Review Understanding Proof-of-work , Proof-of-stake And 51% Attack On Blockchain

Discussion in 'Crypto Learning Center (Library)' started by philipj, Jul 22, 2017.

  1. philipj

    philipj GrandMaster Crypto Guardian

    While both Proof-of-work (PoW) and Proof-of-stake (PoS) are algorithms for reaching agreement on the blockchain, they go about it in different ways. The reason why they need to reach an agreement or concensus is because there is no central authority. This concept brings about trust in the blockchain community so that no one is cheated.

    How does PoW and PoS help to reach an agreement?

    Proof-of-Work happens through miners trying to solve exceptionally difficult maths problems. Miners are not able to cheat the system because it takes real-world resources to work out these solutions. The reason they do that is because of the reward they get after reaching a solution or completing a block. This reward is a cryptocurrency eg 1 bitcoin whose value at the moment is over $2700. Just imagine solving 20 problems a day. They also earn from transaction fees.

    These real-world resources are computers and electricity. It takes a lot of power to run the computers, or clusters of computers, that calculate different potential solutions. From an ecological standpoint, this isn’t ideal. This leads miners to have high energy costs.

    The fact that you need a serious amount of computing power, more than the average person could afford, means the mining community will likely be getting smaller and more exclusive, because smaller players will leave the market as a result of the increase difficulty in mining and the need to constantly upgrade which requires more fund. This scenario could put mining in the hands of a few, and if one of those few gain 51% it could lead to the so called 51% attack.

    51% Attack
    A 51% attack is when a miner, or more likely a mining pool, controls 51% of the network’s computational power. With that ability, they could invalidate valid transactions and double spend funds. They’d achieve this through creating and confirming their own fraudulent blocks, and do it so quickly, the rest of the mining community creating genuine blocks would have their legitimate work invalidated.

    That’s where Proof-of-Stake can come in to prevent such attack. Even if someone owned 51% of a digital currency, it would not be in their interest to attack something in which they have a majority share. Also, it’s very unlikely that anyone would be interested in buying up 51% of a currency, due to it being extremely expensive. According to game theory, those with a larger stake in a cryptocurrency should want to maintain a secure network. Any attack would only serve to destabilize the digital currency, diminishing the value of their stake.

    Proof-of-stake (PoS) happens when a miner puts up a stake, or locking up an amount of their coins, to verify a block of transactions. The cryptographic calculations in PoS are much simpler for computers to solve because you only need to prove you own a certain percentage of all coins available in a given currency. For example, if you somehow owned 2% of all Ether (ETH), you’d be able to mine 2% of all transactions across Ethereum.

    PoS offers a linear scale regarding the percentage of blocks a miner could confirm, since it’s based on that person’s stake in the cryptocurrency. That means someone with ten times more coins (e.g. - $15,000 vs. $1,500) would only mine ten times more blocks.

    PoS helps to encourage more community participation. Taking mining out of the hands of the few pools doing the bulk of mining, which somewhat resembles an oligopoly, would distribute the work evenly across the network, leading to a more democratized system.
    gbolahan and zedzed like this.
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  3. Prezzy

    Prezzy Leader Protector

    Hmm. Are you sure that someone is not planning on this already???
    gbolahan likes this.
  4. Prezzy

    Prezzy Leader Protector

    I still wonder how locked up coins can do work on their own!
  5. gbolahan

    gbolahan GBOLAHAN Crypto Guardian

    The largest pool has 28% so to reach that 51% will be hard bro
    Prezzy likes this.
  6. Prezzy

    Prezzy Leader Protector

    I mean, with government support, someone may reach it. Think about it.
    gbolahan likes this.
  7. Prezzy

    Prezzy Leader Protector

    I hope it never gets to that though
  8. gbolahan

    gbolahan GBOLAHAN Crypto Guardian

    Let government invest all what they have they can neva reach 51% bro
  9. philipj

    philipj GrandMaster Crypto Guardian

    I don't think it can do the work on its own. Its just a guarantee. Just like depositing 1000 dash to run dash masternode. The difference is you earn your stake on a pro-rata basis