Demystifying Consensus Mechanisms: Proof of Work, Proof of Stake, and Beyond Explore the different consensus mechanisms used in blockchain networks, comparing their strengths and weaknesses and their implications for security, scalability, and energy consumption

• The lecture provides an overview of Proof of Stake (PoS) and its comparison with Proof of Work (PoW) consensus protocols.
• The speaker mentions that there are three main “advantages” of PoS protocols: reduced energy consumption, scalability, and improved security against 51% attacks.
• The three main “disadvantages” of PoS protocols are also discussed: the “rich get richer” problem, the possibility of a “nothing at stake” attack, and the need for “punishments” in case of misbehavior.
• The speaker then turns to two topics that cause confusion: permissionlessness and decentralization. In terms of permissionlessness, the speaker clarifies that while some argue that PoS is more permissioned than PoW, this is not entirely accurate since anyone can acquire the native currency and participate in staking and consensus.
• The speaker explains that proof of work is technically more permissionless than PoS protocols because there is no need to register a public key in advance, unlike PoS where staking requires registering with a public key. Additionally, PoW allows users to acquire their initial coins from the protocol itself, while PoS requires them to buy the coins from a counterparty, which could cause liquidity issues.
• Moving on to the second topic of decentralization, the speaker acknowledges that there are many definitions of decentralization. They outline some common ones, such as network topology, governance distribution, and data availability. In comparing PoS and PoW protocols, the speaker concludes that there is no clear evidence that one mechanism is better than the other for any of the definitions of decentralization.
• The speaker notes that more research is needed to determine whether one approach is more fundamentally decentralized than the other.
• The lecture concludes by noting that while PoS still has some disadvantages to overcome, it is an exciting area of research with many potential benefits for the blockchain ecosystem.

• Blockchain is a decentralized peer-to-peer system with no authoritative figure.
• Consensus mechanisms are used to ensure records are true and honest.
• There are various consensus mechanisms but they all serve the same purpose.
• The difference is the way the consensus is reached.
• Proof of Work (PoW) is a consensus mechanism where transaction data is stored in blocks validated by having people solve a complicated math problem attached to it.
• Mining is typically done by powerful computers.
• PoW is known as mining.
• A reward in the form of a cryptocurrency is issued to the first miner who cracked the problem.
• Crypto currencies like Bitcoin and Ethereum use a proof-of-work mechanism.
• Proof of Stake (PoS) is a consensus mechanism where the creator of a new block, also known as a validator, is randomly chosen based on how much stake they commit to the network.
• The higher the stake placed, the higher the chance to be selected as a validator.
• Blockchain protocols like Cardano’s Ouroboros and AOS adopt the proof of stake consensus.
• Proof of Authority (PoA) is a modified form of PoS where only approved parties selected based on their reputation can become validators.
• IBM’s Hyperledger Fabric and Ethereum Scovel Test Net are some examples of blockchain systems that use proof of authority.
• Consensus mechanisms have implications for security, scalability, and energy consumption of blockchain networks.

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• Decentralization aims to distribute power and control away from centralized entities, fostering transparency, security, and empowerment.
• Blockchain technology is the cornerstone of decentralization, revolutionizing industries and redefining the way we perceive trust and ownership.
• Decentralization eliminates the need for intermediaries, allowing direct interactions between individuals, businesses, or devices. No central authority has absolute control, and changes require consensus, enhancing security and reducing the risk of manipulation.
• Blockchain technology comprises a chain of blocks, each containing a record of transactions. Every participant on the network has a copy of the entire blockchain, ensuring transparency and preventing unauthorized alterations. New transactions are added to the chain through consensus mechanisms like proof of work (PoW) or proof of stake (PoS), validating their authenticity.
• PoW is a consensus mechanism used by Bitcoin and other cryptocurrencies to validate transactions. It involves complex mathematical problems solved by miners, with the first to solve each block receiving a reward. This mechanism is resource-intensive and energy-consuming, with concerns over its scalability and environmental impact.
• PoS is another consensus mechanism used by alternative cryptocurrencies like Ethereum. It prioritizes user ownership and would-be validators compete for the right to create a new block based on the amount of cryptocurrency they hold. PoS is less resource-intensive than PoW, more environmentally friendly, and may offer higher scalability. However, it is also seen as more susceptible to centralization as wealthier nodes have a greater chance to influence network consensus.
• The benefits of decentralization and blockchain technology, including trust without intermediaries, enhanced security, data integrity, and transparency, can be tied to the use of different consensus mechanisms.
• Decentralization powered by blockchain technology is redefining the way we interact with the digital world by removing the central control and fostering trust through consensus mechanisms. It paves the way for new possibilities in finance, governance, supply chain, and more.
• Other real-world examples of blockchain technology include supply chain management, which tracks the journey of goods from production to consumers, ensuring transparency and authenticity, and voting systems, which offer secure and tamper-proof voting, enhancing democratic processes.

