This is often a debatable topic among the Crypto Community trying to prove which is better & why. Today, we will have a quick understanding of why Proof-of-Stake (PoS) seems to be running ahead of Proof-of-Work (PoW) these days & an increasing number of people supporting the PoS concept.
Is PoS really more secure?
The very first question that might come to your mind while reading this article could probably be about security. Is Proof-of-Stake really more secure than Proof-of-Work? Well, that’s not exactly true. To understand it even better, let me explain how either of them work.
Bitcoin, the world’s largest cryptocurrency by market cap, runs on Proof-of-Work (PoW) where miners have to perform the mining operation in order to keep verifying the transactions which are happening in real-time, and in return, they get incentivized by the Bitcoin network with new Bitcoins.
Well, all that process sounds fancy but certainly, it isn’t that efficient in terms of energy consumption. There are some statistics publicly available which further bring up the problem with energy consumption by the Bitcoin Network. In 2015, it was estimated that the amount of energy required for 1 Bitcoin Transaction could potentially power up 1.57 American Households each day. Today, while I’m writing this article, that figure has certainly gone up with the increase in difficulty for Block Mining.
According to the University of Cambridge’s Bitcoin Electricity Consumption Index, Bitcoin consumes about 119.87 terawatt-hours per year, which is more than countries like the United Arab Emirates and the Netherlands consume annually.~ Internet 🙂
Chances of a 51% Attack
Although this might some awkward to some readers, we can’t ignore the possibility of a Network Attack in the future. Bitcoin uses a Proof-of-Work (PoW) system and is susceptible to a potential point of attack in the future when all the Bitcoins will have been mined and no new block reward would be given to miners except for the transaction fees of users.
Transaction fees are also going down with scaling solutions like lightning networks which enable higher efficiency of payments with very low transaction costs. With fewer incentives, there could be fewer miners available to process the network transactions which essentially would compromise the security of the blockchain.
With fewer miners, the chances of a 51% attack become possible where a miner or a mining pool controls 51% of the computational power of the network and they start creating fraudulent blocks or transactions for themselves by invalidating the other ones in the network.
The Concept of Proof-of-Stake (PoS)
If you’re curious now how all the above problems could be solved, well you’re at the right place because now, we will discuss about PoS mechanism. Unlike PoW, the mining power in PoS mechanism isn’t given out on the basis of computing power a miner has but rather based on the proportions of coins held by the miner.
For instance, if you own 3% of the tokens for any blockchain, you get to mine only 3% of the total transaction blocks happening over the network. This is kind of having Skin in the Game and is designed to save up rising energy consumption and security concerns.
If an attacker thinks of conducting a 51% attack on the Bitcoin network in PoS for instance, then they need to own 51% of the total available Bitcoins which can be quite tricky and costly. Also, if he tries to hack into the same, that won’t be good in his own regard since, the news of any potential hack or theft drags down the price of a coin almost immediately by 70-80% or maybe more. We’ve seen that with EasyFi this year in 2021.
If the value of a cryptocurrency falls, this means the value of the holdings of the miner trying to do a 51% attack, would also fall heavily and that might not be in his best interest.
Concluding Thoughts on PoS vs PoW
I really don’t want to blame either of these mechanisms (ie, PoS vs PoW) , instead I really like the concept of both and how they try to democratise the power of control from a central authority back to people like you and me. Finally, we’ll just have to wait and watch what comes out in the end.
Thanks for reading.