A Summary of “Why Proof of Stake” by Vitalik Buterin

This is my attempt to summarize a recent blog post by Vitalik Buterin. This is a learning exercise for myself and critiques are welcome. If you feel something can be summarized better, please comment.

Link to the article - November 2020

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3 Reasons by Proof of Stake is better for blockchain security than Proof of Work

1) More Security for the same cost

• Compare how much it costs to attack a network per $1 per day in block rewards
• GPU-based PoW
  • GPUs can be rented or bought, so the cost of attacking a network is the cost of renting or buying enough GPUs to outrun existing miners.
  • This is the cheapest network to attack.
• ASIC-based PoW
  • Like GPUs, the cost of attacking the network is the cost of buying and running an ASIC. If a 51% attack occurs and the consensus is to change the mining algorithm, the ASICs are bricked.
  • ASICs provide more security than GPUs, but at the cost of more centralization due to high cost/access of ASICs in general
  • This is much more expensive to attack than GPU-based
• Proof of Stake
  • The network is more secure as more coins are deposited
  • Deposited coins do not depreciate like ASICs
  • Participants should be willing to pay much higher capital costs(staking their coins) for the same reward
  • The more coins staked, the harder it is for any one actor/group of actors to garner enough to attack the network
  • This is much more expensive to attack than ASIC-based PoW

2) Attacks are easier to recover from in Proof of Stake

• If a PoW chain gets 51% attacked, the response has historically been to wait until the attacker gets bored and stops
• In GPU-based PoW there is no real defense against 51% attacks and a persistent attacker could render the whole chain useless.
• For ASIC-based PoW, the response to a 51% attack is to change the PoW algorithm, which bricks every ASIC on the network. The good and the bad.
  • This can be done only once until the network becomes GPU-based.
  • If the attacker is motivated enough, they could then attack the network freely
• Proof of Stake
  • There are built in “slashing” mechanisms
    • If a nefarious actor is detected by the network, their staked coins are cut by a significant portion
    • The community can also coordinate a user-activated soft for (UASF)
    • No hard-fork is required
    • Attacking the chain once will cost a lot and will not come close to destroying the chain
    • Two attacks would cost much more as the attacker would need to buy tokens enough to replace the tokens they lost.
    • It is asymmetric in favor of the network

3) Proof of stake is more decentralized than ASICs

• GPU-based PoW is pretty decentralized as it is not very hard to get a GPU
• It is hard(expensive) to get ASICs in the quantity needed to compete with other miners
• There is the argument that, in Proof of Stake, the richer get richer
  • The counter is that the alternative, ASIC-based PoW, is even more tilted in favor of the rich
  • More people will be able to run an Eth validator than will be able to amass ASICs
  • Proof of stake is more censorship resistant as it cannot be detected based on the amount of heat/electricity being produced by GPUs/ASICs

Possible advantages of Proof of Work

• Two primary genuine advantages of PoW over PoS
• PoS is a closed system, leading to higher wealth concentration over the long term
  • It is much easier to delegate validating responsibilities in PoS, as it doesn’t require effort on the individual other than deciding where to stake.
  • The response is that running a validator in Eth2 will not be overly profitable and it becomes less profitable as more validators join
  • It would take a long time for significant concentration(100 years to double) and other things like spending the money, donating to charity, giving to children, will likely take over.
• PoS requires “weak subjectivity” and PoW doesn’t
  • Weak Subjectivity - the first time a node comes online, the node has to find a third-party source to determine the correct head of the chain. This could be their friend, exchanges, bad actors, etc.
  • The response is that this level of trust is needed anyway. In BTC, for example, we trust the developers to develop.
  • The risks to this seem much less than the rewards that PoS offers in comparison to PoW