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• Bitcoin’s blockchain data structure and consensus algorithm is based on Proof of Work (PoW)
• PoW is needed to achieve security guarantees in a public blockchain where computers and users can join and leave the network anytime.
• PoW is inefficient and consumes a vast amount of energy to mine blocks.
• Paxos, Raft, and PBFT are classic consensus algorithms that are more efficient and reliable than a Bitcoin-based PoW.
• One of the limitations of the PoW-based Bitcoin system is its low throughput - roughly 3-7 transactions per second - due to its complicated mining algorithm.
• The latency of the Bitcoin system is much longer than that of the classic Paxos algorithm. It takes 10 minutes to mine a block, and it could take much longer to ensure data durability.
• The energy consumption of the PoW-based Bitcoin system is much higher than that of Paxos. It runs on thousands of machines that burn energy in processing and mining.
• PoW-based systems cannot be easily tweaked or customized without political and technical challenges.
• Proof of Stake (PoS) is more energy-efficient than PoW, but it is not practical in other domains other than cryptocurrency.
• It is more complicated to set up a PoW-based blockchain than to set up Paxos.
• Paxos can handle 1,000 transactions per second through one Paxos round in one second.
• The PoW-based Bitcoin system requires thousands of computers to mine blocks, with energy consumption increasing the number of transactions.
• The classic consensus algorithms like Paxos run on five or seven computers and guarantee robustness and reliability.
• PoW-based systems require users to be bribed with incentives such as cryptocurrencies.
• Cryptographers or cybersecurity analysts should review the PoW-based system to minimize gaps or vulnerabilities.

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• Bitcoin uses the consensus mechanism of Proof of Work (PoW).
• PoW uses cryptographic hash functions, like sha-256, to generate fingerprints for sets of data.
• Hash functions like sha-256 are deterministic, meaning the same input will always produce the same output.
• However, the output appears random and cannot be predicted by looking only at the input.
• The probability of getting a specific output is low, but the output can be verified easily by comparing the original input and output.
• PoW uses a difficulty target to generate a seemingly random number that is smaller than the target.
• The difficulty target can be adjusted to make generation of the target number harder or easier.
• PoW requires nodes in a network to compete to solve cryptographic puzzles to generate blocks to add to the blockchain.
• The first node that solves the puzzle publishes its solution to the network.
• Other nodes verify the solution and, if it’s correct, they add the block to their own copy of the blockchain.
• The node that solves the puzzle receives a reward in bitcoin. This is called mining.
• Transactions are grouped into blocks, which are in turn added to the blockchain.
• To generate a fraudulent block, a user would need to solve the cryptographic puzzle for that specific block and for all blocks added to the blockchain afterward.
• This is an incredibly computationally intensive task that is practically impossible to perform.
• PoW is also elegant in its ability to provide a trustless system without the need of a centralized institution.
• PoW is difficult to scale because generating new blocks from nodes requires much computation.
• Other protocols for consensus, such as proof of stake (PoS), delegates block creating to nodes based on the amount they’ve contributed to the network.
• PoS creates a sort of “rich-get-richer” system. The more a node contributes, the more power it has.
• PoS is less energy-intensive than PoW but may be more vulnerable to node centralization.
• Long consensus times occur in PoW and PoS when mining or delegating takes too long to validate transactions.
• PoW is an important innovation of Bitcoin, using existing technologies to create a novel architecture and design characteristics that make it work.
• Economics play a large role in the operation of the network protocol, which in turn affects the implementation of consensus algorithms.
• The way consensus works in Bitcoin is seen as an example of the concept of “Nakamoto consensus.”
• Consensus algorithms are a subject of research and scientific study that applies to other areas

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Notes:

