PoW vs. PoS: the war of consensus algorithms

In the blockchain world, there are more and more consensus mechanisms. This emergence can be explained by the fact that the projects try to create systems straddling decentralization, security, efficiency and, sometimes, ecology. For some, the Proof-of-Work (PoS) responds better to its challenges. But for its detractors, the Proof-of-Stake is the best solution. The recent Surfin’ Bitcoin conference allowed for an open discussion on the subject.

A quick reminder on how PoW and PoS work

On the one hand, Proof-of-Work consists of deploying computing power to validate blocks of transactions. The greater the amount of energy injected by the miners, the more likely they are to receive the reward. This drives miners to invest in large mining farms to maximize their earnings.

On the other hand, the Proof-of-Stake makes it possible to validate the blocks by immobilizing crypto on the network. In the event of an attempt at fraud, the system has the possibility of penalizing the culprits by withholding all or part of their assets or even by blocking their address. This guarantees a certain level of security since no one will want to compromise themselves for fear of reprisals.

Crypto and decentralization

Last Saturday, crypto popularizer Yorick from Mombynes moderated a panel discussion on “PoW vs. PoS: The War of the Consensus Algorithms.” In the panel of experts who participated, we had: Gilles Cadignan (Woleet), Fanis Michalakis (LN Market), Monsieur-TK (YouTuber) and Abdelhamid Bakhta (StarkWare). The discussion revolved around several axes, including the issue of centralization.

For some of these experts, the PoS has a very centralized character. For good reason, the mining is nowadays a highly industrialized area. This favors large mining farms, given that for individuals, the purchase of suitable equipment is a major obstacle. According to Gilles Cadignan, this situation heralds the end of the practice of solo mining. That said, he hopes that in the future, with advances in technology, it will be possible to better redistribute powers in order to avoid such centralization.

Moreover, it seems that profitability evolves according to the energy resource to which one has access. This could be interesting for small structures if they settle in more advantageous areas. Moreover, to the extent that the difficulty of mining is automatically readjusted via the hashratethere is a way out for small miners.

Consider on the other hand Ethereum (ETH), which is about to transition to Proof-of-Stake. The blockchain expects each validator to lock at least 32 ETH to create a validating node. It also represents a significant investment and risks creating centralization around large ETH holders. Moreover, it seems that for validators, the barrier to entry is as important on Ethereum as on Bitcoin. Considering the fact that whether you invest in 32 ETH or in a mining farm, it is relatively the same.

In the same vein, Fanis Michalakis raised the question of the impact of the geopolitical context on centralization. The fact that many large Ming farms have moved from China to the United States poses a significant regulatory risk, he said.

PoW or PoS, which is more secure?

The security of consensus mechanisms takes into account several factors, including those that affect privacy. Among them, censorship.

Censorship can be defined as a willful obstruction of freedom of expression by a public body. In a blockchain network, it allows suspicious transactions to be deleted or suspected malicious users to be blocked. However, if it may prove necessary in everyday life, a balance must be found with respect for individual freedoms. Concretely, from a purely ideological point of view, everyone should be able to send money as and when they wish.

However, it seems that with Proof-of-Stake, validators have a lot of censorship power. This implies a significant risk of infringement of freedom. On the other hand, with Proof-of-Work, this risk is limited.

Also, 51% attacks are more difficult to stop in the case of PoS because it is more impossible to dislodge an abusive validator if they have taken control of the majority of the tokens.

However, in the case of PoW, energy and servers are network-independent resources. It is therefore enough to obtain some to reverse the dominant trend. That said, attackers can very well acquire more as well. In addition, the logistics stock available remains a constraint. However, in this case, it is enough for honest miners to withdraw from the network.

Besides, it seems that the reaction speed on PoS is much faster than on PoW. The solution to improve security then may be to combine the two, so that an attacker is forced to do a 51% PoS and PoW attack to gain control of the network.

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