Proof of Everything — The Ultimate Guide

If you’re in the crypto space, you’ve heard Proof of Something.

It’s inevitable.

Maybe you recently heared Ethereum is moving away from Proof of Work to Proof of Stake for ETH 2.0, or you heard about Solana’s Proof of History that allows the blockchain to process transactions 30 times faster than VISA.

The proof of whatevers are consensus mechanisms, that means they help us agree on the state of the blockchain.

(In Newscaster voice)

All that and more explained, right here, right now.

Another intro.

In July 2021 (after the China Mining Ban), I set off on a super deep thought exercise (3 minutes on the toilet).

How can I create a blockchain that consumes less energy, with the same level of security?

I care about the environment, but shit, I thought I’d make a billion dollars if I solved the Proof of Work energy problem.

So, for a very long time (3 minutes), I was in deep thought, then I decided to check the internet.

Imagine my sadness when I discovered that a solution already existed since 2011.

In retrospect, it’s not that sad, stick around and you’ll find out why.

Why does crypto consume so much energy?

The reason, which I explain in more detail here, is if it doesn’t, the blockchain can be compromised easily.

A summary of the article I linked above is,

a block (a group of transactions in the same time frame), can only be added to the blockchain (the chain of blocks) by solving a complex problem.

The problem is complex to ensure security of the blockchain.

Since the blockchain is decentralized, anyone can create and add a block. The block is only valid when 51% of the network agree the block is valid.

If the problem isn’t difficult enough, anyone can authenticate fake transactions.

Usually miners ignore blockchains containing a fraudulent block but the rule is the longest chain tells the truth. If mining is cheap, fraudulent blockchains can continue to grow at the same rate or even faster than the valid blockchain.

To prevent this, Satoshi Nakamoto invented Proof of Work and applied it to blockchain technology.

Proof of Work (PoW)

PoW is the OG, it’s the consensus system. Bitcoin and Ethereum 1.0 use it.

In Proof of Work, block miners race against each other to solve the complex problem first.

So this guy, and that guy, and that other guy, all do the exact same work, for one reward, the worst part is if multiple miners get the solution at the same time, only one of them gets the full reward. (on the Bitcoin network, the other miners get nothing).

Needless to say, creating fraudulent blocks is pointless and you lose a shit ton of money, but this also wastes a lot of energy.

So in 2011, someone by the alias of ‘Quantum Mechanic’ proposed Proof of Stake to replace PoW.

Proof of Stake (PoS)

In 2011, Quantum Mechanic proposed a consensus system where, instead of having multiple miners racing against each other, we instead have just one validator (notice the change in terminology) per block.

The block validator is chosen pseudo-randomly. It’s pseudorandom because the chances of being selected increase with the amount of cryptocurrency staked.

Hence the name, Proof of Stake.

The stake also serves as a deterrent to creating fake blocks, if a validator creates a bad block, it’s invalidated by the other validators, and the bad actor has his stake partially or completely removed.

And yes, PoS isn’t proving your stake. The crypto world just wanted the name similar to PoW. Deal with it.
Moving on, the first coin to use PoS was PeerCoin, created waaay back in 2012.

Never heard of it? Neither have I.

Safe to say, I probably won’t have become a crypto billionaire if I invented PoS.

Happiness restored.

So to wrap this section up, PoS is a ‘greener’ replacement for PoW and it’s gaining popularity (Cardano and Solana use it). It’s the consensus system we’ll use going forward.

Proof of History

You’ve heard of Solana, if you’re deaf, you’ve seen it. It is the most capable ‘Ethereum Killer’.

Chances are you’ve heard about it’s Proof of History, but you’ve also heard Solana uses PoS.

Now you’re more than a little confused. I shall explain. You’re welcome.

First, PoH isn’t a consensus system.

Proof of History is a way to represent time as data.

In Proof of History, we use Verifiable Delay Functions (VDFs).

VDFs are functions that require multiple sequential steps to compute, but verification is independent of the number of steps.
In PoH, we use SHA-256, a hashing algorithm.

A hashing algorithm takes anytype of data and gives a fixed size output. That means whether you hash Anatoly or a 35 GB porno their hashes will be the same size.

The hash of anatoly is b5b4d037874c630bacc6c6617fbc10b53cfcc8d404825b2a77718be238838ccc

In PoH, we start from any random piece of data, hash it, then hash the hash and continue hashing the hashes.

Since it’s sequential, your processor can only do it one step at at time (one one core).

But verifying is easy, you just put all the steps on different cores, and verify in parallel, for a 4,000 core processor, you’ll verify 4,000 hashes in the time for generating 1.

The fun part is Solana uses this setup as a clock.

How?

Because we’re around the max possible speed for generating SHA-256 hashes, nobody’s ‘clock’ is significantly faster.

PoH creates Decentralized ‘time’.

This means we can all agree on what time it is without concencus or even communicating. In turn, validators can switch block creation without communicating

This ‘time’ is also used to timestamp transactions. We know for sure that A happened before B, and B before C.

This way we can reduce block verification time.

Instead of having to individually check the transaction order, we can do it all at once and save time.

That is how Solana uses PoH to speed things up.

That wraps up this piece. Cue epic outro.

Wait, a TL;DR.

Summary

To summarize, block creation cannot be any less difficult, if it is, then the blockchain becomes less secure. So instead of reducing block difficulty, reduce the redundancy.

That is Proof of Stake. In PoS, there’s only one validator (not miner) per block, this ‘lucky’ validator is selected by the system. It’s ‘luck’ is directly related to how much cryptocurrency he has staked.

Proof of History creates decentralized time and reduces communication overhead.

C’est fini.

Originally published at https://www.investorrepublic.com on December 5, 2021.