The Pros and Cons of PoW
PoW is the original consensus
mechanism, which allows Bitcoin to function as it does. PoW relies on miners to
verify each block, resulting in completed transactions after a specified number
of blocks have been verified. PoW technology is often argued to be the most “proven”
consensus mechanism, and community coin holders are not needed to run the
network. Beyond Bitcoin, another example of a PoW-powered project is Monero.
However, many argue that PoW can
lead to centralization, risk of 51
percent attacks and questions of scalability. In
addition, PoW can often require significant electrical cost and strain, leading
to the argument that PoW may not be the most efficient option. Mining PoW coins
also often requires a significant investment in a quality mining setup for a
miner to be effective and profitable.
According to a World Economic Forum
“estimates liken the [Bitcoin] network’s energy consumption to the power used
by nearly 700 average American homes at the low end of the spectrum and to the
energy consumed by the island of Cyprus at the high end. That’s more than 4.409
billion kilowatt-hours, a Godzilla-sized carbon footprint, and it’s by design.
It’s what secures the network and keeps nodes honest.”
The Pros and Cons of PoS
PoS is a somewhat newer technology
(first applied by Peercoin
in 2013) compared with PoW. With PoS, mining equipment is not necessarily
needed, as PoS coins are “staked” based on the amount of coins held by the
owner (in a compatible staking wallet). Payouts for staking are based on the
amount of coins held in said wallet. DASH and NEO are notable PoS projects,
with DASH having the capability to run masternodes. DASH masternodes help
ensure a defined amount of computing power on the network, by users who hold a
specified amount of coins, for activities such as “InstantSend,” “PrivateSend”
and “Decentralized Governance.”
PoS technology is argued to be a
better option than PoW because coins can often be staked on a normal computer,
using less electricity, as well as allowing the coin holder to make returns
regardless of the amount of coins held. There is often no minimum investment
required, as seems to be the case with mining setups in PoW applications.
Another potential benefit to PoS is
that coins/projects may have the potential to be more decentralized, due to the
ability to stake any amount of coins. This decentralization is also said to
make PoS more resistant to 51 percent attacks and possibly enable greater
scalability. However, PoS may not actually be more decentralized, with a “concentration of voting power in the hands of the
wealthy,” per at least one argument against it.
An Emerging Protocol
As of recently, a new
option for consensus is being developed — proof of transaction (PoT), as seen
in TAU coin. PoT’s consensus mechanism is based on users that collectively maintain
network security through everyday transactions, with no advantage given to
those with expensive mining setups or large coin holdings.
incentivized by the sharing of future block rewards, with importance on the
number of transactions, instead of the size of transactions.
As far as
mainstream adoption goes, PoT appears to be an interesting concept. PoT looks
to be a possible solution for businesses that have hundreds of small
transactions per day (like McDonald’s, for example).
“The way TAU is structured, it really
incentivizes transactions and, across the board, it makes transactions more
cost friendly; both for vendors that have a high amount of transactions
(because they are more likely to win the block reward) and for vendors who do
large price sales,” Dean Pappas, architect for TAU, explained in an email
interview. “They won’t be charged a percentage of the sale, they will just be
charged whatever the transaction fee is. The system doesn’t really look at
quantity as a metric. It looks at transactions and the quantity of transaction
as the metric.”
regard to business utilization of blockchain technology, perhaps the ultimate solution
lies in utilizing multiple technologies for differing purposes. Some in the
blockchain space argue for one option over the other, but maybe the solution is
to cater to businesses’ specific needs, using whichever consensus mechanism
would best cater to those needs.