The consensus mechanism is one of the most crucial components of blockchain technology. Consensus mechanisms imply protocols that ensure all nodes are in proper synchronization, where nodes are the devices maintaining the blockchain and processing transactions. Having the nodes synchronized means that all the devices running the blockchain agree upon which transactions are authentic and, therefore, ready for inclusion into the blockchain.
Everyone has the right to submit things for inclusion into the blockchain. It is only the consensus mechanism that continuously audits the process and makes sure that everything that is added is authentic and should be in the blockchain. Therefore, the role of the consensus mechanism is crucial for the proper functioning of the blockchain and protecting it from potential attacks.
There are several types of consensus mechanisms, such as proof-of-work (POW), proof-of-stake (POS), proof-of-capacity (POC), and more. Among these, proof of work is the first-ever and was leveraged by Bitcoin. What is unique about the proof-of-work blockchain consensus mechanism? How PoW works, and why did Bitcoin choose it? Read on for a complete overview of proof-of-work.
What is Proof-of-Work?
The proof-of-work blockchain consensus mechanism has gained much traction owing to its importance in the running of Bitcoin. However, the history of POW dates back to the early nineties when technologists used it to prevent denial of service of attacks.
The reason is why Bitcoin decided to explore this consensus pivots on the same motivation – safeguarding the network from attacks or fraudulent activities.
How Does POW Work?
In POW consensus, the miners compete against each other to solve a mathematical puzzle. They need to solve it with proof. The one who completes the puzzle first creates the next block in the chain and publishes it to the network. The other miners involved in the process turn validators and verify if the solution is correct. The miner who has successfully solved the puzzle receives rewards in tokens.
As noted earlier, the idea of POW was first published by Cynthia Dwork and Moni Naor in 1993. Later, Satoshi Nakamoto brought it to the blockchain scene with the introduction of blockchain in 2008.
The job of mining requires computers and energy to run them. There are several benefits to the POW system, and that’s why several coins, apart from Bitcoin, such as Litecoin and Ethereum 1.0, leverage it.
The Benefits of POW
The vital benefit of POW is that it is secure.
Proof-of-Work requires a miner to engage in hashing functions randomly. The process continues until it arrives at the correct output. It requires taking over 51% of the hashing power for a hacker to perturb the network. Reaching 51% requires a massive amount of computational power.
Generating this power involves an immensely high financial cost that goes into buying the hardware and paying for the electricity. It is not incentivizing, at all, for a hacker to make this effort as the amount the hacker spends might exceed the profits they would make from hacking or spamming. If a significant number of nodes are mining, the computational power required to overpower the network practically becomes unattainable for the spammer.
In effect, POW provides security to an entire network. But, there are several drawbacks to the process as well.
The Downsides of Proof-of-Work
Bitcoin mining is energy-intensive and, therefore, is not recommendable for the environment.
According to a study, Bitcoin mining consumes more than 120 Terawatt Hours of energy each year and frequently, the miners use electricity produced from fossil fuels. Apart from disincentivizing a potential attacker, there is no other penalty for a malicious miner. If a miner manages to take over 51% of the hashing power, there is no other check post to stop him from dictating the network. In POW, every node has to process every transaction. Therefore, the process becomes time-consuming and difficult to scale.
The intent to combat these drawbacks has introduced other blockchain consensus mechanisms with proof-of-stake being the most popular and well-accepted among them.
What is Proof-of-Stake?
The concept of Proof-of-Stake (POS) consensus emerged as an alternative to the POW.
In POS, a person can validate block transactions based on the number of tokens held. Holding more tokens implies more validating power. In Proof-of-Stake, a validator needs to stake or lock in a certain number of tokens native to that network.
Once staked, the network randomly chooses one of these validators to create blocks and confirm the ones that others have created. The network also uses these coins to incentivize participants. For instance, the network may take away a part of the participant’s holdings, penalizing for bad network behavior. Bad network behavior could be going offline, intentional collusion, or failing to validate. The validators might end up losing all their holdings.
Benefits of POS
Since blockchain experts conceived POS as a cure to POW’s flaws, POS comes with many advantages.
For instance, one does not need a lot of energy to mine blocks. It reduces the barrier of entry as the requirement for hardware and electricity is much lower. It is more inclusive and allows more nodes in the network, essentially strengthening the core concept of decentralization.
In addition everyone who takes part in the validating process can potentially earn rewards (usually in the form of an annual percentage yield in the token they are staking).
POS also allows sharding where you can distribute the network’s load among many chains. In turn, it makes the network more scalable and easy to grow. But, like every other system, process, or protocol, POS also suffers from drawbacks.
Downsides of Proof-of-Stake
POS is vulnerable to a wide array of potential attacks to which POW is immune.
A low-cost bribe attack is one such attack where an attacker performs a transaction they originally intend to reverse. After conducting the transaction, the attacker waits for it to reach a settlement. Once settled, the attacker forks the blockchain and continues to build on it till the time it becomes longer than the original. Next, the attacker publishes the blockchain as a whole. Performing such an attack on POS, estimated, costs 50 times less than it takes on POW.
Other than this sort of attack, POS is also vulnerable to service attacks, Sybil attacks, and denial of service attacks.
Will Bitcoin Ever Adopt POS?
Many crypto experts, such as the founder of Bitcoin Suisse, Niklas Nikolajsen, believe that Bitcoin will eventually follow the path of ETH 2.0 and shift to POS.
Much of this assumption stemmed from the sustainable power usage issues hovering around Bitcoin mining. But POW, as a concept, has stood the test of time as it dates back to the time before Bitcoin appeared in the market. Many believe that Bitcoin shifting to POS consensus is not going to happen as it would be technically challenging and disincentivizing for those who have already put a lot of effort and resources into it.
