The inherent flaws of Proof-of-Stake

Leo Zhang

By Leo Zhang

The primary function of cryptocurrency systems is to reach and sustain consensus in a network of distributed computers. The study of consensus protocols is almost as old as distributed systems themselves. Bitcoin's implementation leverages Proof-of-Work as a Sybil-resistance mechanism in its consensus protocol, meaning that miners follow the branch with highest difficulty. Over the years, many researchers have explored alternative methods to implement consensus mechanisms, most notably Proof-of-Stake. Unlike Proof-of-Work, Proof-of-Stake does not relies on external resources such as energy expenditure as a source of pseudorandomness, which (in PoW) is the crux of the mechanism's security. In the paper below, academics analyze the types of pseudorandomness used to select the block producers in various popular Proof-of-Stake schemes. In short, the paper shows the formal security limitations of the PoS schemes in which the block-producer order is determined by an in-chain source of pseudorandomness; such schemes either make it easier to perpetrate attacks such as selfish mining, or easier to manipulate via stake grinding

Formal barriers to longest-chain Proof-of-Stake protocols

"At a conceptual level, the barriers stem from the following: all cryptocurrencies require some source of (pseudo)randomness. In Proof-of-Work, this pseudorandomness is in some sense external to the cryptocurrency: the first miner to successfully find a good nonce produces the next block, and this miner is selected completely independently of the current state of the cryptocurrency. In Proof-of-Stake, it is highly desirable that the pseudorandomness comes from within the cryptocurrency itself, versus an external source (due to network security concerns discussed in Section 2). One might initially suspect that with sufficiently many hashes or digital signatures of pastblocks, this can indeed serve as a good source of pseudorandomness for future blocks. However, we formalize surprising barriers showing a fundamental difference between external pseudorandomness and pseudorandomness coming from the cryptocurrency itself."

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