Proof of Work and Proof of Stake - Steemit Crypto Academy Season 4 - Homework Post for Task 6

ozzarm (63)Beginner[1,2,3,4,5,6]in SteemitCryptoAcademy • 3 years ago (edited)

Hello Steemian!

As professor @sapwood lectured in the sixth class of Beginners Level Introductory Courses, we ought to answer one of three questions in respects of Blockchain Consensus Mechanism. Henceforth, today, I am presenting my assignment based on the first question:

What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?

INTRODUCTION

Blockchain is famous because of its transparency. It is due to Satoshi Nakamoto’s opinion which is stated that trust is unnecessary aspect in transaction activities but proof is what all needed by utilizing digital cryptographic technology. To maximize the functions of blockchain, therefore, blockchain system is always evolving continuously until it refined to the point of perfect security standards.

In establishing perfect security, the blockchain system forms a system called blockchain consensus mechanism. There are various types of consensus mechanism on the system such as Proof-of-Work, Proof-of-Stake, Delegated-Proof-of-Stake, Proof-of-Capacity, Proof-of-Burn, and so on.

Consensus means when everyone is agreed to a decision or general agreement. In other words, blockchain consensus defines a condition where a whole algorithms procedure in the system achieves an agreement.

Although it is mentioned diverse types of consensus mechanism but in this article we will discuss about Proof-of-Work and Proof-of-Stake.

Question 1A
What is the difference between PoW & PoS?

PROOF-OF-WORK AND PROOF-OF-STAKE EXPLANATION

Proof-of-Work (PoW)

It is a system or algorithm to secure the stored data from any shameless or malicious cyber actions such as spamming or attacking through Distributed Denial of Service (DDoS). DDoS is a sort of aggression on social media, disrupting a server so that the server cannot run properly. For instance, a hacker or a group of hackers sent their request to access the server multiple times with a tremendous number of data transaction continuously till the server is overload and down. As result, Harold Thomas Finney (a computer scientist and the first receiver of Bitcoin transaction) proposed the idea of Proof of Work through hashes to prevent such action. Also, it requires nodes to conduct the work on a network to ensure there is no one who misuse the Proof-of-Work.

Hash is a long line of puzzled number that generated by miners once a block merged on the system. As blockchain is a system which use a distributed ledger to distribute a block to another block, the hashes will prevent outsiders to ill-treat the stored data.

When a sender conducted a transaction, the entered data will be sent to the server of blockchain. Then, miners will validate the data such as timestamp, public key and the nominal of transaction through checking the hash. If the data is not correct yet like probably there is a mistake made by the sender (make a same transaction twice), the transaction will be rejected. If all the data are matched, then the transaction will be validated. The first miner who successfully validates the hash will be rewarded. It is mining process because the miners are rewarded by the new cryptocurrency coins not the one already circulated.

It is found that to add a new block by generating hash in mining process, it takes approximately 10 minutes.

Proof-of-Stake (PoS)

Proof-of-Stake aims as an alternative to Proof-of-Work, the original consensus algorithm in blockchain. It is where the miners can validate block transaction depends on the number of crypto token they staked.

In Proof-of-Stake, the activists are staking their assets and locked it up for certain period of time. The more number of staked coins which locked up, the highest chances for the stake holders earn the rewards. Likely, they will earn doubled of staked tokens. However, the rewards are from the transaction fees that have been successfully validated by selected miners or stake holders.

In the beginning of staking process, the miners must provide premined assets to stake on the system and locked it up. Following this, the miners ought to set their strategy to determine the exact period of time in staking. Vital, every miner will have the same chance to win because the system used randomized system.

THE DIFFERENCE BETWEEN PoW AND PoS

PoW	PoS
There will be a reward for the fastest miner	The one who stake the most has a bigger chance to get reward
The reward is a new crypto token not the one already circulated	The reward is all transaction fees that have been paid and gain a new block
Requires an expensive tool to mine	Requires crypto coins to stake
Huge energy consumption	Less energy consumption
Protocol is objective	Protocol is subjective
The process called mining	The process called staking or minting

Survey shows that the fastest miner can validate a block in mining process will be the one who get the rewards. Hence, the mining process needs someone who master in math to solve the puzzled string of numbers that appear in blocks and hashes. Therefore, the miner who completed the validation of a block deserved the rewards since the mining process is very competitive. The reward will be a new crypto coin as the miner just mined it.

In contrast, in Proof-of-Stake, the process depends on the number of coins the validators staked on the system. Thus, it is not as competitive as PoW because everyone has the same chance to be a selected validator and win the reward. The selected validators will be rewarded crypto coins. Usually, the reward is doubled from the earlier staked tokens. It is doubled because it comes from the transaction fees that occurred on the blocks.

It is a mandatory for miners to provide a cutting-edge hardware technology. It helps the miners to perform well in the mining process and defeat other miners. Not only cost more money but also cost tremendous electricity consumption in using advanced hardware technology. However, staking process only requires crypto tokens. Thus, it reduced the energy consumption.

Miners in a PoW system can only find nodes in a new state if those nodes following the PoW protocol rules. Thus, the consensus protocol is objective. In contrast, nodes in a PoS network need the latest information to decide its new state.

Question 1B
Advantages & Disadvantages?

