Notes from: Proof-of-Stake (vs proof-of-work)

It appears that most public block chains will be moving to proof of stake rather then proof of work as proof of work is

• slow and highly inefficient bit coin can at best process at best a dozen transactions a second and as of Sept 2021 uses >90 Terra Watts of electricity - The electrical needs of a small country
• miners with more (and better) equipment increase their probability of solving a block so people team together into mining pools. If one solves a block they distribute the reward proportionally to all the miners in the pool. This leads to centralization in the mining pool.
• Larger miners apply economies of scale getting a greater share of the network rewards at a lower cost. Eventually this will lead to centralization in just a few huge processors

Proof of Stake uses an election process in which one node is choose to validate the next block.

Proof of Stake does not have miners but rather validators, which mint or forge new blocks.

To become a validator you must deposit a certain number of coins into the network as a “stake”.

The amount of your stake determines the likely hood you’ll be elected to validate a block.

This is more fair because you must buy stake in the network rather then earn it unfairly via hyper investment in mining rigs.

After validating a block the validator will receive the reward for that block.

If a validator approves a “bad” block they will lose all (or part) of their stake. As long as the reward for validation is less then the loss of stake for validating a bad block then we can trust the validators to only approve “good blocks” as its in their best interest to do so.

With Proof of Stake more can engage in staking.

How does proof of stake prevent a 51% attack? By having a highly valuable blockchain…

Risks with Proof of Stake

• Owners with lots of stake will get the bulk of the rewards as they will be selected more often to be validators. (possible work around with coin-age)
• If a validator is choosen to validate a block but is offline due to outage or dereliction of duty then no one is available to process transactions. (possible work around is to use backup validators)