What Is (Proof of Work)PoS consensus mechanism?

Welcome to the Bixiaobao Blockchain Open Course! Our topic today is: What is POS consensus mechanism?

In the previous course we introduced that the common consensus mechanisms of blockchain are POW, POS, DPOS, PBFT, etc. Bitcoin, Ethereum and other common cryptocurrencies use the POW consensus mechanism, but the POW mechanism does produce many wasted resources. Is there a consensus mechanism that saves resources?

Essence: the competition of wealth

In order to solve the problem of resource waste caused by POW, in 2011, the idea of POS consensus mechanism was proposed in the Bitcoin forum.

POS, known as Proof of Stake, is like stock markets, where the more shares you have, the better off you are. Miners of POS must stake a certain amount of token before he participates in mining. The more he stakes, the more likely he will get rewarded by blocks.

POW is essentially the competition of arithmetic power, while POS is the competition of money. A person can mine according to how many coins he or she holds. The more money you have, the more likely you are to control the entire POS network, so POS is less decentralized and generally less secure than the POW mechanism.

Notice that POS is a collection of consensus mechanisms rather than one. Chinese Internet usually refers Peercoin as the pioneer of POS, which is not exactly true. Peercoin’s POS is flawed, and the flaw is that the richer you are, the more you pay to cheat, so the 51% attack is less possible. However, for people that are not rich enough, they have no price to pay, so some malicious behaviors are profitable for them, which leads to the tragedy of the commons.

The public chains that currently use POS include COSMOS, Tezos, and so on. In the future, the consensus mechanism will also shift from POW to POS mechanism after the advent of Ethereum 2.0. In general, however, the development of POS public chains is generally poor and cannot compete with POW public chains head-on for the time being.

Poor Security

Take EOS for example. The chain that once made a great sensation has 21 validating peers (miners) worldwide, but how many verification nodes are there in Bitcoin that uses POW? About millions. So, EOS is controlled by 21 individuals and is almost not decentralized. This year’s liquidity mining boom has seen developers change the smart contract permissions of EOS to steal a huge number of assets from users. On the contrary, it is almost impossible to see the same story in liquidity mining in the Ethernet network.

In addition, to become a validating peer of POS, a large amount of money is needed for more pledging and therefore higher profit in turn theoretically. In the bitcoin world of POW, everyone can become a node, but in the POS mechanism, becoming a node has a high threshold, which dramatically reduces the security of the POS network. Since the funds pledged in the system are not liquid, nodes need to consider the opportunity cost of funds. Once a node withdraws its pledge, it will lose its validation status.

A more complex problem is how POS determines the final consensus result. PoS threw away the concept of “the chain with the largest cumulative workload as the main chain”, and in a PoS network where nodes are free to join or leave, the pledge changes dynamically, and the verifier needs to get the latest information of other verifiers to determine which blocks are truly valid.

Low decentralization of POS public chains

Once upon a time, Bixiaobao withdrew coins on Binance Smart Chain, which took more than 2 hours, and it turned out that the delay was due to insufficient validating peers. Therefore, if a POS system lacks validation peers, it is very likely that the system will be paralyzed. If all 21 verification nodes of EOS around the world strike, then EOS will no longer exist.

While the PoS avoids the problems of computing power and mining rig centralization, it also creates a new form of monopoly. Some nodes holding many passes may spontaneously organize themselves into an alliance of verifiers, who do not need to do anything that could result in confiscation of collateral, and if their collateral exceeds 51%, then they have absolute say over the governance and community on the chain. Such an alliance can refuse to package any deal they don’t want to package if it is strong enough. These potential monopolists could be early project investors, exchanges, or even the project managers themselves. If a similar attack were to occur, the only solution is to force a fork by “community consensus”, so it is important for PoS projects to have an initial allocation plan of tokens, liquidity, and a certain market cap size.

In conclusion, even though POS has arrived for many years, it is proven that POS has not been fully accepted by the market due to weak decentralization and low security, and therefore the market cap of related tokens is not performing so well.

Blockchain Open Course is an introductory course on blockchain by BiXiaoBao.

For more blockchain knowledge, follow the column of Bixiaobao.


1. What Is PoS Consensus Mechanism?

2. www.bixiaobao.com

3. POS Consensus Mechanism and the Philosophy of Design

Blockchain Big Data Analytics Platform