This is a transcribed excerpt from the “Bitcoin Magazine Podcast”, hosted by P and Q. In this episode, they are joined by Paul Sztorc to explain why all roads lead to proof of work and how proof of stake protocols go wrong believing that proof-of-stake technology can remain decentralized and secure.
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P: Start by defining at a high level what we mean by proof-of-work versus proof-of-stake. How would you define Proof of Work and how would you define Proof of Stake?
Paul Sztorc: That’s good because that’s what my article is about. The proof of work is that you do this type of calculation over and over again. So your computer is working very hard. There’s no other way to do it, it’s just based on quantity. How many times can you do this SHA256 hash? You do it very quickly and every two weeks the underperformers are fired. So basically, since you’re doing a lot of math, it boils down to the electricity you spend, the money you spend on hardware, the physical chips, the money you put in to cool the chips, and so on. It’s like running your computer, you’re making your computer work very hard.
It doesn’t happen so much anymore, but it used to be that you used your computer and it only made small sounds, but if you started a game – something intensive – the fan would go crazy and it would start making more noise because the computer is working really hard. So that’s the job; this poor computer is working very hard instead of doing nothing or only working when you tell it to. It’s going 100% trying to produce as much as possible.
In proof of stake, the idea is in the cryptosystem reality, in the blockchain reality or in the coin reality, in this reality of the full node software, it kind of knows — which is part of the problem, that sort of – but he knows who has which coins and he also knows who bets which coins. These people put the coins in a kind of dangerous state, a dangerous box. They bet the coins. They say, “I buy” with a certain amount, and then they join this – what would be – a class of miners in their world.
They have a number of coins in play and then there is a complicated lottery system. There are many variations, but in general it’s like the more money you bet, the more likely you are to be picked. When you are chosen, you have the option to create the next block and then create the reward because you get a chance to win that $10 billion.