One of the basic characteristics of decentralized network is that no single entity has most management control rights. Therefore, this means that some form of consensus mechanism is needed between different participants of the decentralized system in order to establish a unified agreement on the current state of the network, because there is no central deterministic entity. Therefore, the blockchain consensus mechanism is described as a process through which all nodes or peers of the network can reach a common agreement on the current state of the distributed ledger, thereby establishing trust among unknown peers in the distributed computing environment.
Consensus mechanism is essential to enhance the security of decentralized networks, because it helps to prevent malicious activities, such as double spending, which may reduce the integrity of the network. This is fundamentally because the consensus mechanism ensures that every new block added to the blockchain is effective and has been generally agreed by all nodes in the blockchain network. Thereby improving the invariance, security and transparency of records in the blockchain.
There are many mechanisms to reach consensus in the blockchain network, some of which include: proof of work (POW), proof of interest (POS), proof of history (POH), proof of activity (POA), and proof of importance (POI). However, this study will pay special attention to the comparative analysis of two main blockchain consensus mechanisms, namely proof of work (POW) and proof of interest (POS).
POW
The workload proof mechanism was first introduced in 1993 as a way to prevent DDoS attacks and other security vulnerabilities. Later, it was reintroduced in the Bitcoin white paper as a consensus mechanism for verifying transactions and broadcasting new blocks on the blockchain.
Proof of work (POW) fundamentally involves solving complex cryptography problems, leading to block rewards. In order to maintain network security, new blocks are verified by network members (miners) to solve complex mathematical problems. These puzzles are difficult to prevent malicious acts, such as miners trying to verify fraudulent transactions.
Therefore, each verified block contains a block hash representing the work completed by the miners. This is why this consensus mechanism is called workload proof, because the miners provide evidence for the completed work and then verify it before proposing new blocks.
POS
At present, the proof of interest (POS) consensus mechanism used by most of the first (1) layer blockchains is often referred to as an "effective" alternative to proof of work (POW). However, the technical and structural consequences of proof of entitlement (POS) are very different from proof of work.
In the proof of interest (POS) consensus mechanism, verifiers do not invest in hardware (ASICs) infrastructure for mining, but invest in platform tokens of the underlying blockchain by locking some of their tokens as their shares in the network. For example, ETHereum needs at least 32 eth to become a verifier. The basic principle behind this is that participants with economic interests in the network will act in a compliant manner and truthfully deal with the blocks to protect the network or risk losing their interests in the network.
The verifier is pseudorandomly selected to generate a new block according to its economic interests in the network. If the verifier finds a block that they think can be added to the chain, they will verify (verify) the block by betting on the block. In this way, all verifiers will receive rewards proportional to their bets, and their bets will increase accordingly.
There are also many variants or variants of the proof of stake consensus mechanism, such as entrusted proof of interest (dpos), lease proof of interest (LPOS), hybrid proof of interest (HPOS), and liquidity proof of interest (LPOS). Some of these variants have enhanced solutions to achieve a resource efficient network governance model.
After summarizing the main processes and concepts behind the two main consensus mechanisms, the next section makes a comparative analysis of the two models according to the following criteria:
1. Efficiency / Sustainability
2. Degree of decentralization
3. Safety and standards
Efficiency and sustainability comparison (POW vs POS)
It is clear that the workload proof consensus mechanism involves the use of huge computing power and energy consumption, which has triggered many debates related to its environmental sustainability. A large amount of evidence indicates that the use of computing resources involved in the workload proof model is a feature, not an error, because consensus requires some form of computation (work). This is why many Bitcoin advocates criticize the proof of interest mechanism and compare it to a governance model rather than a consensus mechanism.
Therefore, the solution to most sustainability problems of proof of work mining is to improve environmental sustainability in accordance with the requirements of most governments and regulations through the use of renewable energy infrastructure in accordance with sdg-7, such as the cryptocurrency Market Act (MICA), which aims to regulate the use of digital assets in the European Union (EU).
