Proof of Stake vs. Proof of Work | Who Will Win?!

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Why Proof of Stake Wins. The battle between proof of work aka POW and proof of stake aka POS is raging. I'm placing my bets.

Is proof of stake better than proof of work? In my opinion, yes. Here’s why:  

Blockchains are essentially distributed ledgers created for the storage of data. In cryptocurrencies, they are used to store transaction information, verifying their accuracy and ordering them chronologically. Because the blockchain is distributed with many participants on the network, there has to be a way of deciding who gets to write the next set of transactions, so that there is only one unique blockchain. There has to be what is called distributed consensus. When the first cryptocurrencies were created, proof of work was this method of creating distributed consensus, by having special nodes called miners compete to solve a cryptographic problem. This solved the problem of needing honest nodes to validate transactions, because there was a method of competition to select who writes the next block, and then the rest of the network could also verify that the recorded transactions were true after the work had been completed. Incentive was also provided to the miners in the form of a block reward, or creation of a new token/coin on the blockchain, when a new block was written.

This proof of work method of distributed consensus has some disadvantages that are increasingly becoming a problem in the cryptocurrency world. These include a concentration of mining power which defeats the goal of decentralization of cryptocurrencies as well as the environmental impact which is still in its early stages if true cryptocurrency adoption emerges in the future. Centralization comes in the form of mining equipment manufacturers being limited to a few companies, the fact that only certain people can afford mining equipment, that mining is concentrated geographically, and that mining pools can now overtake the network and write transactions in their favor if they choose to or deny service to others. The high electricity costs resulting from proof of work mining is only expected to increase as cryptocurrency adoption grows, and will still add a hefty weight to the transaction fees if there are no block rewards in the future. In the case of Bitcoin, where mining fees will eventually be reduced to zero, there is also the issue of less incentive for miners to remain loyal to the network when mining another cryptocurrency may produce greater profits. Loyal and dedicated nodes are necessary to secure the blockchain and provide distributed consensus.

These disadvantages of proof of work mining have been known for a long time, but many of the problems were not immediate before the scaling of cryptocurrency networks to what they are today. It is important to note that proof of work has its advantages in that it solved the problem it was created for, namely that of getting honest nodes to validate and record transactions. Due to some of its disadvantages however, another alternative called proof of stake has arrived that can provide distributed consensus just as well, if not better.

For proof of stake cryptocurrencies, instead of having miners compete through solving a cryptographic problem, the next node to write the block is chosen depending on their proof of ownership or proof of stake in the network. There is some variety in how exactly this is determined, but the amount of stake is generally dependent on the amount of coins a holder has as well as the length of time they have been participating in the network. So instead of the probability of being chosen to write the next block being depending on mining power, the probability is dependent on the holder’s ‘stake’ or investment, meaning amount and time in the network. These nodes are called stakers or foragers and new coins are ‘minted’ rather than mined’. The effect of this on solving the centralization and environmental issues of proof of work coins like Bitcoin, is significant. Many proof of stake coins began as proof of work coins and then decided to switch to proof of stake. Examples of proof of stake coins include  peercoin, lisk, nxt, particl. Ethereum is also on its way to becoming a proof of stake coin. There are also delegated proof of stake coins which are not to be confused with regular proof of stake coins and those have a slightly different system, which I will not get into here.

The first obvious issue that a proof of stake system of distributed consensus solves is that of reducing electricity costs. Proof of stake blockchains do not need its validators to initially purchase and update expensive mining equipment. Proof of stake also requires more loyalty on the part of the stakers than proof of work does from its miners. Proof of stake can also give rise to the monopoly issue, created through wealth disparities or mining pools, as large holders have greater chances of earning more. However, it is more difficult for someone to own 51% of the coins on a network due to prohibitive costs than for someone to have 51% of the mining power, and thus become a dishonest node. This scenario of sufficient mining power being concentrated for an attack to occur, has already been reached and its negative effect has only been mitigated due to the choice of mining pools, requiring trust. The cost to invest 50% of bitcoin’s market cap, not assuming the price will go up as someone buys that much, is far greater than the cost to buy the mining equipment to achieve 51% of the mining power. It is also more likely for an individual with concentrated power on the network to use it benevolently, in the case of proof of stake, because their major investment is the coin itself, and reducing trust by double spending or denying service, would negatively impact their own capital. There are also variations on how proof of stake can be implemented to ensure some distribution for how often a staker gets to write to the blockchain based on how recently they did it. And the likelihood of a node being chosen also depends on its time invested not only amount. Other advantages of proof of stake include lower transaction fees due to lower hardware and software costs to keep the network running, faster validation times, and a smaller chance of honest nodes leaving as miner rewards are reduced overtime. There is a lower likelihood of over-reaching governments being able to create prohibitive barriers to entry, such as needing a license to mine, since only running software is less conspicuous than running specialized mining equipment.

