Bitcoin goes left and Ethereum goes right, which is better, POW or POS?

Recently, Ethereum 2.0 released news about its upgrade progress. Its founder Vitalik wrote an article detailing the three key reasons why Ethereum switched from PoW to PoS, which aroused widespread discussion in the cryptocurrency community.

Therefore, Baihua Blockchain invited Nervos Foundation co-founder & COO Lu Guoning, Cobo co-founder and CEO, F2Pool co-founder Shenyu Daniel, and Spark Mining Pool product manager Miao Shu to talk about consensus mechanisms such as PoW and PoS.

01PoS VS PoW

On November 4, Vitalik Buterin published an article stating that PoS is a superior blockchain security mechanism compared to PoW for three reasons: PoS provides higher security at the same cost; PoS can easily recover from attacks; PoS is more decentralized than ASIC.

PoW has two main advantages, but Vitalik Buterin believes that these advantages are quite limited: PoS is more like a "closed system", which will lead to higher wealth concentration in the long run; PoS requires "weak subjectivity", while PoW does not. Do you agree with Vitalik's views on PoW and PoS? What do you think of PoW and PoS?

Cobo&F2Pool Shenyu: The PoW consensus mechanism has been running stably for more than ten years and has been verified by both theory and practice. Although new consensus mechanisms emerge in an endless stream, PoW's status in the industry remains unchanged.

PoS currently has many flaws. It is mainly a resource allocation within the system. PoW uses more resources outside the system to obtain protection for the blockchain. These two co-governance methods have their own advantages and disadvantages. When very strong security is required, PoW is more reliable.

Comparing the characteristics of the two, PoW is more suitable for areas that pursue absolute fairness and security, such as Bitcoin and various privacy currencies; in some areas that do not require a high degree of decentralization but have higher requirements for performance, such as consortium chains, PoS may be a better solution.

Uncle Meow from Spark Mining Pool: Vitalik described the advantages of PoS from his perspective, which I think is quite good, but I cannot fully agree with the conclusion that PoS is safer. There are some factors that need to be considered, such as openness, consensus scale, and longer-term opportunities for fair participation.

Vitalik himself actually mentioned that PoW is more open than PoS, but he did not say what is lost when PoW is converted to PoS. I understand that an important part of what is lost is the participants, or the complexity of the system game.

The miner ecosystem in PoW is self-contained. They care more about electricity costs, machines, motherboards, power supplies, and other realistic factors. Therefore, regardless of the on-chain activities, their core business logic of participating in mining is valid, and they can maintain on-chain security through bull and bear markets. PoS will most likely abandon these people, which will lead to network security personnel paying more attention to on-chain activities because they themselves pledge on-chain assets. I call this a phenomenon of consensus involution, that is, on-chain activities will directly affect the security of the chain itself in the long run, which is obviously not better than the current PoW consensus mechanism.

Let’s talk about the opportunity for long-term fair participation. The fairness achieved by PoW comes from the fact that the energy itself is sufficiently decentralized and diversified. No matter how the algorithm is updated, its core is energy itself. This allows the threshold for participation of any latecomers to be separated from the on-chain assets themselves, and the security of the chain is maintained by introducing external forces (computing power); but the closed nature of PoS will create an initial threshold for participation. No matter how decentralized it is, it is definitely not as direct as using energy such as electricity to achieve long-term cost accounting and fairness.

Nervos Lu Guoning: Of course I cannot agree with it, but I think what is more regrettable is that what I see from this article is the abandonment of an objective and neutral perspective.

The analysis and comparison of the pros and cons of PoW and PoS in this article seems to be evasive and even distorts the facts. I prefer to understand that this article is at the end of 2020, when Ethereum 2.0 is about to start Phase 0. Different voices from the community are whether to pursue the long-term uncertainty of Ethereum 2.0 or to develop Layer 2 solutions on top of Ethereum 1.x. On the eve of the launch of Ethereum 2.0 Phase 0, the opening of PoS and the acceptance of user staking, the effect of such an article is more to appease different opinions and encourage the community to actively participate in staking.