• Blockchain technology is used to ensure the integrity of transactions, and it relies on consensus algorithms to ensure that the transactions are legitimate and the network remains secure.
• The major consensus algorithms in blockchain networks include Proof of Work (PoW), Proof of Stake (PoS), Delegated Proof of Stake (DPoS), Practical Byzantine Fault Tolerance (PBFT), Proof of Elapsed Time (PoET), Proof of Burn (PoB), Proof of Capacity (PoC), Proof of Activity (PoA), Proof of Importance (PoI), and more.
• PoW is an algorithm that was created by Satoshi Nakamoto, and it requires participants to solve complex mathematical problems using computational power. The first participant to solve the problem is rewarded with cryptocurrency, and this algorithm is used in Bitcoin. However, this algorithm requires a large amount of computational power, which makes it relatively slow and energy-intensive.
• PoS is a consensus algorithm that solves the computational power problems that PoW has. In Proof of Stake, network participants are required to hold a certain amount of cryptocurrency to participate in network validation. Participants then select a validator to validate the next block, and they are rewarded with cryptocurrency. This makes PoS faster than PoW, but it can still be susceptible to centralization if a few participants hold a significant amount of cryptocurrency on the network.
• DPoS is a variant of PoS, where token holders vote for a group of delegates to validate transactions on their behalf. The delegates are typically chosen based on their contribution to the network, and this algorithm is used in networks like EOS and TRON to decrease transaction times and increase throughput. Leased Proof of Stake (LPoS) is a small modification to PoS that allows users to lease their cryptocurrency for rewards. Finally, Proof of Authority (PoA) is a hybrid consensus mechanism used in blockchain networks that use PoW and PoS in combination to help ensure the security and participation of network validators.
• PBFT is a consensus algorithm that is used to ensure that all nodes on the network agree on a decision. It requires multiple nodes to agree on a decision, similar to a group of judges that all have to agree on a verdict. PBFT ensures that all nodes on the network receive the same transactions and blocks before they are added to the blockchain, and it is particularly useful in private blockchain networks where nodes are known and trusted.
• PoET is a consensus algorithm that was primarily developed by Intel, and it requires nodes to compete to be the first to complete a

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• Proof of Work (PoW) and Proof of Stake (PoS) are consensus mechanisms used in blockchain networks.
• Both mechanisms work to achieve consensus in a trustless environment, but they differ in their approach and implementation.
• Participants must demonstrate that they have committed some resource to the blockchain, such as money or energy, with both mechanisms.
• PoW uses a system in which computers compete to solve complex mathematical problems involving energy and resource consumption.
• In contrast, PoS selects nodes/validators based on the number of tokens they have in the network.
• Renowned Bitcoin author Nathaniel Popper in his book ‘Digital Gold’ offers an analogy to describe PoW.
• When a computer solves the problem and finds the right answer in PoW, it presents its solution to other computers that must verify it as the correct answer.
• PoS uses the same principle as PoW to avoid attacks and fraudulent coins, requiring users to purchase cryptocurrency and retain it to be picked to build a block and make rewards.
• PoW has shown the most reliable method of maintaining consensus and security in a distributed public network because it necessitates the purchase of expensive hardware and constant resource and expenditures.
• PoS is speculated on a large scale, and the barrier to entry is reduced because no specialized hardware is required to run it. However, it is not as decentralized or as secure as leading PoW systems.
• PoW consumes more energy than PoS, making it potentially wasteful, and may lead to centralization. PoS encourages coin accumulation, which may enable a company to control cryptocurrency marketplaces.
• In proof of work, mining corporations continuously look for the cheapest form of energy and ways to produce more efficient mining chips. Nonetheless, these competitions can also lead to improvement in computer technology, benefiting businesses beyond cryptocurrency mining.
• In PoS, renewable energy and healthy competition can benefit cryptocurrency mining by enabling communities to monetize trapped energy or excess energy, promoting economic activity in isolated locations.
• In PoS, crypto mining may transform trapped energy into value, and subsequent transfers, providing a source of economic activity, as demonstrated by China’s Shivan and Yunnan provinces.
• In PoS, the enhanced throughput leads to faster transactional rates because validators are chosen to locate a block depending on how many tokens they own.
• Lack of infrastructure to transmit and sell renewable energy reportedly compels some regions to mine cryptocurrency to generate or capture excess energy, transforming it into a tradable commodity.
• All blockchains, whether PoS or not,

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💭  Looking into

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Analyzing the strengths and weaknesses of PoW, PoS and other consensus mechanisms

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