Slightly off topic, but does anyone have any good resources on how alternative consensus protocols work, like proof of stake and proof of importance? I either see really simplistic explanations or ones that assume a lot of domain knowledge. I also recently saw a crypto coin that claims to be energy efficient, and I don’t quite understand how that’s possible without the possibility of a 50.1% attack.
Proof of stake is relatively simple. You agree to stake a minimum amount of tokens (decided on by the network) and you get to run a node and validate transactions. If you attest to a malicious block and other validators call you out on it, you get slashed (i.e. you lose some portion of your stake, if not all of it): https://ethereum.org/en/developers/docs/consensus-mechanisms...
One of the problems with it is that it's difficult to bootstrap a network on a proof-of-stake system with a fair distribution. You end up with the pre-sale participants (i.e. VCs or founders) having the majority of the tokens.
I think what Ethereum is doing is a decent approach. They started as Proof of Work, so they were able to bootstrap the network for 6 years and now ETH is widely distributed and no single holder owns more than 1% of ETH, for example. So now they can migrate to Proof of Stake and they won't suffer from the centralized allocation problem.
Nothing about Proof of Stake is relatively simple lol. Not the incentives, not the threat model, not the trust model, not the impact on the economics, not the implementation, not the scalable byzantine fault tolerate research.
There are plenty of people who understand it well, I'm not saying it's outside of reach of a normal human being. But understanding proof of stake is not a 30 minute journey. (nor is understanding proof of work for that matter)
I think it is relatively simple compared to proof-of-work don't you? And it's not really hard to get at a conceptual level even if the implementation level is far more complex.
I post a deposit that says I'll be honest. If I'm caught being dishonest, I risk losing my whole stake.
You've left out a whole bunch of key ideas in proof of stake, for example the idea that the amount of voting power you have is proportional to the percentage of the money supply that you own. Which in turn means that your consensus system is ultimately controlled by the wealthy.
How do you know that someone has been dishonest? A consensus system can only enforce rules within that consensus system, if the consensus system has been compromised the dictator can censor any evidence of dishonesty, even if most people are aware that dishonesty has occurred.
You can draw the line anywhere you want for "conceptually simple". We could easily say that proof of work is equivalent to building a tower, and that the tallest tower is used to determine what consensus is. That's also very simple, but also leaves out a bunch of ideas.
> Which in turn means that your consensus system is ultimately controlled by the wealthy.
Yes, well how is this different than Bitcoin's massive multibillion dollar mining farm operations? Hard to avoid the rich getting richer. At least with Ethereum, it has launched hundreds of derivative tokens that have been able to experience exponential growth and have made a lot of retail investors very wealthy.
> How do you know that someone has been dishonest? A consensus system can only enforce rules within that consensus system, if the consensus system has been compromised the dictator
You're getting into implementation details. Almost nothing is ever easy to implement even if it is easy to conceive. Ok, a dam or a bridge is easy to understand, but building one is a highly technical challenge that involves a myriad of engineering tradeoffs, so if you want to read more into the particular tradeoffs the Ethereum Developers have settled on, go read the documentation. Everything is a rabbit hole, go as deep as you want.
>no single holder owns more than 1% of ETH, for example
Curious about this statement. Is this something that can be looked up online? I know wallets/transactions are entirely public so I guess its just a question of whether someone has made a tool to do this with ETH or other cryptos. How do other coins fair in the same regard? What's BTC distribution? LTC? Or any of their forks?
#1 has 5%, but it's the wETH ("wrapped ETH") smart contract, that allows people to deposit ETH as the native token and receive wETH in return. wETH is more easily used for things like decentralized exchanges (https://weth.io/). So that's really a utility contract used by many applications and users.
#2 is the ETH2 Deposit contract, with 2.6% of supply. These are stakers receiving mining rewards for participating in ETH2 beacon chain validation.
#3 is Binance, with 2.5% of supply. They are the largest centralized exchange, so that 2.5% represents Binance's customer accounts.
#4, #5, #6, are also exchanges.
#7 is Compound Ether (@1.08% of supply). Compound is a decentralized finance savings & loan protocol, so again, that 1.08% represents tens of thousands of Compound users.