If such an article is taken outside the Ethereum community to prove that PoS is better than PoW, it is not surprising to see that various serious developers and researchers on social networks, especially some people who have done in-depth research on the PoS mechanism, have raised a lot of questions and disagreements with this article.

The debate over the pros and cons of PoS and PoW has been seen a lot since 2015, and the debate has spread from the blockchain technology community to academia. In recent years, there have been a large number of research and academic articles analyzing and comparing PoW and PoS from various angles, and providing professional analysis and suggestions for issues that have been studied more clearly. However, neither the blockchain technology community nor the academic community has ever concluded that PoS is better than PoW. Instead, they are divided into two camps, and everyone in their respective camps continues to dig deeper and find more suitable scenarios to play to their strengths and avoid their weaknesses. When I read this article, I did not see any new research results or new evidence, but rather evasive assertions and imprecise conclusions.

1. Does PoS provide more security at the same cost?

The way the article calculates the cost of PoW attacks is almost completely unrealistic. In reality, only GPU computing power rented through the NiceHash platform can launch attacks in the real world. However, GPU computing power has well protected Ethereum over the past five years, helping the total asset size of the Ethereum platform to continue to grow, and now exceeds 100 billion US dollars. Isn’t this contradictory?

Renting computing power through NiceHash (computing power rental platform) to launch an attack is currently a known way to launch a 51% attack on the network. However, the total computing power that can be rented on NiceHash is limited, and the number of PoW networks that can be attacked is also very limited. Using professional mining machines to launch a 51% attack is a meaningless issue.

Therefore, it is necessary to distinguish whether a 51% attack can be launched by renting GPU computing power and whether PoW is safe. These are two different issues. Being able to launch an attack on a small network by renting computing power through Nice Hash does not mean that PoW is not secure enough. A 51% attack is a deterministic problem that can be prevented and solved through mechanism design and contingency plans, while the uncertainty contained in the PoS mechanism has more unsolvable problems.

2. Regarding the efficiency of recovering from attacks?

The article points out an attack against PoW, but does not discuss the premise. The premise of this attack is that the network PoW algorithm is based on GPUs and the basic computing power is weak. It is possible to rent enough GPUs through NiceHash to launch an attack. Only when all these conditions are met can there be an attack opportunity. This attack method has no practical significance for ASIC systems.

On the contrary, when PoS is attacked, as long as the attacker continues to attack, the performance of PoW and PoS will be the same, and the PoS system may even be worse. The slashing mechanism (staking penalty) does not help to solve the problem at all. The attacker can make profits through external means, such as shorting on the trading platform. So what is the point of talking about PoS recovering from attacks more efficiently? PoS's UASF (user-activated soft fork) mechanism, which solves problems through human coordination, can be used to prove that it is better than PoW?

3. Is PoS more decentralized than ASIC?

The understanding of decentralization can be divided into at least three levels: fairness, permissionless access mechanism, and anti-censorship. On these three levels, PoS cannot provide any evidence to prove that it is even the same level as PoW. So in the competition of decentralization, PoS does not compete with PoW, but chooses to compete with ASIC? ASIC does not undermine fairness, permissionless access and anti-censorship. On the other hand, PoS has initial allocation problems and cannot achieve true permissionless access and anti-censorship. These are problems of the PoS mechanism itself.

The problems caused by the closed nature of PoS are much greater than imagined. PoW borrows resources (energy) from the physical world to maintain the consensus of the network, and the distribution of resources in the physical world is naturally dispersed. Physical resources are naturally decentralized, and the incentive mechanism prompts participants to continuously find and tap lower-cost and more efficient resources. This competition mechanism further leads to the dispersion of resources rather than concentration. On the other hand, if the monopolist of PoS wants to maintain its monopoly advantage, then the cost he pays must be less than that of his competitors. The direct result of this mechanism is system involution (reaching a bottleneck and unable to undergo qualitative quantitative change).

