Popular Science | PoS mining and earning interest by depositing money in a bank are similar in nature?

Written by: Chen Yixin

Source: Hashkeyhub

When you deposit money in a bank, the interest is determined by the amount and time of the deposit, and the same is true for the Proof of Stake (PoS). PoS determines the probability of successful mining based on the holding time and the amount of coins held.

Compared with PoW mining, the advantages of PoS mining include lower entry barriers for investors, consistent interests between miners and coin holders, low latency and fast confirmation speed; however, there are certain defects in privacy protection and the design of voting governance mechanisms.

This also leads to individual players facing many risks of short-term behavior in PoS mining.

What is PoS Mining?

PoS (Proof-of-Stake), also known as the Proof-of-Stake Mechanism in Chinese, is a consensus mechanism that determines the probability of successful mining packaging based on the age of the coins held by the user.

Coin age = the total amount of tokens staked by miners and the length of time the tokens are held

The coin age protects the interests of miners (who can also be investors) who hold a low share of coins and hold them for a long time to a certain extent, and increases the cost of malicious miners manipulating the probability of packaging by increasing their share of coins.

In layman's terms, a PoS token economic ecosystem is like a listed company with unequal voting rights (1 share does not represent 1 voting right). PoS mining is like the dividend payment decision of a listed company. Each miner (coin holder) is a shareholder of the listed company. The bookkeeping rights that miners fight for are like voting rights. The probability of a miner obtaining bookkeeping rights is like a shareholder's voting share (that is, the proportion of the miner's voting rights to the total voting rights). The number of tokens pledged by the miner is the shareholder's shareholding amount.

Depending on the size of the staked tokens, some miners are "whales" (major shareholders), while others are "small shareholders" or "minority shareholders."

PoS mining is like storing the staked tokens in a bank, where the bank pays interest based on the length of time and amount of the deposit.

At present, digital currencies represented by EOS, Tezos, Cosmos, etc. all use PoS as the consensus mechanism, and ETH has a trend of transforming from PoW (Proof-of-Work) to PoS.

PoS Mining VS. PoW Mining

Advantages of PoS Mining

Compared with Proof-of-Work (PoW) mining, PoS mining has the following four advantages:

1. PoS does not consume a lot of electricity and resources, is more environmentally friendly than PoW, and has a lower threshold for user participation;

2. The motivations of miners and coin holders are consistent, and there is no agency problem, because miners in PoS are coin holders;

3. Latency can be designed to be very low. For example, EOS’s data throughput has reached 3,000 transactions per second.

4. PoS has a fast confirmation speed, which depends only on the network and network protocol, as long as more than 2/3 of the nodes are honest;

Disadvantages of PoS Mining

However, some advantages of PoS are often a double-edged sword, resulting in the PoS mining mechanism still needing to be further improved. The main points include the following four:

PoS public chains are generally permissioned public chains and lack anonymity. The voting accounts and total votes are known and limited, making it easy for whales (miners with a high stakes) to commit malicious acts.

Voting is low-cost and vulnerable to Nothing-at-Stake Attacks. That is, "doing evil is free, doing good is infinite", where malicious miners mine on multiple forks at the same time and receive all mining revenue at the same time;

No-interest attack — obtaining block rewards from multiple forks at the same time

Voting rights are reusable and transferable (PoS has weak subjectivity) and are vulnerable to long-range attacks, where attackers create a long blockchain to replace the longest legitimate chain, thereby defrauding mining revenue.

Long-range attack - replacing the longest legitimate chain

The decision and exercise of voting rights are separate and not tied together, which makes it easy for election bribery to occur.

How to avoid the risks of PoS mining?

PoS mining still needs to be perfected and improved, resulting in a high risk of PoS mining. Effective control of malicious behavior in PoS mining requires that more than 2/3 of the nodes are honest. Once the election is manipulated, or the elected nodes are "blackened", the benefits of PoS mining will be greatly reduced, and there will be great risks and uncertainties.

HashKey Hub, a one-stop digital asset wallet, has designed a variety of PoS mining financial products for users, including ATOM, QTUM, EOS, IRIS and VET, with estimated annualized yields of 5.58%, 5.58%, 1.5%, 6.88%, 12% and 13.23% respectively.

It not only helps you obtain the long-term value of the growth of the PoS public chain, but also helps you to avoid the risk of large fluctuations in mining income due to short-term behaviors such as disinterested attacks, long-range attacks and election bribery.

Link to this article: https://www.8btc.com/media/580761
Please indicate the source of the article when reprinting