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Is PoS Consensus Mechanism Really the Solution?

Last updated: | 2 min read

This article was originally published by our Arab franchise partner

Source: iStock/MicroStockHub

Among other benefits, the creation of a decentralized Bitcoin blockchain infrastructure helped its users to participate in decision-making through its consensus mechanism.

It is known as Proof of Work (PoW), or a process where miners solve cryptographic puzzles to “mine” a block that will be added to the blockchain. As we all know, this process requires an immense amount of energy and computational usage.

Therefore, more powerful mining equipment means better chances to be rewarded with bitcoin for all the mining efforts. Thus, in attempt to increase their hashrate, or computational power, Bitcoin miners started establishing mining farms and forming mining pools. However, it made the Bitcoin blockchain more centralized, as large miners have more power over the network.

At the time of writing, 70% of the hashrate is divided among five mining pools, which is worrying.

Alternative to PoW is another consensus mechanism, called Proof of Stake (PoS). The Ethereum platform is planning to adopt it in its Casper upgrade.

PoS uses validators instead of miners and depends on the selection of a node on the network to work on forging the next block. When they discover a block which they think can be added to the chain, they will validate it by placing a “bet” on it, and if it gets appended, the validators get a reward proportionate to their bets. The bigger your bid is, the bigger your chance is to be selected to forge the block and collect the reward.

But one might think that the new system favors the rich, and at the same time fails to solve problems, such as the 51% attack. However, Vitalik Buterin, a co-founder of Ethereum, promises that “Casper designs harsher incentives to guarantee network security, including punishing miners who go offline, unintentionally or not”.

Also, Jon Choi from the Ethereum Foundation adds that “The main takeaway here should be that Proof of Stake is considerably more egalitarian than the incumbent Proof of Work-based algorithm of Bitcoin.”

However, is Ethereum promising us too much (decentralization, energy efficiency, among other advantages)? Will this mechanism help with other problems that the newborn technology is facing, such as scalability, i.e. the ability of the network to sustain a higher number of transactions?

According to PoS proponents, this problem is solved through having the selected nodes agree upon whether they want the next block on the chain or not, which means less unneeded traffic. Unfortunately, this might take us back to the issue of centralization and security; we need to make sure that no entity controls the data and it is secure.

As Vitalik notes, no system in the world provides 100% finality. It is possible to hack into a system, or physically break into a registry and tamper with numbers. That is a big problem with centralized institutions. However, this might be a problem for decentralized system, too.

Therefore, one must not promise success while being trapped in solutions that create new problems. PoS might be paving a road towards better solutions, but a long way is still ahead of us.