Regarding weak subjectivity, it does not exist in the PoW system. Only in PoS, when judging the main branch, it is inevitable to rely on external information. This problem is unsolvable in the PoS system, and it is also a problem that can cause far greater problems than imagined. In the early PoS research of Ethereum, the concept of "weak subjectivity" was created, but this concept has not been truly recognized by the academic community until today. Some other deeper issues about PoS are discussed more clearly here: https://www.hellobtc.com/kp/mt/11/3005.html.

02Will it eventually become a BTC PoW chain?

Since Bitcoin was launched in 2009, tens of thousands of blockchain projects have emerged in the cryptocurrency world, and new consensus mechanisms have emerged one after another. Some people believe that due to the 51% attack, except for Bitcoin, the security of other tokens is actually very poor. In the end, only Bitcoin will follow the PoW path, and other public chains will only be suitable for PoS or other consensus mechanisms. There have been repeated reports of projects being attacked by double-spending attacks. What do you think of this issue?

Nervos Lu Guoning: It is very difficult to build a successful PoW chain, but a successful PoW is very secure. This is the characteristic of the PoW mechanism. Any project that chooses PoW as the underlying consensus mechanism must be very clear about this. The security of PoW has been proven by Bitcoin's 12 years of stable operation and Ethereum's 5 years. Moreover, today, more than 80% of the assets in the entire blockchain field are still protected by PoW.

Some PoW chains with weak computing power and poor development are frequently exposed to rent computing power through the NiceHash platform to launch 51% attacks, but this does not mean that PoW has problems. The development of PoW projects depends on design and execution. The execution determines whether the PoW chain can succeed. On the other hand, for PoS chains, let’s not talk about the distant past, but just talk about recent events, such as the downtime problem of NEO and the downtime problem of Tron. In our opinion, various PoS problems are much more than PoW, so we cannot think that PoS is a solution just because of the 51% attack problem. PoS also has its own problems.

Not all PoW chains are the same, nor are all PoS chains the same. When researching and discussing, we must look at the mechanism design and how to balance and achieve goals objectively and neutrally. If you are more concerned about efficiency, such as consortium chains or industrial blockchains, if you want to protect assets securely and decentralized, then PoW is more suitable.

In 2020, we see a trend that there are very few new PoW projects, and more new projects have chosen PoS. This does not mean that PoS is better, but that it is easier to develop PoS in the early stage. The early stage is easier, but it does not mean that it can achieve the same level of decentralization and security as PoW in the later stage. To make an inappropriate analogy, starting a business is difficult, and there are many chances of death. Most entrepreneurs have a small chance of success and a high chance of failure. Once they succeed, the growth and various benefits they will get are very considerable, but working is easier, so entrepreneurs are a minority, and most people choose to work, but you can't say that working is better than starting a business, the reason is the same.

Therefore, we understand the advantages of PoW. Even though we see that PoW is difficult, we should not give up on developing PoW. At least at Nervos, we have firmly chosen the PoW path, and the development of our PoW ecosystem has far exceeded expectations. At present, we have smoothly passed the 51% risk period, and security concerns no longer exist.

Cobo&F2Pool Shenyu: In addition to Bitcoin, many new PoW projects have emerged in the past two years, and they are running well. I don’t agree that Bitcoin will be the only chain to take the PoW path. Because the computing power is too concentrated or some currencies use the consensus algorithm used by other public chains, the cost of attack is extremely low. 51% attacks have indeed occurred on some small public chain projects.

However, successful double spends in the strict sense on the BTC chain are very rare, almost non-existent. On March 12, 2013, an unexpected version fork occurred in Bitcoin, which led to a successful double spend, which was confirmed because both chains confirmed it. Fortunately, this only attack was also a test initiated by F2Pool, and the coins were immediately refunded after the test.

