Proof of Stake Is Less Secure Than Proof of Work

2021/05/26 10:45:24

Does the Proof-of-work (PoW) vs. Proof-of-stake (PoS) argument pique your interest? Or perhaps you want to know more about why PoS is less secure than PoW? Either way, you’re at the right place.

Understanding the Basics of PoS and PoW

When Nakamoto thought about how to approach developing Bitcoin, they discovered an approach to verify transactions without using third parties, the Proof-of-Work system. In essence, the Proof-of-Work consensus algorithm determines how the blockchain reaches a consensus using advanced mathematical formulas, called cryptography, hence the name cryptocurrency. Although the PoW is a remarkable invention, it’s not perfect either. It uses a large amount of energy and electricity to process block data, and there is a limit to the number of transactions it could process simultaneously. However, it is still the safest trustless and distributed consensus out there.

In search for a more scalable approach and viable options to polish PoW’s imperfections, the Proof-of-Stake consensus mechanism comes to life. Presented in 2012 by Sunny King and Scott Nadal, this innovation makes the consensus mechanism entirely virtual. The overall process is similar to the PoW. However, the techniques involved in achieving the end goal are vastly different. PoS doesn't expend a large amount of energy to secure and build blocks of data. However, this new mechanism has, in some analysts’ opinion, had to sacrifice some of its security (at least in theory) in order to reduce the power expenditure.

So, with the knowledge of the basics, let's examine their primary features and differences.

A Brief Overview of the Differences and Features

While various projects now utilize the Proof-of-Stake consensus mechanism due to its convenience, some projects point out the potential points of failure of the system. To see why PoS is considered theoretically less secure than PoW, we must examine the differences using various criteria.

Forgeability and Costliness

A notable primary characteristic of sound money is the exorbitant production cost, which ensures no one can forge it. The PoW consensus offers this costliness in tokens, as building blocks usually require a massive fee, electricity, and data center. And in turn, PoW tokens, such as BTC, are unforgeable.

On the other hand, there is no objective costliness on the PoS systems since writing the database with balances and accounts is pretty trivial for stakers and nodes in the system. The topic of whether this factor influences the security of a consensus mechanism is still highly debated.

Value Proxy

As mentioned earlier, PoW is costly. As such, this feature also serves as a proxy of the token values on the broader economy. On the other hand, this feature is absent in the PoS consensus; hence, their tokens feature no objective measure of value.

Location of Block Creators

Mining on PoW is an external process to node networks holding the ledger with smart contracts, balances, and accounts. This distinguishes the block creators from the ledger, offering the full node network benefits of a more secure system and independence. In PoS, stakers may only have a say when they have deposits in their ledger, making them internal to the database. As a result, other network nodes maintaining the ledger are dependent on the block creator.

Power Division

The aforementioned point is very critical in terms of security because full node operators may delink operators anytime they want. This is not possible in the PoS system – as it is not fully and completely censorship-resistant. While some may think that this is not a problem as full node operators are always incentivized to have as many operators under them at all times, the fact that they have such power may be worrisome.

Accumulated Work

As miners work daily on PoW blockchains, this eliminates every opportunity for dishonest nodes to tamper with blocks, and the works accumulate as they build the chain. This signifies that PoW buries works further away in the chain, making it less prone to attack. However, in PoS, considering its modus operandi, attackers have a bigger chance of reversing the whole chain easier and quicker.

Social Scalability

Objectivity determines the social scalability of one system, i.e., anyone can take part without bias. PoW is very objective, and consequently, socially scalable. In contrast, the PoS system is somewhat subjective, and as such, lacks social scalability. As time passes, its systems will likely be confined to specific regions, just like today's traditional financial systems.

Database Maximum Replication

A primary security framework of blockchain security is complete database replication. This signifies that security is higher in ledgers as it is copied in more nodes globally in the network. However, since PoS networks like Cardano are migrating to a fragmented database via sharding, this consensus further reduces the distributed ledger security.

Sunk Investment

Examining PoW networks, miners are actual stakeholders in the system as they use capital to purchase expensive equipment, electricity and create data centers. This signifies that once they sink capital, they can recover it only by mining and utilizing this equipment. This is different in PoS, as there is essentially no capital involved. Stakers just transfer cash from a bank to a distributed ledger and keep gaining profit for trivial processes.

Conclusion

After everything is being said, the Proof-of-Stake consensus mechanism clearly brought many improvements to the overall crypto space. However, numerous analysts are concerned with the actual safety and security of the mechanism, as its theoretical flaws might surface in practise at some point in time.