ADVANTAGES AND DISADVANTAGES

A. Pros

Equitable: PoW is considered fairer than PoS because the miner who gets the reward is the person who is able to solve the puzzled number according to his ability. Therefore, the miners deserved the rewards.
Hard To Manipulate: Hashes on blockchain make it difficult for manipulators to modify the data. Even, if they want to give it a try they have to find the key from puzzled numbers that have been changed so they have to spend a very large amount of capital to compete with miners’ expensive tools which is helping the miners in mining blocks.
Security: Because it is difficult to manipulate in the middle of the process of creating blocks, the security of blockchain is very well maintained. Moreover, if the block has generated then the difficulty to manipulate it increases.

Energy Saving: The staking process does not require sophisticated equipment so it will save electricity. Therefore, PoS is often called an eco-friendly consensus mechanism.
Low Cost: Low cost here means that the validators only focus on their investment in the form of money which they staked. This is because they do not need to pay for sophisticated equipment to compete.
Chances To Earn Rewards: The opportunity to get rewards in the PoS network is greater because PoS uses an algorithm that can choose miners randomly.
Less Risky: Due to all validators have a high chance of getting compensated for their staking activities, the risk of attack 51% is low in this short term.

B. Cons

Huge Electricity Consumption: Since mining activity requires sophisticated equipment and a considerable amount of time to validate a block, the computing power they use will increase. If the computing power increases, the energy used also increase. In fact, in some countries, electric power still uses natural resources such as coal. This will cause another problem which is the problem of environmental sustainability.
Expensive Tools: Mining process really needs qualified technology to speed up miners’ work in validating one block. Plus, mining in PoW is very competitive. So, the fastest miner who validates the block can win the prize while the rest do not get it.
Master in Numbers: In order to validate a block, miners ought to understand math well because they will find a series of puzzled numbers that they have to solve.
Attack 51%: We cannot trust people completely because every person has good and bad sides. In a PoW system, miners have 51% computing power. It is possible that there will be cases of manipulation within the network. Moreover, the PoW protocol only rewards a few miners which this spectrum can lead someone to against the protocol.

Exclusive Participants: As the discussion above, the more someone stakes his coins the bigger chance he has to be a validator and gain the rewards. Not all crypto holders have a huge capital to do so. A survey said that the system just helping rich crypto holders to gain more income.
Security: The security offered by a PoS network cannot be compared to PoW. This is because bad actors do not need to spend capital to purchase a sophisticated technology in competing with validators. Following that, the effort to do manipulation not as much as the efforts needed in competing the miners in PoW. They can create a new scam chain when validating a block so that the transaction can be reversed.

Queston 1C
Which one is better in scaling Capacity? Examples?

SCALING CAPICITY

From the aspect of scalability, the Proof-of-Stake network is much higher than the Proof-of-Work network because the validators do not spend their time in intensive computing works. The equipment used is not as expensive as PoW so it can save costs and time as well. At one time, validators can complete a bunch of nodes whereas miners in PoW network spend a lot of time to validate a single block.

In light of miners have to spend a long time in completing one block in Proof-of-Work system, the electrical power used is quite large. It caused another environmental issue because in some countries, they still used energy from coal. If too much time and energy is used to produce one block, then the scaling capacity of PoW is low and inefficient.

Subsequently, many people choose to use a consensus PoS system to overcome some of the obstacles which are found in PoW network. To add weight to this statement, many cryptocurrencies intend to switch their protocol consensus mechanism to a PoS system such as Ethereum 2.0.

Research finds scalability is not the only aspect to consider in consensus mechanism. There are still many other aspects that influence people's preferences in implementing the blockchain consensus mechanism. However, when it comes to scaling capacity, PoS networks outplay PoW systems.

Examples

In the PoW system, the initial size of a block is 1 Mb which means this size is not able to store many transactions that occur in one time. Due to its minimal capabilities, it takes time to complete transactions as happened on Bitcoin. However, large blocks will be a new problem as well because the system can become centralized.

One of the solutions is off-chain scaling where transactions occur outside the blockchain. Despite, this solution also creates another problem. It is due to people want everything to be transparent so off-chain must have recorded in on-chain too. Therefore, the scaling capacity of PoW is still less than expected.

On the other hand, in PoS network under Byzantine Fault Tolerance (BFT), for example. They have an obvious scaling solution because the nodes have to be approved in one block to validate the block. The agreement made between validators and the system makes block validation activities faster. Therefore, PoS is considered time-saving. Let say if PoW needs ten minutes to validate a block, then PoS can validate multiple blocks in ten minutes.

It is highlighted that the aims of consensus mechanism is to reach an agreement where there is no one controls the data, database can move forward to another block and the data has to be approved.

CONCLUSION

Although some cryptocurrencies intend to change their consensus mechanism to be Proof-of-Stake while the original mechanism is Proof-of-Work, I reckon every system has its vulnerabilities. Henceforth, I cannot say the one is better than other one.

It is suggested that every miner should choose the best blockchain system to do since everyone has different project. Following this, technologies will be upgraded continuously.

REFERENCES

Thank you for all professors who enlighten all the students in Steemit Crypto Academy through their guidance and knowledge. Your support always helps us present and future.

Signed.
@ozzarm

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