Motivating Proof of Stake, a dialogue

If you know me at all, you are aware that I spend quite a bit of time both researching and talking (ranting) about Proof of Stake. I find the prospect of premising consensus upon an in-protocol asset to be a beautiful algorithmic design. I tend to have a similar conversation about Proof of Stake and its related issues over and over again so I decided to type it up to share with you.

Although this is not a transcript of an actual conversation, it is inspired by countless real conversations.

“D” will represent me, Danny, and “F” will represent the friend with which I am having the conversation. F has a bit of a technical background and is well versed in Proof of Work and related blockchain jargon. The setting of this dialogue is the two of us riding bikes through New Orleans on a warm sunny day, yelling back and forth.

One sunny day in New Orleans…

Biking up Esplanade Ave under the dense shade provided by the Live Oaks…

F: So what exactly is Proof of Stake? Can it actually work? The people at r/bitcoin say it’s a centralized scam and that Proof of Work is the only consensus that is truly secure.

D: Whoa dude, slow it down a bit. What is Proof of Stake? Proof of Stake is an attempt to use an in-protocol asset, like bitcoin or ether, instead of computational power to secure a blockchain.

F: Huh? What do you mean, using bitcoin or ether “to secure a blockchain?”

D: Okay, let’s dial it back one more step. What does Proof of Work actually do? Why are miners running those computers so hard?

F: They are trying to mine the next block before everyone else so they get the reward.

D: And the byproduct of mining blocks for personal gain is the building of a distributed ledger.

F: I was getting to that…

D: The key to this is that the chance they mine the next block is directly proportional to the amount of computational power that they have on the network. If a miner has 5% of the computational power, they’ll find about 5% of the blocks and get about 5% of the rewards. Because of this, the amount of influence they have on the consensus is directly proportional to their computational power.

F: Yeah…

D: Tying a miner’s influence on the network to their computational power prevents a type of attack called a “Sybil Attack”.

F: I think I’ve heard of that before. Is that like a DOS attack?

D: Kind of. It’s an attack one can pull off because it’s cheap to replicate oneself. For example, what if the amount of influence you got in a blockchain’s consensus was related to the quantity of votes that came from distinct wallets — one wallet, one vote?

F: Can’t you have as many wallets as you want?

D: Yes.

F: So you could have as many votes as you want.

D: Exactly! By tying the amount of “votes” someone gets to the amount of computational power they have, the protocol limits each individual’s influence. Because you can demonstrate your effective computational power to the protocol via searching for a hash, it works as a great rate limiter in how much sway you have over the consensus.

F: Cool… I haven’t thought about it like that before. How does this relate to Proof of Stake?

D: The core of Proof of Work is that you demonstrate you have some scarce resource to the protocol. Think of it more like “Proof of Scarce Resource”, and in the case of Proof of Work, that scarce resource is computational power. Pretty early on people started asking, “Can we use some other scarce resource to secure a blockchain? Do we have to be wasting all of this electricity?” I’m sure you can guess where this is going…

F: Bitcoin and ether are scarce resources! Let’s use the cryptocurrency itself as the scarce resource in Proof of Scarce Resource. Brilliant.

D: Exactly!

F: Isn’t Ethereum supposed to move to Proof of Stake soon? What are they waiting for? Your chance of mining the next block can be proportional to the amount of coins you have. Simple.

D: Something like that, but unfortunately it’s not actually so simple. A naive Proof of Stake implementation is at risk to a couple of well known issues: the “Nothing at Stake” problem and “Long-range attacks”.

F: What are those?

D: Eh… let’s pause for a second. I need to catch my breath.

D and F lay their bikes down and lounge next to Bayou St. John, quietly contemplating blockchain consensus.

What’s Next?

Stay tuned for the next two articles in this series: “Nothing at Stake, a dialogue” and “Long-Range Attacks, a dialogue”.