What is Proof-of-Stake (PoS)?

Orbs takes an approach to consensus based on proof-of-stake, but with some critical philosophical and technological upgrades. But what is PoS? What is Delegated Proof-of-Stake (DPoS)? And what about the newcomer, Randomized Proof-of-Stake (RPoS), created by the researchers at Orbs? Here is a very brief, but detailed, introduction:

Proof-of-Stake vs. Proof-of-Work

As opposed to proof-of-work (PoW), proof-of-stake (PoS) requires nodes to have a certain amount of tokens (stake) in order to qualify to validate blocks. In a basic PoS-enabled system, the more of a certain cryptocurrency/token a miner owns (be it Bitcoin, Ether, or some other “altcoin”), the more likely that person is to be chosen to mine blocks. Hence, the more power that miner has in the system.

A major benefit of PoW is that the more participants the network has, the more secure the network is, maintaining a constant state under consensus among an open set of participants. Bitcoin uses this to implement p2p currency. The main difference between this alternative and other alternatives is trust. When interacting with Bitcoin, users don’t need to trust a single entity – there is no single point of failure that the system relies on.

But Bitcoin in energy-inefficient. The Bitcoin network performs about 35 million terahashes per second. This pushes Bitcoin’s energy consumption to over 70 TWh (terawatt hours) per year, comparable to the entire Czech Republic.

Proof-of-stake eliminates this constant computing, in favor of building trust in nodes (block validators) by making them take stake (i.e., a qualifying amount of currency/tokens) in the system. This less intensive use of power also makes processing faster, something critical for scalability. The elimination or reduction of sophisticated mining farms also alleviates the risk of centralization such operations pose.

‘Mining’ in Proof-of-Stake: Forging Ahead

Mining vs. Forging. This is an important point of contrast and comparison between PoW and PoS, respectively. Many people refer to PoS mining as “forging” new coins, sometimes “minting.” Any project referring to its coin or block producers as “forgers” are more than likely to be PoS-focused projects.

Different platforms take different approaches to decide who and how to forge new coins. Basic proof-of-stake involves all network members in forming blocks together and then splitting the commission.

Why is Ethereum switching from Proof-of-Work to Proof-of-Stake?

Ethereum creator Vitalik Buterin calls PoS a “vastly more efficient alternative to PoW mining.” PoW 1) requires a lot of energy, 2) has low scalability, 3) has high commissions demanded by miners, and now 4) is dealing with ‘super’ ASIC miners whose computing power can quash smaller miners. The last problem runs the risk of dominant mining pools conquering the network – groups of miners working together using expensive, well-funded mining infrastructure – that would make these decentralized networks more like oligopolies.

In order to facilitate a transition between a full proof-of-work system and eventually a full proof-of-stake system, Ethereum has developed the Casper protocol that combines the two methods. Ethereum plans to launch the first version of Casper – Casper FFG – in the autumn of 2018. But to do so, it will have to fork the network. Additionally, to ensure it can achieve the promised scalability, the network will need further updates, which are not likely to arrive until – at the earliest – 2023.

Beyond Ethereum: List of PoS Coins

The first project to try this method was Peercoin (PPCoin). Others since have included Nxt, BlackCoin, Qora, NuShares, Nav Coin, and ShadowCash. Ethereum has publicly committed to a long-term switch to PoS to deal with the sheer number of transactions on its network. while Cardano is working on PoS through its Ouroboros protocol. Metahash splits coins 50-40-10: 50 percent to coin owners, 40 percent to network server owners, and 10 percent to active wallet owners. NXT requires forgers to have at least 1,000 NTX coins – the greater the balance, the faster the confirmation times. But these approaches are inefficient. 

The Disadvantages of PoS in its Current Form

But whatever disadvantages PoW has cannot be solved simply by implementing PoS. In a system based on financial holdings, there is a built-in advantage to whomever sits on the largest wallets. This inherently puts smaller financial players and users at a disadvantage.

It also makes PoS networks vulnerable to so-called “51% attacks.” If any one player or one consortium can take control of a simple majority of a given token, the network completely loses its decentralization.

Governance and block formation is in the hands of a single authority. This inherent vulnerability has prompted much-needed, deeper thought to apply an evolved form of the proof-of-stake philosophy.

Delegated Proof-of-Stake (DPoS)

EOS uses a variety called “delegated proof-of-stake” (DPoS). Delegated proof-of-stake allocates ability to forge blocks and govern the system. Users elect ‘witnesses’ to create blocks, with the most popular sitting on an elite committee of block forgers. Additionally, a select group is also voted to govern the system and to propose rule changes – this group is composed of ‘delegates.’

Lisk, Steem, bitShares, and Ark.io are examples of DPoS systems. Tron announced its move to DPoS in August 2018. However, EOS is the most popular blockchain implementation for DPoS.

EOS’s limitations come in terms of decentralization and security. Eligible forgers are ranked. Once ranked based on reputation, the top 21 at a given time receive a spot on the committee creating new blocks. One of those 21 becomes the block leader.

This inherently limits the decentralized nature of the project with so few overall participants in the network. In fact, its block producers are already facing accusations of vote collusion. Additionally, the lack of those other nodes – present with Bitcoin and Ethereum – inherently compromises security on the network and makes targeting nodes for attack much easier.

A New Standard: What is Randomized Proof-of-Stake (RPoS)?

Randomized Proof-of-Stake versus other systems

Randomized Proof-of-Stake versus other systems

Orbs’ approach to stake is wider, examining three elements of merit:
1) stake, 2) reputation, and 3) compliance level.

Stake here refers to the strict definition – a minimum staking deposit. Reputation is based on a node’s trustworthiness according to other nodes – other network members vouch for the former. And third, compliance level tracks a node’s behavior over time to ensure they are making required updates, maintaining fairness policies, and the like.

Orbs takes the approach of selecting an entire committee – not merely a block leader – to authorize transactions. Orbs also uses a reputation score to decide who is qualified to participate in committees, rather than their total deposit or holdings of ORBS tokens. Reputation scores may fluctuate depending on reliability to process transactions in a timely manner, or if a given node violates other codes of conduct.

Using a verifiable “randomness beacon,” nodes are selected at random to propose blocks. The block is verified by the randomly selected committee, whose total number of members can be pre-set. Orbs recommends dApps on the network set their committees to have at least 22 nodes.

By ensuring that all 1,000+ nodes on the Orbs network may participate at any given time in block validation, Orbs retains the security inherent to large networks like Orbs and Ethereum, but enables the energy efficiency and speedy processing of networks with fewer nodes like EOS.

Summary: PoS, DPoS, and RPoS

With a basic PoS framework, a single node/forger is selected to create a new block. Under DPoS, users vote for ‘witnesses’ with the top-ranked witnesses receiving rewards for creating blocks. Under RPoS, a committee is selected at random from among all nodes on the network. While DPoS gains speed and efficiency over basic PoS, it loses the security and decentralization inherent in larger pools of potential nodes for committees.