Proof-of-Work and Proof-of-Stake are both methods of attaining sybil resistance in a protocol. However, there have been many misconceptions regarding the functionality and differences between the two mechanisms.
Quai Network proposes Proof-of-Work 2.0, a completely new method of organizing blockchains in a hierarchical, merged mined structure.
Proof-of-work & proof-of-stake
Proof-of-Work and Proof-of-Stake both answer the same fundamental question: who gets to propose the next block to a blockchain?
Proof-of-Work’s answer to the question is that whichever computer (miner) can find a valid hash first gets to propose the next block. This requires computers to be hashing (mining) constantly, which consumes energy. This energy is a real world cost to miners, causing miners to be incentivized to recoup that cost from block rewards and fees. Unless a miner has >51% hashpower of the entire network, the only way for a miner to recoup that cost is to participate honestly with the protocol. Thus, PoW incentivizes cooperation and penalizes bad actors.
Proof-of-Stake’s answer to the question is very different: an algorithm is used to select a “validator” based on how many tokens they have “staked”. These validators do not hash to find blocks, and thus are able to use significantly less energy than most Proof-of-Work systems. However, with this lack of energy cost, a new mechanism must be introduced to disincentivize bad actors from proposing malicious blocks forever: this mechanism is called “slashing,” which allows for the validator’s stake to be reduced if they attempt to disrupt or attack the chain.
Many criticize PoS as inherently centralizing due to the fact that a minimum stake is required to become a validator. Upon Ethereum’s move to PoS, it will cost 32ETH (~$50,000) to become a validator. In addition, validators will no longer have to liquidate profits to cover operations costs, which lets validators endlessly compound their returns.
Many argue that this inevitably creates a massive gap between the validator “class” and everyday users, similar to our existing financial system. PoS systems are highly likely to become permissioned, rather than permissionless networks, as the only way that tokens can enter a PoS network is either through a pre-mine or through validators, which will undoubtedly be financial institutions. These financial institutions will submit to regulatory and social pressure to restrict access to certain groups of people, meaning that PoS systems will not be able to operate outside the permission of a state.
Proof-of-Stake also opens up a variety of new attack vectors by relying on slashing to eliminate bad actors. Proof-of-Stake is a balancing act between keeping the required stake low (improving decentralization and network participation), and keeping the required stake high enough to secure the chain (the lower the stake, the lower the disincentive to act maliciously). Many attacks exploit this balancing act, such as the so-called “nothing at stake” attack.
These are the only core differences between Proof-of-Work and Proof-of-Stake. There is a widespread misconception that alternate methods of sybil resistance like PoS can increase throughput, which is wholly false. No matter how little energy a method uses, it should remain true to the original purpose of blockchains: to be censorship resistant, permissionless money. A change from one method of sybil resistance to another will never increase throughput alone.
Quai Network & Proof-of-Work 2.0
At Quai Network, a new consensus mechanism known as Proof-of-Work 2.0 is used. This consensus mechanism is unique from Proof-of-Work 1.0 and Proof-of-Stake in that it is more than a method of sybil resistance — it is a completely new way of structuring and organizing blockchains.
Under Quai Network’s Proof-of-Work 2.0, the original PoW answer is used to address who gets to propose the next block in the context of a hierarchical, multi-chain architecture. Within monolithic chains, a rule known as the Longest Chain Rule (LCR) is applied whenever there is a decision to be made between two forks of the chain. Under LCR, the chain that has the most work applied to it (generally the longer chain) will be considered the canonical chain. Under Proof-of-Work 2.0, these decisions are resolved by the Hierarchical Longest Chain Rule (HLCR) and the Previous Coincident Reference Check (PCRC).
The Hierarchical Longest Chain Rule is very similar to the Longest Chain Rule, with a slight addition: the dominant chain in the hierarchy always wins. A subordinate chain must always be extending the dominant chain(s). Decisions between forks become much more complicated in a hierarchical structure, which is addressed by HLCR.
The Previous Coincident Reference Check is unique to Quai’s structure. Due to Quai Network’s use of merged mining, blocks are occasionally found that are valid for multiple chains within the hierarchy. These blocks are known as coincident blocks, and allow all Quai chains to inherit the Prime Chain’s high security. The PCRC is used to check against possible “twists” in the network, when two chains which are linked, but have different understandings of each other (e.g. a dominant chain which includes subordinate blocks, but the subordinate chain does not include those blocks). PCRC ensures that the decentralized bridging enabled by coincident blocks remains highly secure.
Because Proof-of-Work 2.0 is much more than a method of sybil resistance, it does allow for increased throughput. Since Quai Network produces blocks asynchronously across many chains, the equilibrium of gas fees can be radically reduced through increased supply. In addition, since all chains are interoperable and interconnected, users are not siloed into distinct ecosystems as they are when using Ethereum Layer 2s.
With Quai Network’s implementation of merged mining, miners are able to recycle hashpower across chains, and mine many chains simultaneously. This, when combined with Quai Network’s radically increased throughput over monolithic chains, allows Quai to use a fraction of Bitcoin and Ethereum’s energy per transaction.
Conclusion
In essence, Proof-of-Work and Proof-of-Stake are two answers to the same fundamental question: how do you pick who gets to add the next block? Within Proof-of-Work, hashing and miners are used to come to this decision. Within Proof-of-Stake, weighted selection based on stake and validators are used to decide.
Quai Network looks to transform the limitations of Proof-of-Work and Proof-of-Stake with Proof-of-Work 2.0, a completely new method of organizing blockchains within Quai Network’s unique merged mined, hierarchical structure.
Join us to build a better blockchain.
Quai Network is an open-source Proof of Work blockchain network utilizing the capabilities of merged mining to increase throughput and security. Users of Quai Network will enjoy fast transaction times without compromising decentralization and security. Miners will have competitive mining opportunities across the many blockchains within the network.
Capable of thousands of transactions per second, the Quai Network is a Proof-of-Work solution to scalability that is soon to be ready for mainnet release.
Disclaimer
Opinions, ideas, and statements shared in this update are delivered with numerous assumptions, risks, and uncertainties which are subject to change over time. There are multiple risk factors, including those related to blockchain, cryptographic systems, and technologies generally, as well Quai’s business, operations and results of operations, that could cause actual results or developments anticipated not to be realized or, even if substantially realized, to fail to achieve any or all of the benefits that could be expected therefrom. We reserve the right to unilaterally, completely, or partially change plans, expectations, and intentions stated herein at any time and for any reason, in our sole and absolute discretion, and we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise. ACCORDINGLY, WE RECOMMEND THAT YOU DO NOT RELY ON, AND DO NOT MAKE ANY FINANCIAL DECISION OR INVESTMENT BASED ON, THE STATEMENTS CONTAINED IN THIS UPDATE OR ANY OF OUR UPDATES/ARTICLES — INCLUDING BUT NOT LIMITED TO ANY SELLING OR TRADING OF QUAI TOKENS, ETHER, OR ANY OTHER CRYPTOGRAPHIC OR BLOCKCHAIN TOKEN, OR THE SECURITIES OF ANY COMPANY.
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