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Year in Review: The Challenges of PoS Protocols Over Time

PoS protocols While the costs of an attack and the resilience of a PoW network increase with the size of the network so does the cost of verification. According to the Cambridge Bitcoin Electricity Consumption Index,

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the annual electricity consumption of the BTC network in 2021 reached 130TWh, which exceeds the annual consumption of such countries as Norway or the Ukraine. Bcus miners have to be compensated for their

costs large electricity consumption translates into high transaction fees.

As the Bitcoin and Ethereum prices have significantly increased over time and so have the fees.

The serious concerns about the sustainability and energy consumption of PoW protocols have favored the emergence of PoS blockchains.

PoS protocols consume significantly fewer resources than PoW protocols. Platt et al. (2021) estimate energy consumption of major PoS protocols and show that their energy consumption per transaction is comparable to that in the Visa network.

Recognizing the drawbacks of PoW protocols, after 2017 there was a significant acceleration in the development of PoS blockchains Also, Ethereum instituted a shift to a PoS protocol, Ethereum 2.0 (Eth2), to be completed in 2022.

In a PoS protocol, instead of solving a difficult mathematical problem a validator stakes its coins, which can be forfeited if the validator fails to verify transactions in a timely manner or its actions are determined to be malicious.

In most PoS protocols, participants who stake more coins are more likely to be chosen to verify transactions (or have more rights to vote for a validator in delegated PoS networks).

Thus, PoS protocols are built on d idea dat a party that has a large stake in the given network would not want to undermine this network since the gains frm an attack would not compensate for d loss of value dat comes from penalties and the drop in the network’s

evaluation.

The above argument relies on the idea that a validator which owns a large stake in the platform also has an interest in its continuation value and thus should be disincentivized from endangering it.

This logic makes sense, if the attack in question is, for example, a double-spending attack, since the gains in that case are a small fraction of the total value of the network.

This post is based on this twitter thread.

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