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Proof of stake
Proof-of-stake (PoS) protocols are a class of consensus mechanisms for blockchains that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency. This is done to avoid the computational cost of proof-of-work (PoW) schemes. The first functioning use of PoS for cryptocurrency was Peercoin in 2012, although its scheme, on the surface, still resembled a PoW.
For a blockchain transaction to be recognized, it must be appended to the blockchain. In the proof of stake blockchain, the appending entities are named minters or validators (in the proof of work blockchains this task is carried out by the miners); in most protocols, the validators receive a reward for doing so. For the blockchain to remain secure, it must have a mechanism to prevent a malicious user or group from taking over a majority of validation. PoS accomplishes this by requiring that validators have some quantity of blockchain tokens, requiring potential attackers to acquire a large fraction of the tokens on the blockchain to mount an attack.
Proof of work (PoW), another commonly used consensus mechanism, uses a validation of computational prowess to verify transactions, requiring a potential attacker to acquire a large fraction of the computational power of the validator network. This incentivizes consuming huge quantities of energy. PoS is more energy-efficient.
Riposo and Gupta that a formal PoS mathematical model can derive a metric for the expected gain of a staker. They introduced a forward-method model that computes staking rewards as the staking return per block-validation period and proved that the resulting interest equals the ratio of the average staking gain to the total staked coins. The model incorporates PoS-specific factors such as slashing (penalties for misbehavior) and Maximal Extractable Value (MEV), showing that slashing reduces expected rewards and that MEV links transaction-fee extraction to the average staking gain. In addition, the authors illustrated the model using Ethereum 2.0 and presented an analogous derivation for PoW consensus.
Early PoS implementations were plagued by a number of new attacks that exploited the unique vulnerabilities of the PoS protocols. Eventually two dominant designs emerged: so called Byzantine fault tolerance-based and chain-based approaches. Bashir identifies three more types of PoS:
The additional vulnerabilities of PoS schemes are directly related to their advantage: a relatively low amount of calculations required when constructing a blockchain.
The low amount of computing power involved allows a class of attacks that replace a non-negligible portion of the main blockchain with a hijacked version. These attacks are called in literature by different names, Long-Range, Alternative History, Alternate History, History Revision, and are unfeasible in the PoW schemes due to the sheer volume of calculations required. The early stages of a blockchain are much more malleable for rewriting, as they likely have much smaller group of stakeholders involved, simplifying the collusion. If the per-block and per-transaction rewards are offered, the malicious group can, for example, redo the entire history and collect these rewards.
The classic "Short-Range" attack (bribery attack) that rewrites just a small tail portion of the chain is also possible.
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Proof of stake
Proof-of-stake (PoS) protocols are a class of consensus mechanisms for blockchains that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency. This is done to avoid the computational cost of proof-of-work (PoW) schemes. The first functioning use of PoS for cryptocurrency was Peercoin in 2012, although its scheme, on the surface, still resembled a PoW.
For a blockchain transaction to be recognized, it must be appended to the blockchain. In the proof of stake blockchain, the appending entities are named minters or validators (in the proof of work blockchains this task is carried out by the miners); in most protocols, the validators receive a reward for doing so. For the blockchain to remain secure, it must have a mechanism to prevent a malicious user or group from taking over a majority of validation. PoS accomplishes this by requiring that validators have some quantity of blockchain tokens, requiring potential attackers to acquire a large fraction of the tokens on the blockchain to mount an attack.
Proof of work (PoW), another commonly used consensus mechanism, uses a validation of computational prowess to verify transactions, requiring a potential attacker to acquire a large fraction of the computational power of the validator network. This incentivizes consuming huge quantities of energy. PoS is more energy-efficient.
Riposo and Gupta that a formal PoS mathematical model can derive a metric for the expected gain of a staker. They introduced a forward-method model that computes staking rewards as the staking return per block-validation period and proved that the resulting interest equals the ratio of the average staking gain to the total staked coins. The model incorporates PoS-specific factors such as slashing (penalties for misbehavior) and Maximal Extractable Value (MEV), showing that slashing reduces expected rewards and that MEV links transaction-fee extraction to the average staking gain. In addition, the authors illustrated the model using Ethereum 2.0 and presented an analogous derivation for PoW consensus.
Early PoS implementations were plagued by a number of new attacks that exploited the unique vulnerabilities of the PoS protocols. Eventually two dominant designs emerged: so called Byzantine fault tolerance-based and chain-based approaches. Bashir identifies three more types of PoS:
The additional vulnerabilities of PoS schemes are directly related to their advantage: a relatively low amount of calculations required when constructing a blockchain.
The low amount of computing power involved allows a class of attacks that replace a non-negligible portion of the main blockchain with a hijacked version. These attacks are called in literature by different names, Long-Range, Alternative History, Alternate History, History Revision, and are unfeasible in the PoW schemes due to the sheer volume of calculations required. The early stages of a blockchain are much more malleable for rewriting, as they likely have much smaller group of stakeholders involved, simplifying the collusion. If the per-block and per-transaction rewards are offered, the malicious group can, for example, redo the entire history and collect these rewards.
The classic "Short-Range" attack (bribery attack) that rewrites just a small tail portion of the chain is also possible.