There are many different ways to add blocks to the blockchain. In Blockchain 101, we talked briefly about Bitcoin’s technique called the Proof of Work method (the one you may hear about most often). While it has brought blockchain technologies into the spotlight in recent years, the same light has lit up some dark corners over time, leading to an exploration into alternate methods. Each ensures that the next block in a blockchain is the one and only version of the truth and attempts to deter attackers from rendering the chain insecure.
Proof of Work
- As noted, miners compete to add the next block in the chain by being the first to solve a very difficult cryptographic puzzle.
- In Bitcoin, the first miner to do so receives a small fortune worth of brand new coins.
- This competition has amassed thousands of miners and groups of miners teaming up to create pools. After all, the larger the pool of miners, the better their chances.
- The Bitcoin protocol periodically updates the difficulty of the puzzle based on how many miners are computing.
- Those higher levels of difficulty lead to thousands of computers working exponentially harder for longer periods of time, creating an electricity crisis. As of this article, the current estimated annual electricity consumption is 71 TWh, which is equivalent to about 0.32% of all the electricity use in the world, for a single blockchain [just Bitcoin].
Proof of Stake
- As the most popular alternative, the biggest difference is that all value exists from the day the chain’s genesis block is created – there are no miners.
- Instead, validators are paid strictly in transaction fees. A validator (sometimes called a stakeholder) with 50 coins in stake will be five times as likely to be chosen as one with 10 coins.
- Different Proof of Stake systems vary in how they handle adding a validated block to the blockchain. For example, some systems require a number of votes from more validators before a block is added. Or sometimes signers are picked at random to double-check the validator’s work and sign off.
- All implementations are carefully considering how to tackle participants that cheat the system. A validator or signer with nothing to lose has no reason not to behave badly. One proposed solution is to require a validator to lock their currency in a virtual vault of sorts. Once their block is signed, their deposit is returned. And, of course, they’re never asked to validate a block in which the fees are more than their stake already in the vault.
Proof of Activity
- A hybrid approach that combines both Proof of Work and Proof of Stake: miners race to solve a cryptographic puzzle. Once the puzzle is solved, a random group of signers is selected to validate the new block.
- Fees are split between the miner and the validators who signed off.
- Of course, opponents argue that Proof of Activity has the same problems as the other systems: mining requires too much energy, and there’s nothing to keep validators from signing fraudulent blocks just to collect the fees.
Less popular alternatives mostly include different ways of investing to increase your mining chances:
- Proof of Burn: The more value you “burn” (basically “bury” for other miners to “find” again), the better chance you have of being selected to mine the next block.
- Proof of Elapsed Time: Works similarly to Proof of Work, but relies on a third-party system to ensure blocks get produced in a random lottery fashion without all of the miners.
- Proof of Capacity: Prior to mining, an algorithm generates large data sets, or plots, which you store on your hard drive. The more plots you have, the better your chances.
- More variations of Proof of Capacity include Proof of Storage and Proof of Space.