Bitcoin Security — How Do We Arrive at Consensus?

If the title sounds confusing, that’s not surprising. I was trying to get creative and find a set of words that could express how I perceive most will react upon learning the theme of the article.

For what I want to discuss with you guys today is a hotly debated topic.

One that might shake the grounds of cryptocurrency’s inner-working mechanics: which consensus algorithm is better, Proof-of-Work (PoW) or Proof-of-Stake (PoS)?

PoW vs PoS vs DPoW vs DPoS

Resultado de imagem para PoW! gif

PoW and DPoW represent the same way of mining, in terms of infrastructure, but in different organizational formats. The first assumes one person or company is the owner of the hardware. The second assumes a network of people giving their computational power to a central authority who mines on their behalf. And then you also have cloud mining.

There are other ways of mining, such as through mining contracts where you purchase some of the hashrate from a mining farm, but I will ignore those as they simply represent a loan of equipment (like a lease).

What About Ownership?

If we consider the working mechanics of the “D” (delegated) in both PoW and PoS, it simply means you relinquish your right to control your hashing power, in order to gain more profits – as mining through a pool is considerably more profitable than mining by yourself (if you cannot invest much in equipment, that is); because mining pools have more hashing power, you’ll get Bitcoin block rewards and transaction fees more often, although the prize is split among more participants.

For this article’s purpose, I will make two assumptions:

(a) Our goal is to focus on network security; hence the best consensus algorithm will be the most secure.

(b) For analysis coherence, ownership of hardware is always preferable due to fewer dependencies. 

By combining both assumptions, we can already pen down a quick conclusion.

The Ultimate Battle: PoS vs PoW

If ownership is always preferable, we can assume any option where a user relinquishes power over decision-making, is tilting his goals towards profits. Therefore, his values are not the same as the ones of other miners: to secure the network.

If the real battle is between owners of hardware, we can eliminate any delegated system, as there is a central point of failure.

In different systems, we can add extra layers like many delegates, although the core issue remains: authority is not properly distributed because delegates can easily collude to stay in power.

If one party has the option to easily make changes to a network, there is a central point of failure, which should be avoided at all costs, not only to preserve decentralization but to guarantee the network’s permissionless nature.

Security And Speed

We can then limit our decision to either PoW or PoS. Both have advantages over each other, but ultimately, one should be safer than the other.

Ultimately, decision-makers might choose either,depending on the end-goal: security or speed? Robert Greenfield from ConsenSys explains this dilemma quite well:

PoW — The process of solving a computational challenge imposed by a proof of work protocol is called (block) mining. It has an objective consensus protocol, where a new node can independently arrive at the same current state as the rest of the network based solely on protocol rules.

PoS — The process of solving a computational challenge imposed by a proof of stake protocol is called (block) minting. It is not an objective protocol. It is weakly subjective, given that a node needs a recent state in addition to protocol rules and messages propagated across the system to independently determine the current state of the system.

The Arguments Against PoW

Most people point out the worst aspect of PoW is how it wastes energy to mine new blocks, however, given my approach to the topic I would prefer to focus on alternative attack vectors, as to me there is actually no energy waste – if we compare the Bitcoin infrastructure with the global gold infrastructure, we can quickly conclude Bitcoin is spending 10% or less than its physical counterpart. Plus, the number of users is not correlated to the number of miners, meaning more Bitcoin users doesn’t equal more miners.

What other problems can we look into?

DoS Attacks — A DoS attack aims at disrupting the normal operation of the network by flooding the nodes with requests (PoW is more vulnerable to this situation).
Sybil Attacks — The attacker disrupts the network by forcing a number of nodes to misbehave. (again, PoW more vulnerable to this type of attack).

PoW is indeed weak against those two types of attacks, and we’ve already seen some networks being hijacked by both.

Plus, PoW is a slower process for consensus. If we’re not talking about a layer 1 solution (like Bitcoin), we can potentially forego security for speed by adjusting how network reaches consensus.

Instead of doing hard computations why not ask network validators to stake some of…

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