Wednesday, July 7, 2021

Deep dive: Proof of Work v/s Proof of Stake v/s Proof of History

This post briefly covers the different consensus mechanisms that form the backbone of the underlying Blockchain technology.

  • Proof of Work
  • Proof of Stake
  • Proof of History

These are consensus mechanisms that validate the transactions on the Blockchain. Each of these mechanisms work differently. These differences result in different transaction speed, fees and efficiency.

In order to discuss these 3 mechanisms, we have used three different cryptocurrencies corresponding to the mechanism they follow.

  • Bitcoin → Proof of Work
  • Cardano → Proof of Stake
  • Solana → Proof of History

Proof of work:

Transactions need to be verified on the network and this verification is done via solving complex mathematical problems, called cryptography. The digital currencies therefore came to be known as ‘Cryptocurrencies.’ It was described in the original whitepaper by Satoshi Nakamoto,

Verifiers, also known as miners are rewarded for participating and validating the network transactions. This was considered a game-changer when it emerged in the original whitepaper by the pseudonymous Satoshi Nakamoto. The idea existed earlier than the publication in the white paper and was known as the Nakamoto consensus.

According to Satoshi Nakomoto, “the longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power.”

https://preview.redd.it/ok4m6w68ix971.png?width=1353&format=png&auto=webp&s=5c5a01ff3876834b78b1275f23733dc72100910f

However, there are several drawbacks to this mechanism. It uses huge amounts of electricity, and emits significantly large amounts of carbon into the environment. Another major drawback is that transactions are slow and inefficient on a large scale. It limits the scalability of the Proof of Work mechanism to mainstream finance.

Proof of Stake:

It came into existence in 2012 after its founders pointed out the inefficiencies of the Proof of work mechanism.

In blockchains that use proof-of-stake, nodes in the network engage in validating blocks, rather than allocating their computing resources to “mine” them. Within these networks, security and consensus is achieved by participants committing a stake — their private or collective capital — to the enterprise in the form of the network’s native tokens.

Ether (ETH) has been indicating to move away from the energy draining proof-of-work mechanism to the energy efficient proof-of-stake for quite some time.

Proof of history:
Proof of History is a sequence of computation that can provide a way to cryptographically verify passage of time between two events.

As per official newsletter of Solana Labs, “the Proof of History solution was presented by the Solana project in order to finally eliminate an issue of the validity of timestamps in distributed networks. Unlike using the established method with timestamps, one can make certain that the action is performed at a distinct point in time after one action, but before another. Through Proof of History, we can ensure that a certain action took place at a certain point in time, before or after another action. This is made possible without the use of timestamps or external synchronizing structures. Confirmation of history is a high-frequency verifiable delay function.

This means that the function requires a sequence of steps in order to obtain and evaluate the uniqueness and reliability of the published value. Solana’s implementation executes the function that uses a sequential hash system that is resistant to pre-images (images of previously prepared hashes). Thus, the output of the transaction appears as the input of the subsequent transaction. Subsequently, the current counter, status, and output are periodically recorded. The clear advantages are scalability and the eradication of the timestamps validity problem. At the moment, it is rather difficult to single out the obvious shortcomings of the protocol due to the novelty of this solution.”

Please note: This post is not a recommendation to buy/sell any particular crypto. The technology surrounding each of the above three cryptos are different. There is continuous advancement happening in this space. Interesting things are continuously happening in the crypto space.


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