However, another argument against workload proof is that although it has been proved that cryptographic problems or calculations related to POW consensus mechanism often guarantee network security, these calculations cannot be used for other purposes.
On the other hand, the equity proof network consensus does not require physical infrastructure or complex calculations, nor does it leave an energy footprint that is not sustainable to the environment. Even if the verification computer of the pledged ETH is damaged, the pledged eth can be recovered and redeployed anywhere in the world using the relevant private key. Therefore, this enhances the efficiency and sustainability of the proof of interest model. In contrast, all excessive capital requirements for maintaining the physical POW network can be directly used to purchase platform tokens, and then users can pledge these tokens to participate as network verifiers, thus improving capital efficiency.
Safety analysis (POW and POS)
Over time, workload proof has proved to be a highly secure consensus mechanism, because it makes the underlying network more difficult to be hacked, because the network is constantly monitored by participants. Because the process involved in solving the relevant computing problems requires greater computing power, every transaction on the network will become more difficult.
Therefore, this makes the entire network more secure and the attack cost higher (although the opportunity cost is increased energy consumption). In the workload proof model, a successful attack will require huge computing power and time to perform relevant calculations. Thus making it inefficient in most cases because the cost of implementing an attack is usually greater than the potential return obtained by the attacking network.
Similarly, proof of interest is safe because all verifiers are involved in verifying transactions. In contrast, the proof of interest (POS) consensus mechanism is designed to be more vulnerable to hacker attacks and security attacks. Theoretically, if a verifier (or a group of network verifiers) owns 51% of the pledged tokens, it means that network participants can basically control the entire blockchain network and change it when there is malicious, thus damaging the integrity of the network and its transactions. This "what if" scenario is called a 51% attack, which may be feasible for smaller blockchain networks.
Degree of decentralization
Decentralization is one of the most commonly used words in the blockchain field. Although in most cases, the actual decentralization is easy to define, it is extremely difficult to achieve. As mentioned above, the decentralized system can be characterized by the level of node distribution within the system, thus preventing any entity from owning a majority (> 51%) stake in the consensus or governance of the network.
In this case, it is obvious that with the continuous development of Bitcoin network, the requirements for participating in the workload proof consensus are increasing in cost and complexity, which leads to the concentration of miners. This is because control of the pow chain is vested in the entity that controls the ASIC production infrastructure and supply chain components.
However, the counter argument is that the workload proves that the consensus approach has become a way for energy rich but economically poor third world countries to participate in mining, because a large amount of renewable energy is required to generate electricity for mining operations. Therefore, the nodes in the network are further decentralized.
On the other hand, one of the arguments supporting the increase of decentralization level caused by the proof of interest is the lack of centralized mining facilities, economies of scale and supply chain. This is because the proof of interest model eliminates any hardware requirements required to act as a verifier, so ordinary consumer devices are sufficient to verify transactions on the chain without complex calculations that would lead to energy consumption. Therefore, the economic cost of running the verification node is reduced to the capital cost (32 ETH). Therefore, this increases the total feasible number of possible verifiers in the blockchain network.
Although 32 ETH (currently around us $64000) is still relatively expensive for many retail participants, it is relatively lower than the infrastructure requirements required to power proven mining operations. In addition, protocols like Lido or rocketpool allow any number of eth to be pooled and delegated to a central repository. Thereby increasing the inclusiveness of the consensus process, even for users without basic 32 eth requirements.
In short, as the blockchain technology is a distributed ledger technology, it provides invariance, transparency and security of records, which means that the mode of reaching consensus on the network state is crucial to the overall operation and state of the network. Because there is no central authority to verify or validate transactions.
As explained in this article, the choice of consensus mechanism adopted by blockchain has great technical, economic (monetary), social and even regulatory impact. Having said that, the consensus mechanism of proof of interest and proof of work is extremely important to its underlying network, although efforts must be made to improve its efficiency (Sustainability), security and accessibility for all.
