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Mining

Network security: PoW vs PoS

In this guide, we compare Proof-of-Work's (PoW) security model with that of Proof-of-Stake (PoS) in order to understand which one grants the highest level of security and immutability

In this guide, we compare Proof-of-Work’s (PoW) security model with that of Proof-of-Stake (PoS) in order to understand which one grants the highest level of security and immutability both in the short term as well as in the long term.

How PoW works

In simple terms, the Proof-of-Work consensus mechanism converts energy into hashing power. The more hashing power a network has, the more secure it is. In addition, the more miners (network validators) who are running the PoW algorithm, the more decentralised and secure the network is as well.

To avoid centralisation and to keep the network at its most secure, there is a difficulty adjustment algorithm that essentially adjusts the required energy input to produce an output. This means that the more validating nodes there are, the harder it is to mine one block and the harder it is to keep the same hashing power (in % of the total network) since miners need to spend additional energy to produce the same output.

Therefore, the two most important characteristics of PoW systems are hashing power and the number of validator nodes.

The third and last key point of any consensus mechanic is the incentives. In PoW, there are currently two main economic incentives for network validators: (a) transaction fees and (b) block rewards. Without a reward, there is no incentive for a miner to follow the protocol and keep the network secure.

Is PoW the most secure and immutable consensus mechanism?

Regarding the security of consensus mechanisms, there are two key metrics I would like to focus on.

The first is the ability to keep a blockchain immutable, and the second is the short-term vs long-term impact of a long-range attack.

In other words, assuming the network is decentralised by nature (meaning anyone can participate), my approach is to understand the mechanics that allow a consensus algorithm to keep a high degree of immutability. Otherwise, what’s the point of having a decentralised network if it has a central point of failure?

With PoW, immutability is guaranteed by the energy requirement to validate blocks. When a node connects for the first time to the Bitcoin blockchain, or any time a node is validating transactions, it must run the rules of the protocol and validate all previous blocks as well.

Therefore, there is no shortcut to change previous blocks.

That’s why PoW mechanisms are considered to be probabilistic, as the max immutability it provides in the long term is about 99.9%.

By comparison, for example, Proof-of-Stake (PoS) offers certainty as transactions cannot be altered after being posted – it’s written into the protocol that any posted transaction cannot be changed. With PoW, it’s the longest chain (or the heaviest chain) that is valid.

The ultimate battle: PoW or PoS?

Some crypto-enthusiasts believe that PoS is an immutable consensus mechanic given the fact transactions cannot be altered. Nevertheless, that only holds true when an attacker is unsuccessful.

While PoW is clearly less secure in the short term as it’s “easier” to get 51% of the total hashing power by purchasing more hardware – and the upper-bound limit (price) won’t likely change much – it’s also the most robust in the long term, as to maintain 51% of the total hashing power, an organisation controlling the validating nodes would have to exponentially increase its energy expenditure to keep mining the longest chain.

PoW adjusts its energy input requirements through its difficulty adjustment algorithm, which makes validating nodes spend more energy as more hashing power is added to the network.

In contrast, PoS only requires nodes to purchase or receive the coin and commit it (stake the coin) to validate transactions. This means that, while in the short term it’s harder to attack the network – to get 51% of the staking power, one would be required to purchase 51% of the total stake, meaning price would likely increase as more coins were bought (assuming there is a hard supply) – in the long term, there is little that can be done once an attacker is successful.

The only way out is with a protocol hard fork to either increase the supply, ignore the attacker’s coins, or to block the attacker’s addresses.

None of the above solutions keeps the blockchain immutable. Therefore, in the long term at least, PoW is a better option than PoS in terms of immutability.

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