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What's the Difference Between "Proof of Work" (PoW) and "Proof of Stake" (PoS)?

What's the Difference Between "Proof of Work" (PoW) and "Proof of Stake" (PoS)?

What is "Proof of Work" and how does it compare to "Proof of Stake"? In this short video, from the heart of the Wynwood district in Miami Florida, I discuss the ...

Transcription

What's up part people, Its Chris DeRose, Community Director of Counterparty Foundation, and today I want to talk to you a little bit about the differences about the "proof of work" and "proof of stake". It's a complicated question and it's really defied, I think. The traditional root works in computer science and economics, what kind of question even is this? It's really the amalgamation of the 2 fields. So there's a lot of computer scientist out there that has some opinion and perhaps aren't as educated as the economist, vice versa. I'll try to distill the basics of this question for you. Even I, myself have a hard time with it.

In fact, anybody who tells you they understand the matter very well is probably misleading you because there's so much uncharted territory here. So let's get started. Proof of work is a system by which people in the network burn energy or burn a financial resource from outside of that network in order to create a steak within the network. It was the circumstantial solution to advisor to the general problem and it was the revelation that Satoshi really had about how launching his good work in a way that really not been explored before. And so, proof of work is a very energy consuming protocol. It requires quite literally, as much energy as you can throw at it.

Typically and certainly the case of Bitcoin, when energy is burnt by many parties, the Bitcoins that were created were more less equally distributed amongst those party. The energy is itself a sign of steak that if more people are burning more energy, they only get the energy that they're inserting marginal to the other competing factors in the system. And that's just about how proof of work works. It works very well for Bitcoin thus far, to a lesser degree it's worked for Litecoin, Dogecoin works in a significantly lesser degree. And that brings us to another part of proof of work that I personally find very interesting; which is because block chain works because the Bitcoin block chain works and because proof of work works. Typically there's and incentive for miners to join the longest chain.

As result of their burning real energy and real money to get steak into a system, they then want to make sure that steak is in a reliable system which thus far has been Bitcoin. It is perhaps, in my opinion, that Bitcoin will remain the leader in a proof of work system in the long foreseeable future. So that's proof of work, but there's criticism of proof of work. These criticisms are typically that the amount of energy burned in perhaps wasteful. Certainly, I don't see it that way. I think that these energy resources pale comparison to more traditional metrics.

Certainly they pale compare to gold perhaps; the amount of energy that is burned when harvesting gold. But nonetheless these accusations are levied. And certainly too, the problem with proof of work is it does favor incumbent. So when somebody wants to compete with a proof of work systems, they're very limited. So I think there's a large interest in exploring proof of steak models for this reason. It makes it easier for people perhaps if it were to work.

Certainly we have protocols like Ripple which is a modified form of proof of steak and that is working for them to a degree. Proof of steak is a model where we aren't burning actual external resources. We are instead, voting. It's really analogous to perhaps, how the dollar works, where we have a creation of the money supply. Some level which is relatively arbitrarily in that it is only referenced to the actors in the correct system. Which is unlike, of course, proof of work where you're burning energy outside of the system.

So there is nothing at steak which is often said with steak based systems, that's typically my view. There're many people who are trying to make that problem work. I think that there is room for proof of steak in the future, I think that there is going to be some successful proof of steak models, but this brings us another problem with steak typically. It's really centralized. So typically with steak, the people that earn Bitcoin are the people that have Bitcoin. And it could probably be said that this is the criticism of the U.

S. dollar as well. The people who have dollars, are inclined to earn more dollars. You see this manifested in proof of steak networks. The people that have steak are themselves rewarded in more coinage, and that is typical in all proof of steak models. It's really hard in a proof of steak model for newcomers to really declare their own steak or their own energy or their own coinage in that model.

So this may be a feature network that is really good for things that Ripple which itself designed as a Quasi messaging protocol for money, for banking applications. The main thing you have to keep in mind that steak vs work is with work, it is a model where nobody trust each other to any degree, there's a set of rules that work well with it. With steak there is a little bit of trust that's required. That's why you see it kind of working for Ripple, for these models where there are fee over course mechanisms. It may be that someone solves this problem for steak in the future, for completely trust-less models. Certainly that's the goal of bit shares, the theorist, or these other jobs.

Now, why this is relevant for counterparty is the counterparty project believes the proof of work is in fact the way to solve block chain issues. It is the way to run a counterparty network where you don't have to trust existing actors in any capacity. So when you're looking at counterparty, exploring counterparty versus some of the alternatives, keep in mind that the Bitcoin proof of work model has been working very well this far and there is a lot of security in the proof of work model in that energy has been consumed in all persons involved. In order to unravel the network, in order to change the network, an enormous amount of external resource is involved, that's the core of the nothing at steak problem. In steak based models, it is very easy to unroll steak based change; at least thus far, we'll see how things develop. That's the introduction, that's the rough guide to how proof of work differs from proof of steak.

There's a lot of permutations on how proof of steak, there's some permutations on proof of work. So we'll see how this field develops. Maybe if I get some more questions from you guys, I can tackle very specific proof of steak implementation to tell you what I think of those. But yeah, if you have any questions, if you want to learn more about counterparty, go and ask me. My email's chris@chrisderose.com and at Twitter, I'm @DeRoseTech, so go ahead and send in your questions.

If you like this video, you want to see some more, explore the channel, maybe subscribe, I love to have you around.