Need for speed drives adoption of Proof-of-Stake Blockchain protocols

PoS might not in itself turbocharge Blockchain transactions. But the technology seems to be establishing the foundation for something that might.
Thomas Lee
Senior Writer, Digital Securities Group

Decentralization has always been the key theme to cryptocurrencies and Blockchain technologies. Using economic incentives, the basic idea is to crowdsource the task of verifying financial transactions, therefore bypassing powerful third-party institutions.

Cutting out the middleman would theoretically make things go faster. But in reality, the reverse has happened. Open Blockchains are slow and cumbersome because the process of validating the transactions is slow and cumbersome. However, the emerging Proof-of-Stake (PoS) alternative promises to speed things up.

Under the Proof-of-Work (PoW) protocol that dominates the industry, miners use a lot of computing power to solve mathematical puzzles and thus be the first to validate a block and receive digital coins as a reward. But everyone trying to solve the same puzzle at the same time seems like a like a waste of time and energy--both figuratively and literally (mining computers suck up a lot of electricity).

Casper, a PoS protocol based on the Ethereum platform, hopes to change that. With PoS, the system grants a person, called a “forger,” based on his/her coin holdings the option of starting a new block. The system then rewards participants transaction fees instead of a set block of Ethereum.

Lest the forger wants to sabotage a block or create general havoc, the person must first stake some of his/her Ethereum holdings which he/she could lose for misconduct.

Getting things to move faster

PoS might not in itself speed up Blockchain transactions. But the technology seems to be establishing the foundation for something that might. Called “sharding,” the idea is to divide the data into separate sections in which people can work on validating different parts the Blockchain (presumably led by a forger) at the same time, thus boosting speed and scalability.

But looking at the big picture, something else is at play. The original idea of crypto was to even the playing field, to prevent power from centralizing into too few hands. But the current problems with Blockchain show that efficiency and mass adoption require the presence of some overall authority. Otherwise, we just have anarchy.

Offering only people with large holdings the first crack at validating blocks seems to suggest that not all people on the Blockchain are created equal. The system requires some kind of hierarchy to make this technology work.

Some people might not like that sentiment. With cryptocurrencies, suspicion and resentment of hierarchies, whether political, social, or economic, comes with the territory. After all, we live in a global era of populism and many people blamed the so-called “elite” for causing the financial crisis in 2008 that led the worst economic downturn in the United States since the Great Depression.

Environment is a red herring issue

Perhaps that’s why people, through a hodge podge of articles, blogs, essays, or reports on the Internet, seem to primarily frame PoS as a way to save the environment.

In a piece published on Hacker Noon entitled “Why Proof-of-Stake is the Future of Blockchain Technology,” the author begins the story with this:

“Cryptocurrencies are under wide public scrutiny for placing an undue burden on the environment. Concerns that cryptocurrency — the primary application of blockchain technology — will have broad implications for environmental sustainability are undoubtedly warranted.”

However, only 17 percent of Americans ever heard of Blockchain, never mind worry about the technology’s environmental consequences, according to survey last year by Researchscape. Another survey by found that 92 percent of Americans don’t even own cryptocurrencies.

That’s not say reducing energy consumption and carbon emissions aren’t important goals. But the crypto community’s primary concern is to make Blockchain technology more scaleable and PoS seems like a promising start do that.