Blockchain is a digital ledger of transactions maintained by a community of users. It’s called a blockchain because new transactions are bundled into “blocks” of data and written onto the end of a “chain” of existing blocks that describe all prior transactions. The idea is to prevent any one entity from controlling the blockchain. Both proof-of-work (PoW) and proof-of-stake (PoS) are called ‘consensus mechanisms’, and they are a current requirement to confirm transactions that take place on a blockchain, without the need for a third party. As the proof-of-work approach intentionally wastes energy (Bitcoin alone consumes around 150 terawatt-hours of electricity each year, which is more energy than medium-sized industrialized country uses annually), we’ve been witnessing to the challenge how to promote the environmentally sustainable development of the applications of blockchain without damaging this valuable sector.
Generally speaking, PoW vs. PoS argumentation will always divide people’s opinions. However, looking at how the world’s second-largest cryptocurrency is going to change the way of mining, in our view it brings a clear picture which mechanism will prevail. So, one of the community’s the most expected events, that is about to happen by mid of September, is Ethereum’s move from the energy-hungry proof-of-work (PoW) consensus mechanism to the leaner, greener proof-of-stake (PoS) system. Here we’ll shortly describe both as well as some characteristics of the Cuprum coin’s own native blockchain.
Validators instead of miners
No doubts that cryptocurrency mining in the PoW concept is the one of a very energy-intensive blockchain application. So called “miner” enables new coins to be created while, at the same time, independently verify and record every transaction made in the currency. As cryptocurrency gets more valuable, the computing effort expended on creating and maintaining it – and therefore the energy consumed – inevitably increases. More revenues earned leads to more powerful machines introduced to guess a random number, and at the end more increase in energy consumed.
In PoS model crypto transactions are validated by users who stake substantial quantities of blockchain tokens as collateral (in Ethereum 2.0. this number is set to 32). So, instead of miner the core component here is a validator. This means the vast network of supercomputers currently used to check transactions are no longer required, because users themselves are doing the checking. It is less energy intensive and does not require constant upgrades to the mining setups that proof-of-work demands. For example, in Ethereum 2.0. it is believed that moving away the computer “miners” will lead to an estimated 99 per cent drop in Ethereum’s electricity use.
Cuprum coin native blockchain is built on forked Tezos network and uses a liquid proof-off-stake consensus mechanism. In the liquid PoS concept validators are called bakers. In addition to validating transactions, bakers represent the staked tokens of delegators (stakers) when participating in network governance by voting on protocol upgrades. This approach ensures security, stability, and finally correctness.
Number of transactions, block time
In the Bitcoin’s blockchain every time a transaction is sent, it takes about 10 minutes for the network to confirm it. Furthermore, the Bitcoin blockchain can only handle about 7 transac-tions per second. The maximum number of transactions that the current Ethereum block-chain can process is 30, which again, is substantially lower than the network needs. It is hoped that Ethereum 2.0. will increase this number to thousands per second. However, it is yet to be proved. The maximum number of transaction Cuprum coin’s blockchain currently support is 50 per second, with estimated block time in the range of 30-60 seconds required for the network to confirm it.
In PoW system the safety threshold of 51% is set, known also as “51 attack”. A 51% at-tack happens when a group of miners, or nodes, have enough ownership over a blockchain’s hash power to alter how it functions. While it is still possible to do this with PoS system, it would not make financial sense to attempt to perform a 51% attack. Namely, for this to be achieved, the bad actor would need to stake at least 51% of the total amount of cryptocur-rency in circulation. The only way they could do this is to purchase the coins on the open market. In liquid PoS consensus mechanism Cuprum coin’s blockchain operates in, because delegates (stakers) participate in network governance, the security threshold is set even higher to 60%.
Of course, there are also some concerns for people while considering PoS concept. The first one is that the rich get richer. This is because the more coins you can afford to buy, the more coins you can stake and earn. The fact in PoS is that those who contribute to the network by freezing their coins are rewarded proportionately to the amount they have invested. Comparing this with the PoW’s enormous amount of electricity used by computers that manage the buying and selling of crypto coins, we’ll leave to you.
At the very end, we have chosen proof-of-stake because it offers lower ongoing costs, it is less energy intensive and does not require constant upgrades to the mining setups that proof-of-work demands. At least, we can tell to ourselves that we did something small but good for climate change happening around us.