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PoW Vs. PoS and The Long-Term Viability of ETC




Ethereum is a network that achieves consensus via a mining process.

Volunteer computers compete to solve difficult mathematical equations, and whichever. In the process they use up scarce, valuable, real-world resources, which can be risky when it comes to transaction validation. However, the reward is the native token on the network of which they mine. With risk and reward we have a proper economic model.

Of course, some disagree and see problems with this approach. It has at times been called unnecessarily wasteful of scarce resources, harmful to the environment, and an inefficient way for a decentralized transaction network to achieve consensus. It has also been criticized for putting undue power over the network in the hands of miners.

Proof-of-Work (PoW) systems are used as a measure to deny attacks on the blockchain. As we have seen them become more popular with Bitcoin, its incentives are aligned towards oligopoly. For some, such power vested in the hands of so few is too far from the original decentralized vision of Bitcoin. The debate is ongoing. So far, PoW is very well ‘road-tested’, since Bitcoin has been out in the wild, processing transactions, for eight years now.

As for consensus, there are other options that do not require involvement of a native token at all. One of the more well known in the public blockchain space is Proof-of-Stake (PoS). In general terms, Proof-of-Stake involves network participants called stakeholders (holders of Ether tokens). The holders ‘Bond’ their stake by contributing the tokens to the network. Then, the chain with the highest bonded stake becomes the most trustworthy.

Some more well-known public blockchain projects running PoS consensus are Peercoin (the first well known crypto-token running PoS), as well as NxT and BitShares, from the ‘next generation’ protocols. Lead developers on the Ethereum project decided some time ago that they would move the Ethereum platform to PoS. More specifically, what is called the Casper implementation of PoS. Ethereum intends on doing this via a ‘difficulty bomb’, which is a set schedule for massive difficulty increases in mining. This will force Casper on the network.

Under a PoS consensus there are no miners, and of course, no mining. All the sunk cost and investment made for supporting the network would be lost. Now, there are two competing Ethereum networks. Because the Ethereum classic community is still only few weeks old, the network and codebase are essentially the same. However, it is most definitely a separate network. The extent to which it diverges from ETH is unknown and unclear. A roadmap is being developed for its future, as its own project.

One approach, and an obvious way for the project to differentiate itself, would be maintaining a commitment to PoW. That is, forking away from the difficulty bomb to maintain a PoW algorithm. This would lock-down the support of the mining section of the ecosystem, and then be incentivized to support ETC to push for its long term success.

Since the DAO there is also speculation that development could be progressing too fast. PoS might be another symptom of rushed development for its own sake. PoS is a change and a risk. If it doesn’t work out well, ETC would be there using the classic mining approach and algorithm, blissfully processing transactions and running applications.

There are a lot of ways that ETC could distinguish itself in the ecosystem as it emerges and, inevitably, diverges. Mining is the first theoretically obvious choice, which could also help secure much needed allies in the ecosystem.

Tristan Winters

Tristan has a trading background and experience in digital currency markets, sales, marketing and project management. He has been following Ethereum since the beginning and finds the technology endlessly fascinating. Tristan is a Guest Writer for ETHNews. His views and opinions do not necessarily constitute the views and opinions of ETHNews.

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