Thread by @yulesa

ELI5 PoS advantages:

The #beaconchain is close to launch. So what that means? What is #Ethereum #proofofstake (#PoS)?

Here’s a thread to explain what are the differences to PoW and why it is so meaningful. (1/15)

2/15 In Proof of Work (PoW) blockchains, miners have two different computational work to be done.

One, is to check if everyone’s balances and transactions check it out, so nobody is spending coins that they don’t have. This require very low computational power.

3/15 The other one is trying to solve a puzzle to be entitle to a reward. The first miner to solve the puzzle is able to create some coins from thin air to himself: the block reward.

In PoW, miners invest their money in hash power to be able to solve puzzle more frequently.

4/15 Miners do that by buying more and the best mining rigs available. This hardware doesn’t do useful computational work for the network, it just draw a winner for the block reward prize.

PoW miners are essentially staking their money in hardware equipment to get more return.

5/15 In the other hand, PoS got rid of this “hardware equipment” intermediary. You stake your money straight and your voting power is proportional to the amount you staked.

One person is randomly selected to propose a block and the others have to sign that the block is correct.

6/15 In PoW, if miners act maliciously, they lose the block reward and the operational cost of running the rigs, most of it in electricity bills.

The blockchain is safer the more the malicious player has to lose.

7/15 So the rigs operational cost and the block reward has to be higher as possible.

That’s the reason PoW is so wasteful in electricity resources.

8/15 PoS operational cost is very low.

Instead, if you act maliciously, aside of losing the rewards (a positive reinforcement), your stake is also burned (a negative reinforcement).

9/15 This has three advantages:

First, it better aligns incentives to the participants in the network considering that the stake is now denominated in the network currency.

10/15 Second, since you lose your stake acting badly, if you try it be dishonest again, your next attack is less effective because your stake is now lower and so is your voting power.

11/15 Third, since bad actors now have a negative reinforcement, participants have less wiliness to be malicious and the network positive reinforcement can be lowered to keep the same level of security.

Thus, the network can reduce block rewards.

12/15 Also, since operational cost are low, more people can participate in the network consensus.

You don't need to be close to mining rig distribution channels or have access to lower electricity cost.

The network is more decentralized this way.

13/15 PoS bigger disadvantage is its engineering complexity.

It relies on new ways of using cryptography, much more network communication and strong randomness assumptions.

14/15 However, this work is already done in the form of “Eth2 node and validators clients” and a users has only to keep it running, connected and updated.

Everything will be put to test tomorrow.

That's why it's such a big deal.

15/15 Also, that's why it is safer to do that it in a new chain (the beacon chain), because if anything goes wrong, nothing happens to the ETH1 chain.