A consensus mechanism in the cryptocurrency industry is as crucial as a blockchain. The fundamental consensus mechanism on which most cryptocurrencies are built is proof of work. So, for example, you may visit the site and sign up if you want to have a smoother trading experience with the best trading techniques. Bitcoin introduced this consensus mechanism at first and has gained widespread acceptance.
But the proof of work has disrupted the mining ecosystem by making it more energy-consuming, and members of the bitcoin community are demanding a change in the consensus mechanism. As a result, the recent proposal to modify the bitcoin protocol has generated a lot of buzz around the community. We briefly discussed the debate on this proposal in the last post. So an interesting question arises: will bitcoin ever change its consensus mechanism, or will it stick to PoW? Let’s find out.
Why did Satoshi choose proof of work?
The white paper published by Satoshi Nakamoto proposed proof of work as an alternative to the Byzantine general’s algorithm, which is used for reaching consensus on public networks like the internet and telephone system.
Mathematically, it is a straightforward scheme but became a stumbling block for the bitcoin community from two perspectives. First, there was no way of verifying the work done by the miners on a public network. Second, due to its energy-intensive nature, only a few large mining pools can garner significant bitcoin rewards.
On the other hand, the Proof of Stake consensus mechanism is known to recover money after economic attacks. But Satoshi chose to stick with PoW because of its efficiency in securing an already decentralized network against various distributed denial of service (DDoS) attacks and Denial-of-service (DoS) attacks in the future.
Will bitcoin ever change its consensus mechanism?
Currently, bitcoin is secured by miners who are distributed across the globe. It is a highly decentralized network of miners, and there are almost no chances of any fraud or illegal activities due to the sheer number of people involved. However, the primary concern that has been troubling the bitcoin community is the high cost involved in mining bitcoins and rising energy prices. In simple words, it’s becoming more and more expensive to mine bitcoins at a profit.
Energy-based consensus mechanism like proof of work (PoW) makes mining more energy-consuming since it uses a large amount of power to solve mathematical problems in every block. As a result, this ends up making transactions slower and more expensive. Due to the high cost involved in mining, the profit margins are so thin that it is almost impossible for a hobbyist to mine bitcoin at a profit.
Proof of work is known to disrupt the mining ecosystem by making it more energy-consuming, and only a few large companies can mine bitcoin at a profit. However, this has its advantages because a large number of miners working on the network would make it more secure against frauds and cyber-attacks such as distributed denial of service (DDoS) and Denial-of-service (DoS).
Why proof of stakes is a better alternative to proof of work for bitcoin?
Proof of stake will be an improvement over the current consensus mechanism because:
- It will make bitcoin transactions faster compared to proof of work. Transaction speed and confirmation time are two major bottlenecks for bitcoin today. In addition, it will help in keeping the transaction fee under control. The current growth rate of transaction fees is leading to a decrease in the popularity of bitcoin as a payment method.
- With proof of stake, one can expect a smaller number of miners to secure the network, resulting in fewer chances of fraud and cyber-attacks such as DDoS and DoS. Moreover, the transaction fee would be under control since miners are incentivized to keep adding new blocks to the blockchain though they won’t get rewarded with more than 50% of the bitcoin reward.
- Since only a few miners control the network, it will make bitcoin more secure against such attacks. Proof of stake will make bitcoin more decentralized since there won’t be any single entity to control the network. Low-level miners can have incentivization to contribute their hardware power by staking their coins.
In short, the only disadvantage that one may look for proof of stake is that it can be less secure against DDoS and DoS attacks because one entity (miner) controls most of the hashing power on the network. However, no consensus mechanism can avoid cyber-attacks altogether, so these vulnerabilities are inevitable, but there are ways to keep them under control as well.
