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Author Topic: Differences between POW and POS  (Read 107 times)
AverageGlabella
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June 25, 2018, 11:58:14 PM
Merited by Welsh (4)
 #1

I'm trying to understand the differences between Proof of work and Proof of stake and the drawbacks of these algorithms. I will try to go into detail on what I know about the algorithms and if I am making any mistakes.  

I'm interested in anyone that would be able to provide a analogy for the PoS algorithm just like the one that I have presented in the POW algorithm. I'm trying to make a active approach to explaining cryptocurrencies to those that ask me about them. I work in an environment that means that this comes up some what regularly and I normally spit out something which isn't well presented and normally leave the person who asked confused. I'm trying to make an attempt to make my explanations more clear and where possible offering analogies which normal people can relate too. With this is mind please review what I have written below and give any constructive feedback that you can.

Proof Of Work (POW)
This is the algorithm which is currently used in Bitcoin. Proof of work requires its miners to put in a certain level of work. This work has to be hard enough to avoid issues with spam on the network and Denial of service attacks on the network. In terms of Bitcoin the work required is solving mathematical problems in order to mine blocks which contain Bitcoin. This requires work done through the usage of the machines computation power. It's important that this work is not so hard that it's not feasible but not too easy that its easily abused.

A great analogy of the concept of Proof Of Work is when trying to brute force a padlock. Lets say that the padlock is currently keeping your belongings safe in your bag. To be able to brute force the padlock would require work put in through trying different combinations of the numbers to get access. This would obviously require a significant amount of time and work until you guess the right combination. However when this combination has been found its easy to verify that its the right combination by inputting it in the padlock again. This is comparable to Bitcoin when it comes to solving mathematical problems.(the padlock) and then verified by nodes on the network. (inputting the combination when found)

The drawbacks to the POW algorithm is that it requires a huge amount of energy which has been a major criticism with Bitcoin and because of this its common that locations with low electricity rates are used by miners. This can add a element of centralization that only certain people have access to these locations. Of course the famous 51% attack is also possible with the POW algorithm. But is not very likely due to the network being to large and the hash rate too high. It would too much for a single entity to fund for a long period of time. A 51% attack on the short term would only cause instability and panic rather than permanent damage to the system.

Proof of Stake (POS)
Proof of stake is different to the POW in that there's no real mining as all coins exist from day one. Instead nodes act as validators instead of mining the Blockchain. This algorithm is present in Ethereum and could largely be put down to its success. Originally ETH used proof of work. However because of the drawbacks that have been mentioned they have opted to go for a more POS option. The main advantage proof of stake has over proof of work is that there is no mining involved which means there is not a huge amount of energy being expended to mine the coins.

POS can be compare to gambling as what instead of mining you would have stake your tokens on which blocks you think are valid. If you stake your tokens on the wrong fork then you will lose your stake.

The drawbacks to this algorithm is often refereed to "Nothing to stake" which means those that are staking could stake on both forks. Forks are also considered to happen more reguarly with the POS algorithm which could mean instability and lack of long term support due to the constant forks.


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aleksej996
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June 26, 2018, 01:43:04 AM
Merited by Welsh (2)
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Main drawback of PoS is lower security compared to PoW.

For a new node that didn't witness the history of transactions, there is no way for it to determine which of the competing forks is the valid one.
Or in other words, there is no best (longest) chain.

If you can get addresses that held majority of the coins at any point in time, you can reorganize the blockchain.
I am using word "blockchain" loosely here, since there is no real reason for a PoS coin to store it's data in a chain, it can just have a single ledger of transactions. Keeping the history of transactions just increases the attack vector, unlike PoW where it increases the security.

PoS is made as an agreement, think a company deciding something based on votes of a stakeholder.
Losing your stake if you don't agree with most reminds me of politics in Soviet Union, where those politicians who sided with those who didn't win the vote would get shot. Kind of a dark analogy, but it is the first thing I think of.
These aren't analogies that explain the above issue that I mentioned, but more on what you described as what happens during consensus in these coins.
AverageGlabella
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June 26, 2018, 10:31:16 AM
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Main drawback of PoS is lower security compared to PoW.

For a new node that didn't witness the history of transactions, there is no way for it to determine which of the competing forks is the valid one.
Or in other words, there is no best (longest) chain.

If you can get addresses that held majority of the coins at any point in time, you can reorganize the blockchain.
I am using word "blockchain" loosely here, since there is no real reason for a PoS coin to store it's data in a chain, it can just have a single ledger of transactions. Keeping the history of transactions just increases the attack vector, unlike PoW where it increases the security.

PoS is made as an agreement, think a company deciding something based on votes of a stakeholder.
Losing your stake if you don't agree with most reminds me of politics in Soviet Union, where those politicians who sided with those who didn't win the vote would get shot. Kind of a dark analogy, but it is the first thing I think of.
These aren't analogies that explain the above issue that I mentioned, but more on what you described as what happens during consensus in these coins.

Thanks for that analogy I think I'll try to adapt that to something more work friendly when discussing it with others. I'll post it up here once I have made it.
ankurguta87
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June 26, 2018, 11:54:31 AM
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To put it simply, proof of stake uses the coin balance of your mining node to calculate the next block. 
The higher your balance, the more likely you are to find the next block.  Proof of work let's anyone in the world mine blocks, regardless of whether or not you own coins.
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