04.05.2024

Today we are going to look at an. alternative consensus mechanism. for cryptocurrencies called proof of. stake. now to understand the reasoning behind. proof of stake. let me first give you a brief crash. course on proof of work and some of the. problems that it has. so proof of work is where miners will. have a bunch of gpus. cpus or asics that are crunching. a bunch of numbers to essentially verify. crypto transactions. so this is a really good way to have a. decentralized. secure payment system that is resilient. to counterfeiting. or just arbitrarily minting new coins. but it isn't without its flaws so the. problem. that people are probably most familiar. with at this point with proof of work. crypto is the enormous resource. consumptions. that those various crypto networks have. so you've probably heard about bitcoins.

Which is the worst one uh. bitcoin's blockchain is using up more. electricity. every year than like the country of. norway or you can see. different countries listed here that the. bitcoin network uses more electricity. than. now power consumption by itself it. really isn't too bad. but the real problem is how this. electricity is produced. so bitcoin along with most other. cryptocurrencies. has most of its mining done in china and. this is due. to the fact that electricity in china is. really cheap and really abundant and. it's also close to. all of the electronic manufacturing that. you would need those. gpus cpus and asics they could be. sourced very cheap in china a lot of. time they'll be made in china. so yeah basically china is like a crypto. miner's heaven. but it's hell for an environmentalist. because china.

Has some of the dirtiest energy. production on the planet. about twothirds of china's electricity. is produced by coal. and china consumes almost five times as. much coal. as india the second largest coal. consumer on the planet in fact china. actually consumes more. coal than every other country combined. by a small margin now this should be. alarming for any greenminded individual. but it's actually even worse than you. realize there is. far fewer environmental regulations in. china compared to. western countries like the united states. or countries that are in the eu. and because of this the extraction. refinement. and burning of the same volume of coal. is going to be more harmful to the. environment compared to those other. countries. then there's the problem of ewaste now. this tends to be a bigger problem for.

Cryptos like. bitcoin um that aren't asic resistant. because there's no other use for a. bitcoin. asic besides mining bitcoin uh and asic. in case you didn't know stands for. application specific integrated circuits. so it basically. is a machine that can only have one use. you can't decommission. an asic and then play video games with. it or something. so when a newer more efficient asic. comes out. miners will typically throw their old. ones. into landfills no one is going to buy an. inefficient bitcoin asic. now some cryptos like chia they actually. brand themselves. as green this is a fairly new. cryptocurrency that's hitting the market. and they claim to not really contribute. to the environment's destruction. but this really isn't true for chia in. its current form. so i won't go into too much detail about. the problems with chia because.

Der bauer already covered this really. well. so i will link his video in the. description for you guys to go ahead and. watch it but. tldr the plotting process for chia. actually requires enormous amounts of. resources. for it to be efficient basically in. order to be a chia miner you'll want to. get a bunch of. enterprise grade ssds and raid them. together. or better yet you want to have a ram. disk that is a couple terabytes in size. and you need a strong cpu to do. all of this plotting in a reasonable. amount of time. so you know if you try to use a consumer. grade ssd for example to mine chia. that drive is going to be totally. destroyed from the plotting process. within a month or two so mining chia. that way. it actually has the potential to produce. even more ewaste. than bitcoin with its asics because at. least the mean time to failure for a.

Bitcoin asic. is several years compared to a couple of. months. for consumergrade ssds with chia. so this is where the proofof-stake. model comes in. so instead of the mining being done with. massive warehouses full of computers to. try and win some crypto. you instead stake some of the crypto. that you have in order to earn more. so the way that staking works is. slightly different for each crypto but. at a high level. you would deposit funds onto a network. node. which is just any old computer that you. connect to the internet doesn't have to. be special doesn't have to have highend. hardware. and these nodes are then going to. compete. for an opportunity to forge a block. which is what the. mining process is called in a proof of. state consensus. and of course if you forge that block. then. you will get rewarded with more of the.

Cryptocurrency. and to increase your chances of getting. chosen to forge that block. you would just want to stake more coins. on your node or if there's a limit to. how many. coins you can stake on a node you can. spin up more nodes to stake on. and also the longer that you've been. staking for the better your opportunity. is. for receiving the block reward or for. receiving um. the mining fees like the um. transactional fees that different. cryptos use. but again all of the different proof of. stake coins have slightly different. rules and metas to them. like ethereum 2.0 for example it. requires you to lock. up to 32f on a node now there are. protections put in place. to prevent sabotage um so like if. nodes are trying to do things like. double spend or anything else that's. considered harmful to the network. then they will usually receive a penalty.

