Elon Musk recently announced that Tesla will no longer accept Bitcoin payments due to excessive energy consumption. In order to find alternative options, Tesla will instead explore the “green” cryptocurrency market to find feasible solutions. This news once again triggered a debate between the Proof of Work (PoW) and Proof of Stake (PoS) consensus mechanisms.
Decentralized Finance VS Traditional Finance
Bitcoin created a precedent for proof-of-work, relying on miners to process a large number of digital operations and consume energy to keep the system alive. Currently, this is equivalent to 0.55% of total global energy consumption-as much as small countries such as Malaysia or Sweden. Considering this information, Bitcoin seems to have problems, but what is the energy usage of the entire global monetary system?
An important fact to remember is that 75% of Bitcoin’s electricity consumption comes from renewable energy sources such as wind, solar, and hydropower. In theory, cryptocurrency can exist forever, and the life cycle of the paper currency system is limited. People need to use cotton, ink, water and metal to continuously maintain the supply of banknotes. A report stated that the traditional banking system has used twice the energy consumption of Bitcoin. Traditional banking systems have always required intermediaries during the authentication process, and they can now be replaced by immutable smart contracts.
Ergo is one of the most complex protocols in the cryptocurrency field. It has a stateless client, NiPoPoW (Non-Interactive Proof of Work Proof of Work) for light clients, and also allows easy voting to change mining parameters (such as block size) .
Layer 0: Ergo core. Many efficiency improvements have been completed in the v4.0.8 version of the node (this can also be increased by 20-50 times). It is also planned to use NiPoPoW certification and UTXO collection snapshots for quick boot.
Layer 1: Ergo has an extension in its code that allows various extension solutions, such as sharding, Hydra (Ergo is mentioned in the Hydra paper of IOHK), and BitcoinNG-style microblocks. This also enables Ergo to use velvet forks or soft forks to achieve universal side chains. (Annotation: Hydra is an off-chain protocol that can improve the scalability of the Cardano network while ensuring low latency and low data storage per node; BitcoinNG is an improved version of Bitcoin, which uses the same trust model as Bitcoin. Have better scalability, lower latency and higher bandwidth)
Layer 2 (off-chain): Ergo should be compatible with Lightning Network, Rainbow Network, etc. This implementation will depend on the requirements of the applications built on Ergo.
PoW and PoS are better?
Unfortunately, this question is difficult to answer, and both have their own advantages.
PoS blockchains usually have to be launched with an initial coin offering (ICO), which means that a certain amount of pre-mined tokens are allocated to the development team and used for private placement. There is often debate about whether this is decentralization, because it allows founders and venture capital to take the lead in buying tokens.
On the other hand, PoW-based coins can be issued more fairly, where the founder team and all other participants in the network have a fair starting point. In this system, only a small amount of mining rewards are entrusted to the foundation treasury for the development of the ecosystem. For example, Ergo’s treasury rewards only accounted for 4.37% of the total mining volume. For different cryptocurrency projects, this number may also be different.
When comparing PoW and PoS networks, security is usually a controversial topic. PoW is vulnerable to 51% attacks. This means that the perpetrators will consume more than 51% of the network’s computing power to destroy the blockchain. Ergo’s high memory occupancy protocol is an important and unique feature to prevent these attacks. To break this agreement, the perpetrators will need a huge amount of GPUs.
On the other hand, PoS relies on pledged assets. In this model, the perpetrator must own more than 51% of the pledged tokens. Although this sounds almost impossible, it is necessary to consider the floating percentage of pledged tokens at any given time. When the income of the DeFi platform exceeds the income of the pledge, the amount of pledge on the network may decrease, thus making the system vulnerable. In Cardano, staking has been incorporated into the DeFi contract to allow dynamic staking of ADA. For the same reason, the delegation of equity pools is relatively autonomous. However, in fact, Goguen is not yet online. The hypothesis about safety has not been tested in the real world. IOG spent a lot of time on Shelley to perfect the seamless pledge, partly because they realized and worked hard to alleviate this problem. (Annotation: Goguen is the third phase of Cardano, and it will add many new features, such as allowing the creation of smart contract applications and tokens on Cardano; IOG is the software company that develops Cardano; Shelley is the second phase of Cardano, with the goal of perfection And optimize decentralization)
In terms of energy consumption, the PoS model is more efficient than PoW. However, due to the various reasons mentioned above, efficiency may bring safety issues. The realization of NiPoPoW will help PoW networks expand more efficiently. The PoS system is in a leading position in terms of expansion and energy consumption, but the safety trade-offs it brings have not yet been tested by time. Similarly, NiPoPoW is still in its infancy and has not yet played its full effect.
It is important to pay attention to the Lindy effect associated with the evolution of Bitcoin’s monetization. It states that the life expectancy of technology is directly proportional to its age. The PoS consensus mechanism needs time to test, recognize, and implement—especially compared with PoW, which has been rigorously tested for more than ten years and has not yet found tampering or downtime. We need a rigorous academic method to establish this foundation, and it will take years of testing to prove this adaptability.
In order for PoS to maintain stable growth, it is important to be aware of these easily overlooked problems and their solutions. Therefore, this is the focus of the IOHK, Emurgo and Cardano Foundations, and this is no accident.
However, it must be considered that no chain can rule everything. Two systems (PoS and PoW) can be combined and work together to form more effective use cases and complement each other.
The combined power of PoS and PoW
Readers may have noticed the ErgoDEX proposal on Catalyst. The figure below shows the roadmap. After deploying the initial applications on Cardano and Ergo (using their respective tokens locally as needed), the true power of the eUTXO model will begin to emerge. Ergo will seek to provide trustless exchanges, cross-chain gateways, and shared liquidity between the two chains.
The AgeUSD stablecoin protocol, oracle pool, privacy function and side chain development will be the first building blocks of a robust decentralized economic model on Ergo.
Finally, we hope that our future will be more green and environmentally friendly. To this end, all mankind must develop in the direction of renewable energy. The blockchain is still in its infancy, and the Ergo platform has considered energy issues since its birth, which is very important. Ergo aims to solve scalability and security issues through a novel UTXO design.
For the design motives and inspiration behind Ergo, please refer to the Ergo Manifesto.
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