Proof of Stake finally! It’s a lecture that at least I have some idea about. Ethereum is one public network that has a firm timeline on moving to proof-of-stake. Thus, I’m interested in this lecture, to one understand how one described proof of stake in 2015 and how has the mainstream explainer change since then.
As an update since watching this lecture, it was a fairly light lecture. There have been numerous updates and more thoughts about this subject since this was recorded.
My brain-dump prior to watching the lecture
Proof of Stake is a mechanism for choosing how transaction blocks get appended to the blockchain. Because it doesn’t require people solving puzzles, but instead people essential “staking” some of amount of a base currency, less energy is consumed. Thus, environmentalists would be pro virtual mining over proof of work. With “staking” it is also what drives participants to act non-maliciously since if they break the rules, the amount they “staked” will be removed from them. Proof of Work and Proof of Stake are not the only consensus mechanisms. In addition, several projects have used DPOS which is delegated proof of stake.
Questions answered in this post
- What is virtual mining?
- How does it differ from proof of work, ie what other lectures have focused on?
- What are some benefits?
- Why does proof of stake decrease the likelihood of 51% attack?
- Other virtual mining
Virtual Mining: just remove the special hardware + power
The explanation started with taking the Proof of Work mining in a nice flow chart and then removing the step of buying hardware. Instead of purchasing hardware, they use a similar amount to just go into some random selector.
Proof of Work ( Hardware Mining)
- Miner spends money on special mining equipment and power
- Miner mines by trying to find puzzles and is given block rewards every so often
- Repeat
Proof of Stake (Virtual Mining)
- Miners “mine” by sending money to a special address in the system
- Winners are chosen by a lottery and then the miner gets a block rewards
- Repeat
Benefits
- Less costs both for less harm to environment, and savings distributed to all coin holders
- Stakeholder incentives since those sending money want the value of the asset to increase
- No ASIC/ hardware advantage
- 51% attacks is harder
51% attack prevention
There is less money inside Bitcoin than in the real world. Theoretically, a wealthy attacker could bring the network down if they really wanted to. They currently could use their money to purchase hardware or increase power usage to wage an attack. With proof of stake, the source of miners is kept internal to the system. One is staking that base currency to append blocks. Someone would need to purchase enough Bitcoin to become a majority stakeholder. Because they are doing this purchasing they are signaling demand and thus the price would rise making it even more expensive for them to wage the attack. Also said attack, would also be locking their own wealth inside the Bitcoin network itself. That kinda makes sense, but I have to wonder, if someone really wanted to bring Bitcoin down, and burn their wealth in the process, could they?
Virtual Mining Variations
| Type | Description |
|---|---|
| Proof of Stake | “Stake” of a coin grows over time as the coin is unused |
| Proof of Burn | Mining with a coin destroys it |
| Proof of Deposit | can reclaim a coin after some time |
| Proof of Activity | Any coin might be winner (if online) |
Wrap-up
This was a quick lecture. Happy to be finally done with lecture 8 though!