravitate towards one single chain: the chain with the most accumulated PoW (and the most secure). It will be painful, since some chains will get wiped out in the process. But it will work, and the behavior is deterministic.

In PoS, the nodes would have no idea which chain is the more “correct” chain. Unlike PoW, PoS has no objective yardstick to compare the “realness” between 2 chains. Behavior is indeterministic & impossible to automate away without introducing some arbitrary rules that increase the attack surface. The split might become permanent, as some PoS protocols make it impossible to go back too far into the past.

This quote helps prove part of his thesis, that PoW protects the past, and the future, while PoS protects neither, and can easily fail in a major outage due to the way PoS systems and coins are coded...
​

"In conclusion, it’s very important to have the right mindset when it comes to Bitcoin & blockchain protocol development. They are critical systems that deserve the highest level of engineering.

PoS protocols are built on faulty & naive assumptions that rapidly break down under worst-case scenarios. PoS is a step in the wrong direction: lowering the bar of quality, instead of raising it."

- Hugo Nguyen









Section 7: Hypocrisy of the "Quantum Computer Attack" on PoW and Bitcoin

There is a common belief among people in the space that it is possible for a quantum or super computer will come out and it will be able to attack bitcoin's network and obtain 51% of the hashing power, thus allowing for an attack. Despite my personal feelings that a quantum computer is farther out in the human timeline ( if it will ever exist ) then some people claim, I will, for the sake of this thread, pretend that quantum computers will exist in the next 10 years.

So lets say there is an evil genius or a government with a quantum computer. One common misconception and quite frankly, a very hypocritical view that most PoS and anti-PoW advocates say is that Bitcoin's network can be 51%. Yes, this is true, BUT, in a PoS system, it is also very possible for this same computer to attack all the private keys which hold the PoS tokens/coins. In a PoW system, this event would most likely result in a side chain forming, and could hurt Bitcoin, or PoW coins forever, however, in a PoS system, not only will the system be harmed/destroyed, but if all the private keys were stolen, funds would be lost. This is actually very interesting because PoS advocates seem to fail to recognize that a quantum computer would lead not only to the demise or PoW and PoS cryptocurrencies, but the world as a whole, as Nuclear launch code and major airline systems, which would obviously be much worse than a 51% attack.







Conclusion: ( Personal opinion based on my research)

In my personal and honest opinion I believe that PoW is far more superior to any existing PoS system for various reasons, including its decentralization, code, security, among other reasons.

One thing I would like to point out is that I got into crypto because ever since I was a young kid, I despised the current financial system. Having collected coins and paper money, which at the time of it being created was redeemable for gold, I had learned about the unjust nature of the cycle of printing, issuing, and the inflation of the USD by the Federal Reserve system, the same system in which Jackson tried to bring down. Although the "Free Banking" era in America was a mess, I can not look past the evils which lie within the current financial system. We currently live in a system where the 1% control 99% of the money, which to me is embodied today in many PoS systems as the wealthiest of all the stakers will always have the most power. I got into crypto to bring the "the issuing power back to the people, where is properly belongs", which is my favorite quote from Thomas Jefferson. I think PoS is far inferior to PoW and think that it is a "step backwards" in the evolution of Cryptocurrecnies.​

 

I will be formatting this article to help with the reading experience.

This is a work in progress and more information will be added as we discuss.

Thanks for reading

 

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