Since the advent of blockchain, a tsunami of startups has moved into the crypto space, each trying to one-up the previously present startups. The advancements range from use cases to blockchains and consensus algorithms. Although most of the people in the crypto space believe that PoW might be the best consensus algorithm available but others have their own opinions regarding the flaws of it.
Michael Zochowski, the founder of Logos Network, believes that PoW has a lot of flaws relating to security and performance. According to him, the algorithm makes a 51% attack easier as nowadays most of the hardware can be rented. For example, NiceHash provides a lot of equipment for crypto mining, due to which 51% attacks are made simpler. A hacker simply has to spend some money to rent mining hardware and doesn’t need to have actual hardware to perform the attack. Michael stated, talking to BlockPublisher,
PoW has poor economic/game theoretic security. Incentive alignment between the Sybil control mechanism (mining hardware) and underlying network price is quite weak and can also be rented, enabling 51% attacks. There are also several other attacks that are the expected long-run behavior of miners.
The basic promise of blockchain was the provision of a decentralized transparent network with no powers, no middlemen, and immutability. If the concept of decentralization is stripped away from the technology, the basic promise is not fulfilled. Another issue with PoW is the tendency of centralization. Miners form pools and big data centers with huge computing powers where they get to solve most of the cryptographic puzzles and add blocks to the chain, which makes it more centralized than decentralized. In this regard Michael stated,
PoW has tendencies towards centralization, and is likely a natural monopoly, which further compromises long-run security.
He also thought that PoW is not truly Byzantine fault tolerant and has relatively strong (i.e. unrealistic) security assumptions.
Another popular problem of blockchain is the problem of scalability. New startups are working hard to find second layer solutions for scalability. Vitalik Buterin, the founder of Ethereum, himself is dedicated towards finding a solution. Michael, however, thought that Proof of Work limits scalability and according to him, PoW chains cannot scale to more than 100 TPS. He stated,
A PoW system is inherently limited by the consensus algorithm rather than by hardware performance. It has been mathematically proven that PoW cannot safely scale past 100 or so TPS. PoW is not well suited to other scaling approaches like second layers and sharding.
Lastly, the issue that is most talked about when it comes to BTC is the environmental impact and power consumption. The chances of a miner successfully mining a coin or finding the nonce is directly proportional to the amount of machinery he/she has utilized. Which means the better the computer (heavy machinery) the more are the chances for BTC to be mined, and hence more electricity is consumed. The issue relating to this is that the more the BTCs are mined, the more the mining would become complex and hence more power consumption. So over the years, the energy consumption for BTC would naturally become worse. Sharing his views on this, Michael stated,
PoW is massively inefficient in terms of energy and resource usage. The limited capacity and high cost of validation means that it is necessarily expensive for the end user.
Finally, talking about the algorithm that he himself preferred, Michael said,
Proof-of-stake enables networks to solve all these issues (although it is not necessarily easy to do so!) while providing better decentralization and a more sustainable growth model. Our own project, Logos, uses PoS and classical consensus algorithms (PBFT) to deliver higher performance and better security than PoW ever can. Most other ‘Proof-of-X’s involve some degree of centralization and/or suboptimal performance and security.
The positive point to point out here is the fact that the startups and founders are trying to find out the issues of blockchain and are finding innovative ways to tackle them to find a solution which is effective and better than the rest.