1 min read

Look at how much money I have! (PoS)

Ever wonder why consensus algorithms all start with "proof-of..."? What are we proving? And why?

It goes back to the network. Blockchains are made up of a network of computers & people. This is true of the internet too (and other networking protocols). The key for blockchain is that economic incentives are provided by the network when you do the right thing. If you want to create a website, you don't get any rewards for that unless you put in additional effort (marketing, monetizing, etc.). The rewards are outside of the protocol.

If you can prove that you added value to a blockchain network, you can collect rewards. That's what you're proving. In proof-of-work (PoW), you're proving that you "did work" by solving difficult problems. This costs real money to buy computers and electricity.

In proof-of-stake (PoS), you're proving that you own a portion of the network's money. This is based on the idea that if you own money, you wouldn't want to do things that would devalue your money. It's well intended, but it doesn't match anything we do in real life.

Imagine you wanted to buy a pizza (collect rewards). PoW in real life would mean solving a math problem and winning the pizza for free. PoS in real life would mean showing everyone how much money you have and winning the pizza for free.

The Koinos consensus algorithm is going to be something different that makes more sense than either of these options. The Koinos group will announce it on Sunday and I will send out my thoughts & a new podcast on the topic on Monday.

More tomorrow,


P.S. For more, check out Andrew Levine's article on coin telegraph discussing proof-of-stake in more detail.