Practically every platform that emerges these days claims to have come up with a new and unique consensus model that solves all the problems of its predecessors. Undeniably, proof-of-work (PoW) has issues, including speed and scalability, which were known since the beginning of Bitcoin. The extreme energy consumption is a problem that emerged later, as mining became a more lucrative proposition.
Proof-of-stake (PoS) emerged as an elegant solution that could address some of these challenges. When combined with other innovations such as a multi-chain architecture and transaction pruning, pretty much all of the challenges of a linear PoW blockchain can be overcome.
PoS Attacks – Theoretical, But Not Practical
The major arguments that people use against PoS are based on theoretical scenarios that have never come to fruition on any PoS blockchain. Nxt was among the first PoS blockchain, and in the 6.5 years it has been in operation, nobody has ever executed a successful nothing-at-stake attack.
There are two reasons for this. Firstly, any would-be attacker would need to successfully override the underlying software, which force-selects the best fork based on the stake invested.
Secondly, even if this could be overridden, the attacker would need to control over 50% of the network tokens. Only then would they stand a good enough chance of being picked to forge the next block for long enough to execute a double-spend successfully.
Similar software-based controls can be put in place against long-range attacks. For example, creating a checkpoint every x blocks can reconcile any fork against the current state of the blockchain and reject it if it contains discrepancies.
In the case of either a nothing-at-stake attack or a long-range attack, the risk is roughly the same as Bitcoin facing a 51% attack. While it’s not an impossibility, it’s so difficult, or expensive, or both, that it’s all but impossible.
This practical reality means that the penalties for double-voting or wrong voting introduced by models like Ethereum’s Casper are unnecessary. In fact, they may only serve to alienate stakers who are being penalized for making a simple mistake by voting on the wrong fork.
So, if we’ve proved that proof of stake works, why is everyone still trying to “fix” consensus? Furthermore, many of the attempts to construct elaborate governance models around the simplicity of a working PoS are actually introducing more problems.
Too Much Complexity
Among the later iterations of PoS are delegated proof-of-stake (dPoS,) used by EOS, Cardano’s slot elections, or the “liquid” proof-of-stake deployed by Tezos. In general, these involve token holders casting votes or delegating their voting rights to others.
Most of these iterations do little more than introduce additional complexity for network stakeholders. Even worse, they open up a whole raft of issues that wouldn’t occur in a traditional centralized model.
For example, EOS has come under fire for being too centralized, with allegations of vote-buying and vote-trading among the larger token holders. This was happening within months of the EOS mainnet launch. A governance model that became so easily corrupted can hardly claim to be superior to one used by blockchains that have been running for years without incident.
Furthermore, these complicated governance constructs create a risk of bugs. The more programming needed for the implementation, the bigger the risk that the code will have vulnerabilities that can be exploited by malicious actors.
The Dangers of Staking Pools
The complexities involved in these newer models have led to a proliferation of staking pools. These pools supposedly exist to make it easier for users to navigate the staking process and encourage participation.
However, the other side of the argument is that staking pools are an issue waiting to happen. In the blockchain space, we’ve already seen every conceivable type of scam covering everything from fake ICOs to exchange hacks to Ponzi schemes. How long is it going to be before some users find they aren’t going to get their fair share of profits from a staking pool? Even the most honest actors operating a staking pool will want to keep a portion of profits for themselves.
Staking pools also further compound the issue of centralization already introduced by the leader election model. If all token holders are participating via staking pools because it’s easier and more passive, then many are unlikely to take advantage of their voting rights. Active stakers care about the future of the network, beyond just taking a share of profits.
Finally, the very existence of staking pools is a tacit admission that voter-based staking models are too complicated. After all, if the average user can easily navigate the staking process, why would they want or need to participate in a staking pool that’s likely to erode their profits and voting rights?
If It Ain’t Broke
The human “complexity bias” is a real psychological phenomenon. When presented with two choices, we naturally veer towards the most complicated one. This is evident when we consider the tendency within the blockchain community to reject a straightforward PoS solution in favor of a more convoluted construct.
But in the context of blockchain, giving in to this tendency could end up actively damaging adoption. If the technology is to survive in the long term, we should be removing barriers. That means keeping it simple and not fixing what isn’t broken.