Cryptographic proofs (Proof of X, where the X can be anything) in the context of blockchains are simply a way to ensure that all decentralised participants willing to secure the network — nodes or miners — can reach agreement on the correct state of the latest version of the blockchain.
At the heart of the problem with Proof of X is the blockchain trilemma, a term coined by Vitalik Buterin. That is: blockchains can only possess two of these three aspects at any one time: decentralised, scalable and secure.
Complicating the issue is the fact that environmental concerns are barrelling towards cryptocurrency at accelerated speed. Scaling blockchains and integrating them into world financial systems is no longer seen as an impossible dream. It is fact. This has put intense pressure on the industry to demonstrate that coins and token projects can scale without sacrificing vast energy use to do so. But it may have to happen without Bitcoin’s Proof of Work (PoW), which is decentralised and secure, but not very scalable.
PoW cryptocurrencies are in the spotlight now because of the unintended consequences of expending massive amounts of electricity to secure a blockchain network. Proving that work has taken place — in this case, the computing power expended to solve increasingly complex equations — is the fundamental part that makes those blockchains secure.
And in light of the Paris Agreement, and the need to cut carbon emissions to mitigate the worst effects of global warming, having hundreds of thousands of mining machines across the globe spinning 24/7 to make mathematical calculations no longer seems reasonable.
Elon Musk’s reversal in his support for the number one cryptocurrency — ostensibly on energy-use grounds — has helped turn sentiment south at a time when the market was due a correction anyway. But from a broader perspective, in line with net zero targets in all industries, PoW is becoming difficult to defend. There are efforts to green Bitcoin — using stranded energy at the edge of the grid, or using 100% renewables. And coal-focused China’s reduction in hashpower through its recent mining ban could aid this endeavour.
So what are the other Proofs making waves in blockchain today?
Ethereum’s move to Proof of Stake (PoS) should consume 99.95% less energy than the blockchain does today. That’s according to one prominent developer at the Ethereum Foundation, writing in a blog post titled ‘A country’s worth of power no more!’
Proof of Stake removes the need to mine — and expend processing power — but does come with security issues. As this post on Bitcoin Stack Exchange explains: “People staking their coin can vote for both forks of a blockchain, and can even mine effortlessly in secret. In PoW this is impossible, as you are literally wasting energy [and money] by mining both sides of a fork.”
So it wins on decentralisation and scalability, but not security.
Proof of stake (PoS) cryptos effectively created the DeFi industry, with traders farming for yield and using their holdings as collateral for cryptoasset loans and borrowing and creating liquidity pools for automated market makers. So it is unlikely to disappear overnight.
The recently-launched Chia Network, designed takes the concept of Proof of Work and tweaks it to use hard-disk space instead of raw processing power. Proof of Space Time (PoST) may reduce PoW-style calculations but itself comes with the unintended consequence of increasing physical waste, as hard disks wear out quickly. The upshot of the Chia network may reduce PoW-style calculations, but may also increase physical waste. In fact within weeks of launch Chia farming contributed to the skyrocketing price of high-capacity hard disks. Global electronic waste is a major problem, as most goes to landfill, according to the Global e-waste Statistics Partnership.
Proof of authority (PoA) is a tweak of PoS, where nodes use their singular identity instead of the number of coins they own.
The most notable project to use this system in the wild is supply chain blockchain VeChain. It has a highly unusual two-token governance model, where staking VET produces not more VET but its gas token VTHO, as a way to dampen the effect of its price speculation on its native token, improving scalability.
PoA was coined by the British computer scientist and Ethereum co-founder Gavin Wood in 2015, as part of discussions on how to secure ETH for the future. Wood, incidentally, is now the lead developer of Polkadot.
Ethereum’s Kovan and Rinkeby testnets use PoA. These are not live blockchains (and have no market value) but are instead used by developers to test concepts and smart contracts. Anyone with a Twitter or Facebook account can request free Ethereum Rinkeby tokens to check out how it works.
Those who validate blocks of transactions or information — usually a limited number of pre-approved participants stake their own reputation, instead of coins. It’s more suited to private business supply chains than decentralised trustless networks. So it is scalable and secure, but not decentralised. Interestingly enough Microsoft’s Azure is using PoA for its clients building Ethereum-based apps.
No-one has yet come up with a solution that solves the blockchain trilemma, and the debate is likely to consume the blockchain and crypto industry long-term.
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