Proof of stake consensus – why appealing? Part 1

By Lumai Mubanga

Recently it was announced that the new launch Ethereum 2.0 will adopt the proof of stake algorithm. Why could this algorithm be more appealing?

PoS Vs PoW

Comparing PoS to PoW shows some cardinal differences. In terms of resource usage in PoW, the proportional amount of computational power a miner has determines their voting power in the system. In PoS, validators are stake holders that have voting power to the economic stake or the locked up native currency. The basic idea is that, the more dedicated someone is within the proof of stake system, the stronger the motivation to be good custodians of the system. Therefore, an investor with a lot of stake has an incentive to do things that would benefit the system as whole since that would increase the value of coins they hold. As such, investors on PoS are given more voting power as validators. But there is more to the PoS algorithm.

Two types of PoS.

Two types of PoS there are namely chain based and BFT. The main difference is in the role of a chosen validator as well the effects on the properties of the system and bits consensus.

1. Chain based. In the chain based PoS, a validator is first chosen randomly based on the proportion of stake investment. The validator who takes the most coins is likely to be chosen. Next, the chosen validator creates a block which points to a previous created block. Then this validator gets the block reward and transaction fees associated to that block, assuming that the block is valid and accepted by the entire network. This is like a direct parallel of PoW. Beside the difference in resource consumption, the rest of the mechanism is almost the same. Once the validator is chosen, they create a block that the rest of the network implicitly votes on depending on whether they choose to update or accept and append to their local copies of the block chain. In this way, PoS algorithm choose available over consistency.
2. Byzantine Fault Tolerance BFT. The BFT based PoS algorithm chooses consistency over availability contrary to the availability favoring chain based PoS algorithm. The first step of BFT is the same as the chain based PoS. The validator is randomly chosen based on the proportion of stake invested. However, instead of the chosen validator directly creating a block, a chosen validator proposes the next block that is sent directly to the entire network. The rest of the validators then vote yes or no. If two thirds or more of the total stake vote yes, then the block is included in the block chain. Otherwise, a new validator is chosen to propose a new block and the cycle is repeated. after a block gets two third of the network voting power to vote yes, the validator that proposed the block gets the block reward and transaction fees.

Could this be why ethereum 2.0 is adopting the PoS algorithm? Ultimately, users and investors expect this to reduce complexity, induce cheaper transactions and greater network throughput.