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Everything you wanted to know about PoS: history, problems and solutions
The views expressed here are the author’s own and do not necessarily represent the views of Cointelgraph.com
Proof of Stake (PoS) was first introduced in a paper by Sunny King and Scott Nadal in 2012 and intended to solve the problem of Bitcoin mining’s high energy consumption. At that time, it cost an average of $150,000 a day to maintain the Bitcoin network. Today, this figure is at a staggering $6.7 million (if we assume a $0.12/watt cost and multiply that with the estimated 56,209,833 KWh of electricity that the Bitcoin network consumed on Oct. 13, 2017).
Rather than relying on the energy-dependent work of miners to add blocks, Sunny and Scott suggested an alternative method called “staking” where a deterministic algorithm would choose nodes based on the number of coins an individual had. In other words, stakers would have more chances of being selected to add a block to the chain and reap the reward if they “staked” more coins in their wallet. They hoped this would avoid the ever increasing energy costs and hashrate difficulty of mining. However, their new consensus mechanism was not without its own issues.
There are four main challenges in designing a Proof of Stake system:
In light of this, the evolution of PoS can be understood by each coin attempting to solve these issues in their own way. We will now look at Peercoin.
Sunny King created Peercoin (PPC) in 2013 to become the first cryptocurrency to implement Proof of Stake while still keeping Proof of Work (PoW). It addressed the 4 issues of PoS in the following ways:
This next phase of PoS history is called considered a pure proof of stake protocol without any mining and was first implemented by NXT on November 24, 2013. However, let’s consider another coin, Blackcoin, that was also a pure proof of stake that was released shortly thereafter as it has a simpler protocol and had a fairer initial distribution phase.
Blackcoin was created by Pavel Vasin (a.k.a. Rat4) and was released in February 2014. When Rat4 decided to create BLK, he set out to remove coin age and PoW. He believed coin age would increase the chance of a 51% stake attack as older aged coins would need less than 51% of staking coins to cause a fork. He also believed that coin age disincentivized users from staking consistently. Rather, stakers were incentivized to remain offline for 90 days to maximize their chances of getting a stake thereby making the network less secure. Rat4’s implementation of PoS v.2 protocol addresses the four issues of PoS in the following ways:
Since Blackcoin, there have been several iterations of the PoS protocol. For example, Bitshares was the first to implement Delegated Proof of Stake. But the newest iteration of PoS is Ethereum's (ETH) attempt at PoS. The motivation for ETH to switch is primarily a desire to move towards a more eco-friendly and decentralized system. If the Ethereum Virtual Machine is truly to be adopted world-wide, Bitcoin’s current $6.7 million daily electricity cost would quickly be surpassed.
Ethereum’s PoS system will implement a Byzantine Fault Tolerance (BFT)-style PoS. Validators will be randomly assigned block rewards, however consensus is formed through a multi-round process where every validator votes for a chain. Ethereum is NOT utilizing Proof of Stake at the moment and there have been some doubts as to whether or not it will actually be implemented. With that being said, here’s how Ethereum hopes to solve the four ssues involved with PoS:
There have been many fully functional and secure iterations of PoS over the history of cryptocurrency from the Hybrid PoS-PoW to pure PoS to Delegated PoS. The BFT-style PoS is the newest attempt to address the four main issues surrounding the protocol initially proposed by Sunny and Mark. Each coin reflects a different approach and each has its own strengths and weaknesses. However, the move to PoS reflects a larger philosophical move in the world of cryptocurrency towards a more eco-friendly and decentralized system.
*It is important to note that that PoW has its own security concerns, the topic is beyond the scope of this article. Also, a special thanks to the Nagalim from PPC and mindphuck from to BLK for their insight. Also thanks to Michael Gubik for his write up on Github.
**The article is written by ecurrency holder, a Cryptoeducator and Community Organizer for the masses.
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