This material will clarify the core principles of Proof-of-Stake (PoS) consensus algorithm and tell how it varies from the current popular Proof-of-Work paradigm. We will also tell why Giant wants to move from PoW to PoS and what current and future problems this measure will solve.
PoW or Proof-of-Work is a consensus algorithm which underlies many digital currencies today, including the first cryptocurrency – Satoshi Nakamoto’s Bitcoin. The electronic peer-to-peer cash system proposed by this anonymous coder had the PoW principles pre-installed from the very first stages.
Let’s review a typical Bitcoin transaction. The block of the blockchain is formed from transactions which are yet to be approved, then miners verify them by calculating a difficult mathematical formula, and the first one to reach the answer gets a block reward in the form of new bitcoins. All this is captured on the open-source distributed ledger.
Originally, Bitcoin mining demanded a simple computer, but the difficulty of every next formula increased each time so that mining doesn’t become easier over time. However, this led to a situation when those who have the best hardware get the cream of the crop. We will tell more on this problem below.
PoS or Proof-of-Stake is another consensus algorithm which is a perspective replacement for the aforementioned PoW. In PoS, it is not the mathematical problem-solving capacity which determines the one who gets a reward. Instead, the system chooses a network participant the lowest hash value combined with the size of the amount of coins this user possesses. This approach is used in Nxt and BlackCoin. In Peercoin, holders of older coins have more chances to verify a block, although this variant is not without anti-centralization measures: same old coins’ holders will never be able to verify several blocks in a row.
Due to the change of the key money-making principle, mining whales are losing all the advantages they had over the regular users of the cryptocurrency. Mining whales are people who have reached control over the ASICs (application-specific integrated circuits) - devices with massive processing power able to swiftly mine a certain cryptocurrency. This can potentially lead to the increase of difficulty that usual miners cannot overcome. What is even more dangerous here is that mining whales can even intercept control over the whole system of digital currency.
During the mass discussion amidst the recent the wave of such malicious activities (dubbed ‘51% attacks’), ASIC defense measures have been installed in some cryptocurrencies. Piper Merriam’s proposal EIP 958 outlines a set of similar changes for Ethereum but key founders of this cryptocurrency have rejected the idea. Their main argument was that after the move to the PoS, these attacks would become fruitless anyway, as there will be no Ethereum mining as we know it today.
Cardano developers have also highlighted the PoS benefits in a large research paper. While they are talking mostly about their own implementation of this idea, it becomes apparent that the move from PoW to PoS can additionally solve the problem of scalability in the long term. This issue is directly connected with the continuous growth of users and the subsequent dramatic increase of transaction bottlenecks.
While the PoW consensus model variations are widely-known and well-researched (with Bitcoin as a primary example), same cannot be said about PoS which is still a frontier for blockchain developers. Just as it happened with computers, the full benefits and disadvantages will become fully evident after the mass implementation, although the usefulness of the innovation can already be called undisputed.
An extra benefit of PoS over PoW is that cryptocurrency skeptics are losing one of their most solid arguments against the idea: PoS-based cryptocurrencies do not use so much electricity. The importance of this cannot be underestimated: the New York Federal Reserve Bank ex-analyst James McAndrews has called wearing the United States power grid by mining ‘worse than frivolous’ and he is likely not the last person to state this.
Giant wants to move from the current PoW consensus algorithm for several reasons. The scalability of our coin in the long term is a pressing issue, as there will be more than one project where Giant Coin or GIC is a sole payment tool. Another reason is mining whales - according to our stats, they sell almost everything they mine, leading to a pessimistic atmosphere around the project.
Our PoS algorithm version will largely resemble that of PIVX, which, in turn, is based on the principles outlined in the Zerocoin whitepaper. The algorithm of PIVX is checking if the network has become overfilled with masternodes and compares the number with amount of stakes, ensuring that one component never outweighs another. This is why in some sources it’s called ‘the see-saw’. Additionally, we introduce burning transaction fees which would efficiently counter the inflation that otherwise may prove formidable due to the infinite coin supply. More on the usefulness of the latter mechanism can be read in a separate dedicated material.
As our developers tell, the early implementation of PoS (by the end of 2019) will solve the following existing issues.
An example of a mining whale in Giant has recently been found by the attentive members of our community on Discord. As seen from the Giant block explorer, this person or group mines big and sells big.
The Proof-of-Stake algorithm is not just itself more modern than the Proof-of-Work paradigm. It efficiently solves several important issues for the Giant environment and every potential decentralized application (DApp) based on it. Although the PoS model is visibly less researched, its benefits have already been recognized by experienced teams of Ethereum and Cardano. This protocol variation will eliminate the dangers of mining whales and 51% attacks which both stem from the Proof-of-Work algorithm.
We hope that this article has explained what Proof-of-Stake is, its main variations, the roots of Giant PoS and other themes which allow to understand this blockchain innovations.
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