Client pointing at proof of stake blockchain technology

Understanding Blockchain: Proof of Stake

In September 2022, Ethereum, the second largest cryptocurrency by market capitalization, shifted from a proof of work (PoW) consensus mechanism to a proof of stake (PoS) protocol for its blockchain network. In this article, our cybersecurity solutions experts will discuss PoS and how it differs from PoW and how it intends to address the emerging problems of a network running on a PoW protocol.

Houston Cybersecurity Solutions: Proof of Work and Wasteful Energy Consumption

We have discussed Proof of Work in this article, a protocol that allows independent participants in a network to achieve a consensus on the current state of the blockchain ledger. For cryptocurrencies, the ledger itself is the currency as it tracks the number of tokens each participant in the network has. Transactions within the network are validated by block miners racing to compute a random number and are rewarded with tokens.

PoW is an elegant IT solution that utilizes cryptography to independently maintain its blockchain ledgers without a central authority. However, one of the issues associated with a PoW model is the staggering amount of energy it requires for computational work. The complexity of the random number changes such that regardless of the aggregate computational power of the network it should take the network an average of 10 minutes to validate a block.

As the number of miners in the network grows, the complexity of the random number also increases, which prompts miners to expand computing power (they want to guess the random number first and get rewarded) and by extension greatly increasing energy consumption.

According to the Cambridge Center for Alternative Finance, Bitcoin currently consumes 110 Terawatt Hours per year, the average energy consumption of small countries like Malaysia or Sweden. While Proof of Work is a brilliant Houston cybersecurity solution that allows independent participants to come up with a decentralized consensus, it may not be ecologically sustainable as it scales.

Proof of Stake, a Greener Houston Cybersecurity Solution?

The PoS protocol completely eschews extremely complicated computational work as a cybersecurity solution. Vitalik Buterin, the founder of Ethereum, envisions a future where even smartphones can perform the required computational work for validating the transactions in their network.

As with a PoW mechanism, the chosen validator is awarded with tokens when they validate a block. In order for participants to become block validators, they have to stake cryptocurrency tokens. The chance of being chosen as a validator is proportional to the number of tokens staked. Some models also factor in the length of time prospective validators have staked their tokens which increases their chances of being chosen.

You may be wondering, what stops a validator from adding fraudulent additional tokens to their ledger or doing a bad job at confirming transactions. Participants of networks operating under a PoS algorithm have a mechanism where they can easily check the validated transactions and if a validation turns out to be faulty then the validator stands to lose a portion, if not all, of the tokens they have staked.

Additionally, it is in the interest of those who have staked a large amount of the token to ensure that people believe in the stability of their cryptocurrency. A loss of trust in the network would ultimately result in a massive sell-off, devaluing their tokens.

Understanding Blockchain Technology with Your Trusted Houston Cybersecurity Solutions Experts

Whether you are currently utilizing blockchain technology use-cases, a cryptocurrency financial speculator and investor, or a blockchain technology non-believer, it seems that the technology is still innovating and is here to stay. As part of our commitment to making technology work for you, BHT Solutions aims to provide digestible information on the newest innovations on information technology for our clients.

If you have any concerns regarding your current IT solutions then look no further. Here in BHT Solutions, we love to make a positive impact by providing solutions that can efficiently and effectively resolve our clients’ IT dilemmas. Call us now and make technology work for you.

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