The reason why double-spending attacks occur is mostly because people do not pay enough attention to security, or they believe in the zero-confirmation method. Zero confirmation is unsafe at the network level, so don't trust zero confirmation lightly.

Uncle Meow from Spark Mining Pool: The scenario of the PoW chain being attacked by double spending has been proposed since the beginning of Bitcoin, and the solution is the mechanism itself.

As long as the consensus is strong enough and a single chain can accommodate as much circulating computing power as possible for the corresponding mining algorithm, it can resist 51% attacks from the outside. So the conclusion is obvious. In the end, there will not be only one PoW public chain, Bitcoin, but each hash algorithm field can have at least one PoW public chain with sufficient computing power. Ethereum is mainly GPU mining, so it can currently carry enough GPU computing power and maintain its security, which is enough to explain the problem.

Therefore, when choosing a consensus, a new public chain can choose PoS, which is fine. If PoW is chosen, it should consider making changes at the consensus algorithm level as much as possible to form an initial security barrier to prevent malicious computing power from easily attacking it, and complete the consensus expansion process to give full play to the advantages of PoW.

03How will the consensus mechanism evolve in the future?

Blockchain, with its self-verification function, completes the most important piece of the puzzle in the Internet world. It is precisely because of consensus mechanisms such as PoW and PoS that this function of blockchain can be realized. From the perspective of the development of cryptocurrency, how do you think the consensus mechanism will evolve in the future?

Spark Mining Pool Uncle Meow: I think what humans pursue has not changed since the beginning of civilization. We have established the Olympic spirit and pursue higher, faster and stronger. So as a consensus mechanism to ensure the security of blockchain ledgers, we are obviously also making changes in this direction.

Nervos Lu Guoning: I believe that no matter how the consensus mechanism evolves in the future, the PoW mechanism will be an unsurpassed existence.

For blockchain, especially decentralized blockchain systems that do not require permission, the primary task of the consensus mechanism is to ensure the security of consensus. In other words, the most important product provided by the consensus nodes of the blockchain is security. The cost of generating security, whether it is electricity, ASIC equipment, or the capital invested behind it, is essentially energy voting, which can ultimately be attributed to energy consumption. Energy consumption is a continuous physical process, so the core of PoW is the proof of energy consumption, and the energy is "stored" in the form of tokens.

The security level of the system is proportional to the security investment, so how to measure it is a particularly important issue and the basis for everyone to build trust. In particular, the simpler and more intuitive the way to verify security investment, the better. Under the premise that the security cost investment is simple and verifiable, we can transform the judgment of security level into the judgment of security investment level. From this point of view, energy investment is the simplest, most direct, purest and easiest way to measure. The energy investment of verifying PoW can be as simple as a hash function verification with almost no cost.

In contrast, the cost of PoS mainly comes from server operation, community operation cost, and opportunity cost of initial investment. Although these are so-called costs, they lack a simple and clear basis for measurement and judgment. Whether the server is safe or not depends on the server provider and the technical level of the node operator. The community operation cost and the opportunity cost of the invested funds, whether they can ensure long-term sustainable investment, are all immeasurable. With the existence of these factors, the measurement of the security level of a PoS system must be discounted in various ways, so the actual security level of PoS can never be intuitively measured.

Cobo&F2Pool Shenyu: We hope to achieve higher performance, faster TPS, larger asset scale and stronger community consensus. In this regard, the direction pursued by PoW and PoS is consistent, but due to different standpoints, the direction of technological reform will be different.

In the future, PoW and PoS may be integrated in some projects with the help of technologies such as multi-layer networks: PoW realizes a more secure underlying network, and PoS realizes upper-level community governance and other application functions, thereby achieving complementary advantages of the two consensus mechanisms.

Of course, the future consensus mechanism will not only be PoW and PoS. The underlying consensus architecture will not be limited to the chain structure, and there will be more developments.

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