Proof of Work versus Proof of Stake – Why Agate chose to implement the latter

People familiar with the Blockchain technology and Bitcoin would have heard of the concept of Proof of Work (POW) and Proof of Stake (POS). They must have also heard about the idea to move from an Ethereum consensus based on the POW to one based on the POS. Agate has also chosen to implement this concept. Let us see why they have decided to do so. However, before that, one should be clear about the POW and POS concepts and understand the pros and cons. It will help them understand why Agate chose to shift from the “Work” to “Stake” methods.

Proof of Work – POW

POW is a protocol having the principal objective of deterring cyber-attacks such as DDoS (distributed denial of service). The POW is an old concept existing even before the invention of Bitcoin. The principal reason Bitcoin chose the POW concept is that it allows trustless and distributed consensus.

The trustless and distributed consensus system indicates that you do not need to trust a third person while sending and receiving money. In the traditional methods of payment, you trust the services of organizations like Visa, MasterCard, PayPal, and banks to transfer money from one person to another. Each of these intermediaries maintains their ledgers and accounts while transferring funds from one account to another. In the trustless and distributed consensus concept, everyone has a copy of the Blockchain, and hence, the question of trusting a third party does not arise.

Coming to POW concept, one needs to do mining to create a group of trustless transactions (aka block) on a distributed ledger known as the blockchain.

Mining serves two essential purposes.

a) Verifies the legitimacy of the transaction or avoids double-spending
b) Create new digital currencies by rewarding miners for performing their tasks
We do not go deep into the aspects of mining because the concept is well known to all. POW is used by the Bitcoin blockchain and by other blockchains as well.

Agate wants to shift from the POW to the POS. To understand why it feels the need to do so, one must understand the POS concept and look at the advantages and demerits of this concept.

POS – Proof of Stake

The purpose behind this concept is the same as that of POW, but there is a difference in the route they take to achieve the objective.

Under the POW system, the algorithm rewards the miners who solve the mathematical problems for validating transactions and creating new blocks. The POS system chooses the creator of a new block in a deterministic way, depending on the investment, also known as ‘stake.’

Here, there are no block rewards. The numbers of digital currencies are created in the beginning and do not undergo any change at all. As there is no block reward in the POS, the miners take the transaction fees.

Let us now look at the disadvantages of POW and advantages of the POS to understand why Agate chose to implement the latter.

POW Drawbacks

• Consumes incredibly high electricity
• Expensive because it involves high computing power hardware
• No loyalty because people can migrate to mine another coin at any time
• The only fees earned are the transaction fees. It will also diminish in the future because users will opt to pay less for the transactions.
• Become vulnerable to the 51% attack
• Increases the carbon footprint
• High energy consumption

POS Benefits

• Saves energy
• With the POS, the attacker would need to have a stake of 51% of the cryptocurrency to carry out a 51% attack. The POS avoids this tragedy as it makes it disadvantageous for a miner with a 51% stake to attack the network. No one would like to strike a system where they hold a majority stake. In case of a fall in the value, their stake would also fall. Therefore, the stakeholder will always try to maintain the high-security levels
• In a POS, the validators are those who own the coins. Hence, you have the loyalty aspect, working for you.

POS Disadvantages

• There is a possibility of long-range attacks
• You can face a problem of distribution in the initial stages
• There are chances of bribes

The advantages of the POS and the demerits of the POW concepts together make Agate choose to implement the POS concept instead of the POW. It makes the blockchain faster and safer.

To find out more, visit https://www.agatechain.org/

Read the white paper here.

Media contact:

Name: Hamed Taghvaei
Email: media@agatechain.org
TG Group: https://t.me/AgateChain_Group
Website: https://agatechain.org/