PoW vs. PoS: A Heated Debate in the Space

“There are three characteristics: scalability, interoperability and sustainability that justify the third generation [of blockchain technology]”, says Charles Hoskinson, co-founder of Cardano and self-proclaimed cryptocurrency evangelist.

But how do you achieve these 3 things so that they exist in harmony with one another?

Well, as it turns out - it’s no small task.

A network that handles millions and potentially billions of transactions per second (TPS) has to have these 3 core elements figured out.

Imagine that every time you logged on to Instagram you had to to wait an hour to sign in and another 15 minutes for your timeline to load - not a very pleasant experience.

Well it took teams of talented developers and a lot of Zuckerberg’s cash to make Facebook and Instagram the experiences that we know and love today.

So how do you create a system that is able to handle potentially billions of transactions in a very short period of time. Or even more importantly, a network that actually becomes more powerful, secure and robust as new users join.

Well, it’s useful to look at history to see what’s already worked before, rather than try to reinvent the wheel.

“Bittorrent has over 250 million concurrent active users...it carries about a third of the internet’s traffic. The only way you could have a protocol like that run consistently for more than 15 years is if you have a property that where someone enters the protocol, the protocol gains resources, it gains capabilitieses. So that you actually get faster or stay at the same performance despite the fact that you’re gaining hundreds of thousands or millions and billions of users”

The catch to using Bittorrent as a model for scalability is the fact that cryptocurrencies have much more going than simple movement of data.

Furthermore, the models that we have now, in the form of bitcoin and ethereum, require that everybody has a full copy of the blockchain, has a decent internet connection, etc.

So the holy grail of third generation blockchain technology is a protocol that actually becomes stronger in processing power, network resources and data storage capabilities as it grows to millions and billions of users.

In other words, you need a protocol that is a freak of nature in the way that LeBron James is a freak of nature.

Charles elaborated on the core challenges of building a protocol like this at a talk he gave early this year where so many people showed up that many were still waiting outside in line after he stepped off stage.

“You have things like data storage, so where do you put all the information, who stores the blockchain? Is it sharded or not? Are you trusting somebody to hold it? And there’s the actual data itself that you have to port and move around. Think about the consequences of having a system that runs at a million transactions per second. How much bandwidth would be required for a node to process that? It’s not cheap, it’s not small and it’s not coming from grandma’s wifi”

While many claim to know how to solve these massive issues in the space, doing so requires building a slew of new protocols.

So far there is nobody who has been able to solve all these problems and create such a protocol that can handle millions of transactions per second.

But let’s say you have found the magic bullet solution and you’re sure that you have solved these mammoth sized problems.

How do you know that you’ve solved them?

There needs to be a process by which you can verify that your solution is actually possible and will stand up to scrutiny.

Cardano found this “bedrock” in the academic peer-review process.

“In 2015, when we first started working on [Cardano], the very first question we asked is ‘what is ‘bedrock’ for a cryptocurrency?’ It turns out not until 2015 was there even an answer….We didn’t know what a ledger is. We had an idea of a blockchain, like an append-only linked list. There had been some ideas of directed acyclic graphs - these types of things like Spectre for example...Yet we didn’t actually know what properties they should have or how to write a security proof…. So our chief scientist had to write a paper on it. It’s called GKL15, where we define this is a secure ledger. This is the standard upon which we ought to be judged ”

Often the next question in people’s minds is “Well, is Bitcoin a secure ledger?”

Actually, yes.

One of the most miraculous things about Bitcoin is that Satoshi built a protocol that used Proof of Work (PoW) and has all the security features that you would want in a cryptocurrency.

This is an extremely rare feat and is part of the reason why Bitcoin lovers are so passionate about the original cryptocurrency that is still going strong today.

The issue with Bitcoin remains in its inability to scale.

Combating this issue led to Cardano to opt for a protocol, Ouroboros, that uses Proof of Stake (PoS) rather than Bitcoin’s Proof of Work.

But is PoS as secure as PoW?

Most in the space think that the obvious answer is no.

Like the true academicians that they are, Charles and the rest of the Cardano team set up to put this assumption to the test.

“So we said, let’s use this foundation we’ve generated that we’ve proven the Proof of Work is secure with and then let’s go ahead and see if Proof of Stake has the same properties - and surprisingly the answer is yes. ”

This was just the smoking gun that IOHK needed to put the full force of its 100 employees, 9 figures in revenue and development talent into Cardano.