The Search for Consensus￼
One Bitcoin transaction takes 1,544 kWh to complete, or the equivalent of approximately 53 days of power for the average US household. That means a Bitcoin transaction would generate more than $200 in energy bills.
Bitcoin mining used more energy than Argentina, according to an analysis from Cambridge University in February. At 121.36 terawatt-hours, crypto mining would be in the top 30 of countries based on energy consumption.
Though Bitcoin’s (BTC) transaction history is securely sequenced using proof-of-work (PoW), it consumes a lot of electricity and the number of transactions it can handle at once is limited. As a result, new consensus mechanisms focusing on the less energy-intensive method have emerged, with the proof-of-stake (PoS) model being one of the most prominent. These consensus mechanisms enable computer networks to collaborate while remaining secure.
The other most popular consensus mechanism is called proof-of-stake which is widely used by decentralized finance (DeFi) projects to cryptographically obtain consensus on cryptocurrency networks.
Proof of Work
Proof-of-work was first proposed in 1993 by Cynthia Dwork and Moni Naor in 1993 as a way to deter denial-of-service attacks and other service abuses such as spam on a network by requiring some work from a service requester, usually meaning processing time by a computer. The PoW concept was then popularized by Satoshi Nakamoto to validate new blocks in the Bitcoin network in 2008.
PoW is based on network users’ capacity to prove that a computational task is accomplished. To answer a mathematical equation, some computing power known as a node is employed, and once the equation is solved, a new block on the chain is validated. A node is any physical device like a personal computer that can receive, send, or forward data within a network of other tools.
The solver that answers a mathematics puzzle the fastest, will create a cryptographic link between the current and previous blocks and earn some freshly minted crypto coin. This process is known as mining, and the solvers are known as miners.
Miners compete to develop the correct answer to the mathematical problems during the hashing process to produce new blocks. Miners achieve this by guessing a hash, which is a string of pseudorandom numbers. A cryptographic hash (e.g., SHA-256) is a type of text or data file’s signature. For a text, SHA-256 provides a nearly-unique 256-bit (32-byte) signature.
The miners who won the hash then broadcast it to the network, allowing other miners to check whether the answer is correct. If the answer is accurate, the block is added to the blockchain and the miner receives the block reward. For instance, the current block reward for Bitcoin mining is 6.25 Bitcoin.
Additionally, proof-of-work makes double-spending incredibly difficult because changing any part of the blockchain would involve re-mining all subsequent blocks. Because the machinery and power necessary to execute the hash functions are expensive, it makes it impossible for users to monopolize the network’s processing capacity.
Proof of Stake
In 2011, a new approach was proposed on the Bitcointalk forum to address the inefficiencies of the PoW consensus mechanism and lower the amount of computational resources required to run the blockchain network. Instead of performing tangible work, this concept is based on the existence of a verifiable stake in the ecosystem.
In other words, to validate transactions on the crypto network, a user only needs to show that they own a particular quantity of cryptocurrency tokens that are native to the blockchain. This type of consensus mechanism used by blockchain networks to achieve distributed consensus is called the proof-of-stake consensus mechanism.
For instance, miner A stakes 30 coins, miner B stakes 50 coins, miner C stakes 75 coins, and miner D stakes 15 coins. Miner C would be given priority to write and validate the following block in this case. In contrast to the block reward in proof-of-work, Miner C will collect transaction fees, i.e., network fees.
In the PoS network, miners do not compete for the right to add blocks. Rather than being mined, the blocks are frequently referred to as “minted” or “forged.”
PoS blockchains, unlike PoW blockchains, do not limit who can propose blocks based on energy usage. Additionally, you don’t need top-of-the-line technology to create new blocks. Proof-of-stake results in the network having more nodes.
Currently, you need 32 Ether tokens ($12,5566.40) to stake your crypto as an independent node, and you can do so on Ethereum software wallets like Argent. If you don’t have 32 Ethereum tokens to stake but still want to earn interest, you can stake any amount of Ether on Coinbase.
So while more energy efficient, proof of stake still provides significant monetary barriers to entry.
Proof of History
Proof of History is a relatively new form of consensus largely popularized by Anatoly Yakovenko’s Solana chain.
Solana is the world’s first web-scale blockchain achieving s a sustained throughput of more than 50,000 transactions per second when running with GPUs. Achieving as such requires the implementation of several optimizations and new technologies, and the result is a breakthrough in network capacity that signals a new phase in blockchain development.
Here’s how Proof of History works: The Solana data structure chains messages together. This provides a cryptographic proof of the relative order and time of each message in the historical record. This allows the network to ignore local clocks and gradually accommodate all potential network delays as the data structure is eventually delivered and re-assembled. This is why Solana is able to push the limits of confirmation times so that the network provides as effective of an experience as a centralized system without sacrificing security or decentralization.
However, Proof of History isn’t necessary for a permissionless blockchain. There are plenty of Proof of Stake-based networks being built without it. What Proof of History — or PoH — adds to the network is a source of objectivity. It allows validators on the network to compute the state of the network from the ledger itself. Based on what validation messages are present in the ledger, a validator can decide if any node is considered up (valid) or down (invalid), and if the network has submitted a sufficient amount of votes for the ledger to be considered valid. Messages are not required to arrive at any given validator in a timely manner. The ledger eventually arrives to every validator, and because the messages are part of the ledger, PoH provides the cryptographic guarantee that the messages were created when they claim.
This property allows Solana to optimize the network across multiple parameters, particularly in regards to block time, an essential element of blockchain infrastructure in regards to speed and efficiency. In addition to Block Time, PoH allows Solana to optimize for block propagation (log200(n)), throughput (50K-80K TPS)), and ledger storage (petabytes) available on the network.