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Things We Find Interesting in Cryptocurrency

Feb 23

Proof of Stake

By Raymond Prince

Several cyptocurrencies have implemented what is known as proof of stake, as apposed to the widely accepted proof of work alogorithm used to validate network transactions. Proof of work by its nature requires the miners use large amounts of electricity in order to solve increasingly difficult cryptographic problems in order to validate transaction blocks. Not only has this become extremely expensive, and risks a trend toward centralisation, but also many have a moral problem with the wasteful nature of this process.

Validation and Decentralistion

Proof of stake tackles the issue of transaction validation and decentralisation from a completely different perspective. Peercoin is an alternative cryptocurrency which uses PoS algorithm to validate transaction blocks. Each user in the network has a probability of signing the next block according to the amount of coins the user holds. In order to not allow bias towards users with large stashes of coins, Peercoin also makes use of 'coin age' based selection. This means that the user's total number of coins are multiplied by the number of days the coins have been held by that particular user. For coins to count towards a user's probability of signing a block, the coin must have been held for a minimum of 30 days. Once that coin has been used as part of signing a block, the coin age is reverted back to 0. The coin age can never exceed 90 days.

The Cost of PoS

This method of PoS drastically reduces the cost associated with PoW mining, and also stops large mining pools from dominating the network, but it is not without its own issues. The initial distribution of coins is usually biased towards a small group of early adopters. These gatekeepers are said to be incentivised to distribute their coins in order for the rest of their holdings to become more valuable as utility is recognised. This is asking a lot of the community to trust that a small number of coin holders act with the best interest of the majority in mind. The distribution issue, as well as the security threats all create valid factors of concern, and active memebers within the cryptocurrency community believe that solving these issues by adding layer after layer of additional complexity in order to patch these concerns is counterintuative. While PoS does have its merits, there is still much discussion that needs to go into solving the inherent flaws. This could be a mixture of both PoW and PoS, but only time and hardwork will tell.