I believe it's fairly well established that Joe Lubin holds somewhere around 10% of the Eth supply. Anyone with large holdings is incentivized to spread those holdings across many accounts to avoid scrutiny.
Pretty much every coin has substantial gini coefficient issues.
No, I mean people. Unless you count centralized exchanges that represent thousands to millions of users' pooled ETH, as people. Even then, the largest of these has about 2.5% of ETH supply.
For one, there's some risk in spreading your tokens across many wallets as an individual. That's more keys to keep up with that could be lost. Is it theoretically possible someone out there has spread their ETH holdings across 100 wallets and secretly hold 4% of the ETH supply? Sure, but it's unlikely given the distribution of exchange and smart contract wallet balances. If Binance, the world's largest centralized exchange for crypto has only 2.5% of supply, what are the odds there's an individual out there with more than that? They'd have had to be one of the earliest participants in ETH, but even Vitalik, the main founder only ever held about 1% at most (and from what I understand, currently holds less than 0.5%). Even the big ICO contracts that raised hundreds of millions in 2017 before the price really took off, never held that big of a supply. So either someone secretly mined 4% of ETH all these years while strategically accruing them in multiple wallets and never sold (so how did they fund their mining operations?)...or there's just not a whale out there like that.
That page does not explain how the correct chain is chosen...
I searched and found a blog that claims a chain is chosen by trusting other nodes:
“In PoS systems, weak subjectivity arises because the longest chain rule is not sufficient to determine the main chain due to the (nearly) costless process of creating an up-to-date chain.
Creating up-to-date competing chains would take little effort in PoS as opposed to in PoW. Therefore, new nodes or nodes that have been a long time offline have to trust the information they receive from other nodes about which chain is the valid one, causing weak subjectivity.
In the case of weak subjectivity, to ensure that the information about the valid chain is accurate, a node that is new or comes online after a significant period would have to get a recent block hash from a reputable source, such as a blockchain explorer, and insert that as a “checkpoint” into their blockchain client. This is the method of dealing with weak subjectivity, which relies on the trust with a reputable source. Although not completely in line with a trustless system, it shouldn’t really be an issue unless the reputable source is compromised.” - https://medium.com/better-programming/the-problems-that-ethe...
In distributed networks, a transaction has "finality" when it's part of a block that can't change.
"To do this in proof-of-stake, Casper, a finality protocol, gets validators to agree on the state of a block at certain checkpoints. So long as 2/3 of the validators agree, the block is finalised. Validators will lose their entire stake if they try and revert this later on via a 51% attack."
In ETH2 2/3 of 128 randomly selected validators have to agree. You also get slashed if your validator goes offline, so they factored for that case:
Determining a valid block isn’t the same thing as determining the correct chain. A node validates blocks by staking, but how does the node know it’s validating a block on the correct chain? As far as I can tell, PoS projects don’t have a trustless solution to this problem.
Imagine a net split, where the network becomes briefly partitioned. Nodes in each partition would keep adding blocks. When the network converges, there would be two conflicting chains. Using proof-of-work the chain with the most work (longest chain) is the valid chain.
Another scenario: Using proof-of-stake I can create my own alternative chain easily (if I don’t want stake money I could create new genesis block), and broadcast blocks to nodes that join the network. When those new nodes receive blocks from conflicting chains, which one is correct? From what I understand of Ethereum, new nodes have to choose trusted nodes when they join the network.
I wonder, if one is going to consider trust a non-problem, then why stake at all? A network like Nano works the same way, by trusting a quorum of voting nodes, but there’s no staking or inflation, which has the benefit of allowing anyone to participate without the rich getting richer.
You're perhaps thinking of https://nano.org ? A brief description of it's Open Representative Voting (ORV) consensus mechanism:
"A consensus mechanism unique to Nano which involves accounts delegating their balance as voting weight to Representatives. The Representatives vote themselves on the validity of transactions published to the network using the voting weight delegated to them. These votes are shared with their directly connected peers and they also rebroadcast votes seen from Principal Representatives. Votes are tallied and once quorum is reached on a published block, it is considered confirmed by the network."
I'm a huge Nano fanboy since the RaiBlocks days. It definitely deserves more attention, since it's a pretty solid technology and was distributed pretty fairly.
But even in this crypto bull market, everybody seems to ignore it, except for the fanboys on Reddit.
