While there has been recent discussion about the current misalignment of incentives on the Steem blockchain, I have been thinking about blockchain at a more fundamental level and trying to understand the mechanics beyond the meaningless word "blockchain" has inevitably become. I'm trying to tackle the big questions.
The first topic that I want to address is the continual debate between Proof-of-Stake (PoS) and Proof-of-Work (PoW). Rather than simply give my opinion, I want to try and present both parts of the debate, add a few additional thoughts to be considered and then open up the discussion to all who have something meaningful to say about it.
The overarching goal of this series of posts is to encourage discussion and promote understanding of these higher level topics and hopefully give all of us (including myself) an opportunity to explore new perspectives and gain new insights about this new technology that none of us really truly understand to this point.
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First, I feel that is appropriate that we contextualize the big question of consideration. I will make two simplifications to frame this discussion. The first being that PoW is an effective way of securing blockchains with the major drawback being the wasted electricity and a major appeal of PoS is to provide an alternative and equally effective way of securing blockchains without that drawback.
The major point in the debate centers around the effectiveness of PoS in securing the blockchain. We will now take a look at two different sides of the argument and try to unwrap the key points in this discussion.
First off, we should start with why PoS essentially behaves the same as PoW with less of the negative side effects. The argument here being that PoS essentially does the same thing that PoW does but more efficiently in terms of energy and speed.
PoS works by using stake-weight as a consensus mechanism rather than computational hash power. In both cases, it is very expensive to attack the network as one either needs to purchase a lot of computing power or a lot of coins in circulation. However, in the case of PoS, there is no energy wasted in the selection of block producers. The argument here is that not only are PoS coins more eco-friendly but reduced cost of block production makes the producing more accessible to more people and allows for faster blockchains.
Also, theoretically speaking, the cost of an 51% attack is higher in PoS coins than PoW coins since one would need to obtain 51% of the total staked coins versus needing only 51% of hash power over a limited period of time which would cost significantly less than 51% of value of total PoW coins in circulation. To simplify, a 51% attack is harder on an established, decentralized PoS coin than an established, decentralized PoW coin.
So there has to be some catch, right? Not only does Proof of Stake essentially replicate Proof of Work at a much lower cost but if developed correctly, PoS coins are more secure against attacks on the network. But now we will take a look at some of the drawbacks of the technology to see what those who argue against Proof of Stake see.
The major argument against PoS boils down to the Nothing at Stake problem. The issue here is determining the validity of a chain if a fork occurs. In PoW, multiple chains are resolved through voting via hash power. The chain which has the most hash power wins. In turn, the chain that is the longest is the valid chain as the most hash power is behind it.
With PoS such a notion doesn't really exist because work is never performed. Anyone with stake can stake both chains. Thus if some party arbitrarily produces their own block and forks the network, there is no real way of determining the legitimate chain as there is no cost to staking on a particular network given the fork. Sure the chain with the most stake behind it will eventually win out but what are the potential weaknesses of such a fork?
Consider the following attack: Given a fork with equal amounts of stake behind both which is now possible as block producers can now mine both chains, you now have a situation where you can double spend. You spend on one chain and stake on the other and given you have some amount of stake (less than 51%), you can get away with this type of double spend.
This means that during such a fork, PoS would be less secure than PoW as there is now a way to exploit the system that simply isn't a problem in PoW blockchains. So, the argument here is that because of the nothing at stake problem and a lack of a fix to PoS that eliminates it, PoW is still the superior method that requires the least trust.
So, there are the arguments for and against Proof of Stake and its relationship with Proof of Work blockchains. I know that it got pretty technical above so feel free to ask questions if you need additional clarification or add your own clarifying points to give everyone a better idea of some the ideas presented above.
Before you go off to leave a comment or read something else, I leave you with one last thing to consider. Despite the nothing at stake problem, is there acceptable amount of trust in other parties that makes the efficiencies gained in PoS over PoW acceptable? Is it okay for a blockchain to trust that people won't exploit the chain if they are given large enough incentives or disincentives? These are things to consider. The floor is now yours.