And this penalty could result. in you losing all of the crypto that you. staked on that node. and in the case of ethereum 32f would be. just over a hundred thousand dollars. right now so. that's basically how they tried to. prevent uh. any nonsense from occurring on a proof. of stake network. um now these penalties they do create a. new problem for miners because. if your node is just misconfigured in. some way so let's say you're not trying. to be malicious. you just did it wrong or if your node. were to disconnect from the network. which. might not even be your fault then you. could be penalized. for those things as well so if you're. going to run your own node. you really have to be tech savvy so that. you don't lose your stake. but companies like coinbase they're. already. basically offering staking as a service.

So they will take care of all the. technical details you just commit some. coin. and of course they take some of the. profit for providing that service to you. so proof of stake it sounds like it's. the consensus solution that crypto needs. there's no environmental impact because. all the mining. or forging in this case is done. digitally. but there is some criticisms out there. floating around for proof of stake. so one of the more common ones that i. hear. um which i don't really consider to be. that legitimate of a criticism is just. that it's a rich man's game so the more. money you have. uh the more you're going to earn with. proof of stake because you could just. stake several people's net worth work in. various. uh cryptos right now this is true. for proof of stake uh obviously if i. have one million dollars worth of.

Stakeable crypto. i can just stake it and i can probably. also afford. good hardware and a network with five. nines or better uptime. so yeah essentially the rich do get. richer but this is true. for any financial system rich people are. going to do better. in the stock market rich people are. going to do better with. other cryptos because they could just. buy a bunch and hold it to sell it later. rich people can make more money with. gold rich people can make more money. flipping sneakers or even just letting. that money sit. in a high interest savings account um. you know you're obviously going to make. more money. uh doing that with 1 million dollars. than with 1 000. so it's it's kind of a it's kind of a. topic for a different. uh different conversation right like if. we're talking about any type of crypto. the whole like rich get richer like yeah.

That's. obvious for any financial system um so. the real problem. that i see with proof of stake comes. from its lack of security. so there's this thing called a long. range attack. that you can do on proof of state. consensus and. pretty much no coin out there right now. that does proof of stake. is impervious to this attack um because. of another. problem that proof of stake coins face. called weak subjectivity. so when new nodes come online to a proof. of stake network. they are provided with the genesis block. and this is the only block that all. nodes are going to accept as the first. one and. new nodes will also be presented with. all of the published branches of that. blockchain. and unfortunately there's really no way. for a new node to tell. which one is the main chain without just. trusting someone to tell them like.

Yeah it's actually this one which. obviously hurts the whole decentralized. concept because then you have. a trusted person that's telling you what. the legit blockchain is. uh and the same also would apply to a. node that has been offline. for a period of time say you know. several months. they're not going to know which chain is. the legit one either. now technically someone could fork a. blockchain. even in a proof of work consensus but. the only way to pull that off. is to have a 51 percent of the hashing. power. on a proof of work network um you know. there's no computational requirement. to fork a chain in proof of stake you. can just. generate the blockchain you know on your. own in a matter of minutes. it's also possible to pull off this. attack without hurting yourself too much. financially so you know we talked about.

Earlier how normally if you do something. like this you will get a penalty and you. could lose. your stake but let's say that if. somebody wants to. fork the proof of stake chain they could. bribe. some of the initial validators who. might not even be staking anymore for. their private keys. which those initial stakers if they've. already pulled their stake out if. they've already cashed out their coins. they have no financial incentive to. protect themselves because they're not. actually risking anything. so they could give these to the hacker. and now they're able to. fork the blockchain and even use past. validators keys to validate those past. blocks as well. now long range attacks they are a little. bit more complicated than what i'm. describing here so i'm going to. link uh this article that you see on. screen now in the description as well so.

That you can read up more. about how uh longrange attacks work. so there are some problems with. proofof-stake but. it looks like it is going to end up. being. like the consensus model for kryptos. um or some form of it is going to be in. the consensus model for future crypto. so ethereum is already planned to switch. to proof of stake in 2022. so there you're going to have the second. biggest crypto switching to it. if f doesn't tank then the devs of other. kryptos. might feel more confident to switch to. proof of stake. the problems around proof of stake they. also seem to be. easier to solve to me now they are. alarming right because. if um it's not very secure then that. ends up being a problem. but the problems with proof of stake are. basically digital problems and. the pollution caused by mining and proof. of work is more of a geopolitical.

problem so. china they're probably never going to. switch to clean electricity production. until it's in their financial interest. to do so. you can just take a look at all the red. tape and all the like protests and fines. and. all of that stuff that western countries. are facing. for using coal and yet they still use it. for like. 10 to 25 of their electricity production. and yeah china is obviously very far. removed from this because they don't. really pay attention to fines and. protests and things like that. to the same degree that western. countries might but these are just. my thoughts on the proof of stake. consensus model. let me know yours in the comments below. and thanks for watching