Understanding that the power and promise of blockchain technology lies in its decentralized nature, as opposed to the centralized institutions of today, methods of decreasing centralization through proof of stake are more likely to succeed in the long run than only relying on proof of work as it exists today.

Why Privacy Matters: Creating a trust-less solution

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Photo by Josh Hallet:

Recently, I was browsing the internet when I came across a couple of articles about how Facebook had suspended the account of Cambridge Analytica, a data firm that had been involved in aiding political campaigns by harvesting the online profiles of about fifty million of its users. Even though there were a variety of responses, many users seemed deeply concerned by the thought that their privacy was being robbed.

To begin with, privacy in cyberspace involves the ability to choose what information one would like to share about oneself. It is one of those familiar values that seems unproblematic until we start to think about it. According to Wikipedia, privacy is the ability of an individual or group to seclude themselves or information about themselves and thereby express themselves selectively. The Merriam-Webster dictionary describes privacy as the quality or state of being apart from company or observation; seclusion or solitude.

At the beginning, I mentioned that privacy was being robbed. I would like to focus on the word “robbed” because it came up very quickly when I started contemplating the concept of privacy. When you are being robbed of something, it means that you own it. Your thoughts and expressions that you put out into the world originate and emanate from you as an individual. You might use someone else’s medium to share them with the world, but they are still coming from you. Even though you are using someone else’s property, you are only using it as a channel for a specific purpose and once it falls outside that purpose then there is a violation of your privacy. However, privacy here doesn’t exclusively mean protecting ourselves and our contents from someone else. It also entails trying to protect someone else from something, for example, a small child who might be vulnerable. Sometimes there are things that you know might harm someone in some way, hence, you try to keep that information from them, or provide guidance when and where necessary. So privacy doesn’t have to be all about protecting yourself; it might also mean protecting someone else.

However, privacy doesn’t necessarily have to be about protection at all, it could just be about creation and creating oneself. The way I see the world is that we are all sort of art in motion. What I mean by this is that we are all creating ourselves. It might not be that you fear someone seeing something; it might just be that you wish to present yourself or be perceived in a certain way. If someone takes that ability away from you, they are essentially meddling with how you choose to express yourself into the world.

Modern Day Application of Privacy

Privacy is definitely a fundamental human right. We may not need the UN Human Rights Charter to tell us so, but it does. But different countries have different ideas of what should and should not be protected. Privacy laws protect different types of information and they are not only concerned with the medium that you use to communicate information but also in the storage of your personal information. Some of that kind of information could be medical information. For example when you go to the doctor, you have to share some information with the doctor but you are only sharing such in the context of helping you get well. There are laws that prohibit the doctor or someone else from using that information for a different purpose. There are also financial privacy laws as well as those that are about protecting one’s privacy in their home.

Current Trends

There is increasing institutional interference in the average person’s command of his privacy, through legal and illegal means. Just as in the United States where there exists a Foreign Intelligence Survey Act, and the NSA gets surveillance warrants against foreign spies, countries that have authoritarian regimes tell their citizens what they basically can or cannot do and monitor them to see their activities. However, it’s important to understand that it’s not just the government that wants access to user data. With the continuing emergence of new technologies, we must become more careful and critical with regard to commercial interests for whom personal data is a valuable commodity to be bought and sold. Many vendors of online products have begun to incorporate personalization features into their search-and-retrieval interface, inviting users to create personal profiles and online repositories where they can record their research interests, search strategies, and favorite articles.

It is becoming increasingly difficult to protect user privacy since our understanding of privacy has shifted as our technology has shifted. This is due to the fact that the way we share our personal information has become more complex over time and the laws over time have had to expand and become as complex. The reality now is, even though there are laws that are put in place to protect our human right to privacy, it requires trust.

The real solution would be to create a system that is trust-less, where we do not need to rely on others or technology that is not completely dependable. We may not always need to rely on MasterCard or Visa or the storage of our medical information in databases with compromised security. And that is the next advancement for humans when it comes to our relationship with privacy. Privacy and trust are closely intertwined. If we can decrease the level of trust required for strangers to run our technology efficiently, we can be more sure to protect our privacy while advancing technologically.

In conclusion, privacy is a huge part of our social experience and how we interact with the world. The way we interact with the world is becoming even more complex and so the technology that we use has to match. The best scenario is to have a “trust-less” system where, for example, in the case of what happened with Facebook and Cambridge Analytica, all the users who were giving different responses, are able to decide how much they are willing to share, without having to depend on the words of private companies.

The above article is based on a video I made as I thought about privacy: