A Comparative Study Of Proof of Stake Algorithms

Abstract

Cryptocurrencies are growing at a rapid pace. It is well established that the
mining operation fueling the cryptocurrency Bitcoin consumes a significant
amount of energy. This study aims to determine if there is an alternative to the
consensus model, maintaining security, integrity, and decentralization. It includes
a deep dive into the Bitcoin network and the consensus model Proof of Work
(PoW ). Additionally, four cryptocurrencies running the alternative consensus
model Proof of Stake (PoS) are examined. To test if a PoS consensus model
implementation could be a viable option, four distinct PoS implementations are
described. Bitcoin is compared to four PoS implementations in the different
aspects: security, scalability, and decentralization. How the different
implementations differ and how the various properties are affected when
changing the consensus algorithm is the main target of this thesis. The results
show that the Bitcoin network suffers from a high fraction of the mining
consumption originating from a small concentration of mining entities. Upon
dissecting the PoS implementations, the largest attack vectors stem from a
problem called the long range attack vector involving the lack of cost for
proposing a block to the blockchain, in contrast to the Bitcoin blockchain that
uses the PoW model that consumes external resources. This problem is handled
by different security mechanisms depending on the implementation, mostly
consisting of checkpointing schemes and finality on the network. However,
despite not seeing any problems with this in practice, there is no fully trustless
way to mitigate the problem. Additionally, despite PoS not being built primarily
as a scaling solution, a cryptocurrency can implement it in that setting. For
example, with EOS, significantly increasing the throughput compared to Bitcoin,
with the cost of losing parts of the decentralization properties by maintaining 21
block producers that produce blocks for the entire blockchain. Additionally,
Algorand is significantly improving throughput compared to Bitcoin, under the
assumption that at least 2
3
of the users are active, meaning that they are either

validating blocks or delegating their vote to an active validator.

Popular Abstract

Cryptocurrencies are growing at a rapid pace and gaining ground within tra-
ditional finance. In order to ensure integrity and liveness in the cryptocurrencies,

the users of the networks need to obtain consensus among which transactions
belongs on the immutable ledger. Since the whole idea with blockchain and
cryptocurrencies is a decentralized entity where the power belong to the users.
Additionally, with the integrity and liveness properties, a system needs to be
constructed where the currency can not be spent twice, and the network needs
to be kept alive despite actors disconnecting from the network.
In the Bitcoin network, the consensus is obtained by a system called Proof

of Work. It is well established that the mining operation fueling the cryptocur-
rency Bitcoin consumes a significant amount of energy. Apart from the Proof of

Work consensus model within blockchain applications, there are a number of dif-
ferent ways and implementation to solve this problem. The largest alternative,

seen to the marketcap of projects, is called Proof of Stake. Proof of Stake is an
alternative consensus algorithm which rather than burning extrinsic resources

(computing power) in as in PoW, involves staking intrinsic resources. The intrin-
sic resources that are put up as stake are often the native token of the blockchain

where the consensus algorithm is implemented. There are different types of ap-
proaches to PoS, with the common denominator in these being the users of the

network staking intrinsic value (tokens) to ensure the blocks produced are valid.
This study aims to determine what happens if you switch from the Proof

of Work to the Proof of Stake model. How will the security, integrity, and de-
centralization properties be affected? It includes a deep dive into the Bitcoin

network and the consensus model Proof of Work. Additionally, four cryptocur-
rencies running the alternative consensus model Proof of Stake are examined.

The projects are dissected by reading the documentation provided by the deve-
lopment teams of the cryptocurrencies, independent research, articles, and also

by examining source code.
The results show that the Bitcoin network suffers from a high fraction of

the mining consumption originating from a small concentration of mining en-
1

tities. Upon dissecting the Proof of Stake implementations, the largest attack
vectors stem from a problem called the long range attack vector involving the
lack of cost for proposing a block to the blockchain, in contrast to the Bitcoin
blockchain that uses the Proof of Work model that consumes external resources.

This problem is handled by different security mechanisms depending on the im-
plementation, mostly consisting of checkpointing schemes and finality and the

network. However, despite not seeing any problems with this in practice, there
is no fully trustless way to mitigate the problem. Additionally, despite Proof
of Stake not being built primarily as a scaling solution, a cryptocurrency can
implement it in that setting. For example, with EOS, significantly increasing

the throughput compared to Bitcoin, with the cost of losing parts of the decent-
ralization properties by maintaining 21 block producers that produce blocks for

the entire blockchain. Additionally, Algorand is significantly improving throug-
hput compared to Bitcoin, under the assumption that at least 2

3
of the users are
active, meaning that they are either validating blocks or delegating their vote
to an active validator.

• author: Saaranen, Antonio
• supervisor: Martin Hell
• organization: Department of Electrical and Information Technology
• course: EITM01 20201
• year: 2022
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• keywords: Blockchain, consensus algorithms, cryptography, Proof of Stake
• report number: LU/LTH-EIT 2021-802
• language: English
• id: 9102399
• date added to LUP: 2022-10-28 09:44:50
• date last changed: 2022-10-28 09:44:50