Proof of Stake vs Proof of Work
Sep 11, 2015
As blockchain technology expands around the world, we believe it is essential to continue studying and evaluating the technology’s potential. Our white papers and fact sheets tackle some of the most pressing questions in the blockchain community.
Proof of Stake vs Proof of Work
Sep 11, 2015
Proof of stake is a consensus mechanism for digital currencies that is an alternative to proof of work used in Bitcoin. The main declared advantages of proof of stake approaches are the absence of expensive computations and hence a lower entry barrier for block generation rewards. In this white paper, we examine the pros and cons of both consensus systems and show that existing implementations of proof of stake are vulnerable to attacks which are highly unlikely in Bitcoin and proof of work approaches in general.
We consider several problems and possible attack vectors arising in proof of stake cryptocurrencies:
We estimate the cost of various types of attacks on proof of stake currencies and compare it with the cost of similar attacks on a proof of work currency. The cost of attacks on proof of stake is shown to be significantly lower.
We also consider delegated, or deposit-based, proof of stake consensus as an ongoing evolution of basic proof of stake. This version of proof of stake is more resistant to attacks and could potentially be a formidable opponent to proof of work, when it is sufficiently tested in practice and gains a foothold. On the other hand, just like basic proof of stake, delegated systems require a combination of algorithmic and social-driven security; the social component of proof of stake currencies could weaken their decentralization and mathematical soundness.
Bitfury Report On Block Size Increase
Aug 31, 2015
We believe that in order for Bitcoin ecosystem to prosper, the maximum block size must be increased. It is a common understanding among Bitcoin developers that the current limit of one megabyte hinders scalability of Bitcoin Blockchain and prevents its wide adoption as the technology of the future.
We have thoroughly studied all block size increase proposals and find that Jeff Garzik's BIP 100 proposal is the most reasonable and considerate one. We think that the block size debate must be resolved by a consensus and the voting mechanism introduced in BIP 100 is a good way to achieve such a consensus. The forecasts of growth of the Bitcoin network made in other proposals don't provide enough predictive power, so in such case the cost of mistake is extremely high. The power to make such future defining decisions must belong to the community. Ultimately, it is up to all network participants to decide what number of full nodes is sufficient to preserve decentralization, not just hardware growth trends. We believe that BIP 100 is the best solution in this regard.
Please see the extended report below:
Smart Contracts on Bitcoin Blockchain
Aug 13, 2015
Smart contracts are one of the more promising directions for cryptocurrencies and Bitcoin in particular. A smart contract is understood as a computer protocol used to facilitate and automate financial contracts. The term smart contract was introduced by Nick Szabo in 1990s and became more relevant than ever before in 2010s after digital currencies gained popularity.
One of the advantages in using Bitcoin as a medium for smart contracts is the inherent low trust approach. Built-in Bitcoin mechanisms let users minimize counterparty risks by utilizing mathematical and algorithmic tools, not by relying on a mediator’s authority, as is often the case in the traditional approach.
Bitcoin is criticized because of the insufficient expressive means for smart contracts. The Ethereum project launched on July 30th, 2015 was developed as a replacement of the Bitcoin protocol specifically targeted for smart contract users. Because of the critique, the following questions arise:
what possibilities and perspectives does the Bitcoin protocol have as a medium for smart contracts?
what are the main drawbacks of Bitcoin compared to the alternatives (e.g., Ethereum)? Can these drawbacks be eliminated or alleviated while staying within the protocol?
This report studies possible smart contract applications for Bitcoin and outlines directions for further research.
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