Proof of Stake and Scalability

In a more “Blockchain” context, it refers to the ability of the network to sustain a higher number of occurrences. The raising adoption of cryptocurrencies, and the increase in transactions this entails, has made evident that Proof of Work (PoW) algorithms are having a tough time adapting to mainstream use. In the following article, we will mention some of the scalability benefits that Proof of Stake (PoS) algorithms offer.

Let’s start off by mentioning some of the scalability issues of PoW. Our examples will be mainly based on Bitcoin, but most issues are suffered by all pure PoW projects. One of the constant topics regarding Bitcoin scalability is “the block size debate”. The initial block size of 1 Mb is very small to sustain thousands of transactions. This has caused the slow transaction time that are well known in Bitcoin, and have also occurred with Ethereum. Blocksize increase is not a viable solution because it is temporary, and it would require an increase in size every time the number transactions has doubled. Bigger blocks would also result in centralization. Off-chain scaling is one of the suggested ideas to scale Bitcoin. It involves creating different payment channels that can occur without being registered in the chain. This sounds like a good idea, but it puts in question the actual need for a blockchain if an increasing number of transactions will occur off-chain. An additional issue with off-chain scaling is that it could permit the introduction of hubs which charge fees for operating payment channels. In short, PoW projects trade-off a lot of performance in order to stay decentralized.

Since switching block sizes and creating off-chain payment channels are not solving the problem permanently, different consensus algorithms seem to be the long term solution to substitute these temporary “patches”. Projects based on a Proof of Stake algorithm have tackled many of the scaling issues of PoW by achieving better latency with less computation, bandwidth and storage. Whenever we are discussing consensus algorithms, it is important to always keep in mind the properties of a data structure that one is trying to find. These would be: a) no entity controls the content of the data, b) the database can move forward, c) participants agree on the content of the data. Taking these points into account, let’s see the scaling benefits that PoS entails.

Proof of Stake offers interesting solutions. Amongst the different forms of PoS, the ones based on Consortium consensus that use Byzantine Fault Tolerance (BFT) show some clear scaling solutions. These PoS systems offer consistency as validators are randomly chosen for each round and they end up agreeing whether or not the block becomes part of the chain. Since one of our main objectives when picking up consensus algorithms is to make sure no entity controls the content of the data, spotting non-honest and defective nodes in the network is essential.

In order to guarantee fault tolerance when it comes to non-honest and defective nodes, PoS systems using BTF guarantee speed and consistency because validating nodes need to agree before a block is generated. The fact that a previous agreement is required before the formation of a block permits settlement finality and speeds up transaction settlement time to under 1 second from the current tens of seconds to tens of minutes that are required by PoW algorithms. The lower load on the blockchain also causes energy consumption to decrease dramatically.  Having lower energy consumption and faster transaction times, PoS projects already tackle the main scalability issues that PoW faces.

In conclusion, PoS offers several solutions to the Bitcoin scalability problems. The main issues of speed transaction and energy consumption are tackled by a system that aims to reach a consensus before blocks are formed. This permits the processing of thousands of requests per second with sub millisecond increases in latency. Proof of Stake gives an impression of being more complex since it does not imply resources as clearly as PoW does with its energy requirements. This causes people to question it’s efficiency and future value, but if you dig into the systems and understand them, you will see that scalability is not obtainable with PoW, while it is with PoS.This is one of the many reasons why we are convinced that Proof of Stake is the future. And we, at Pool of Stake, create the first decentralized pool for Proof of Stake coins.