Bitcoin-type proof-of-work

( 27th August 2019 )

In 2009, the Bitcoin network went online. Bitcoin is a proof-of-work cryptocurrency that, like Finney's RPoW, is also based on the Hashcash PoW. But in Bitcoin double-spend protection is provided by a decentralized P2P protocol for tracking transfers of coins, rather than the hardware trusted computing function used by RPoW. Bitcoin has better trustworthiness because it is protected by computation. Bitcoins are "mined" using the Hashcash proof-of-work function by individual miners and verified by the decentralized nodes in the P2P bitcoin network. The difficulty is periodically adjusted to keep the block time around a target time.

Proof of Steak

Proof of stake (PoS) is a type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. In PoS-based cryptocurrencies the creator of the next block is chosen via various combinations of random selection and wealth or age (i.e., the stake). In contrast, the algorithm of proof-of-work-based cryptocurrencies such as bitcoin uses mining; that is, the solving of computationally intensive puzzles to validate transactions and create new blocks.

Block selection variants

Proof of stake must have a way of defining the next valid block in any blockchain. Selection by account balance would result in centralization, as the single richest member would have a permanent advantage. Instead, several different methods of selection have been devised.

Randomized block selection

Nxt and BlackCoin use randomization to predict the following generator by using a formula that looks for the lowest hash value in combination with the size of the stake. Since the stakes are public, each node can predict with reasonable accuracy which account will next win the right to forge a block.

Coin age-based selection

Peercoin's proof-of-stake system combines randomization with the concept of "coin age", a number derived from the product of the number of coins multiplied by the number of days the coins have been held.

Coins that have been unspent for at least 30 days begin competing for the next block. Older and larger sets of coins have a greater probability of signing the next block. However, once a stake of coins has been used to sign a block, it must start over with zero "coin age" and thus wait at least 30 more days before signing another block. Also, the probability of finding the next block reaches a maximum after 90 days in order to prevent very old or very large collections of stakes from dominating the blockchain. This process secures the network and gradually produces new coins over time without consuming significant computational power.

Delegated Proof-of-Stake

Various projects such as EOS, Bitcoin-sCrypt, Steem, Ark and Bitshares are using delegated proof-of-stake, or DPoS. The system uses a limited number of nodes to propose and validate blocks to the blockchain. This is meant to keep transaction processing fast, rather than using several hundred or several thousand nodes. EOS uses a limited number of block validators, 21, whose reputation may or may not drop, allowing back-up validators to replace former nodes.