Cardano [ADA] researcher on defeating the limitations of PoW system

Last week, Cardano held a meetup in Rotterdam, Netherlands at Blocklab. Blocklab is a blockchain company that helps develop use-cases of the blockchain technology by working with the alliances of experts in the industry. Here, Bernardo David of IOHK spoke about Ouroboros and the ways in which Cardano distinguishes itself from Bitcoin.

Bernardo David is a researcher at IOHK and teaches at the Tokyo Institute of Technology in Japan. He centered his Rotterdam talk around outlining the Proof-of-Work [PoW] system, its drawbacks and the necessary steps to defeat them. The following are the ideas that the researcher put forth.

In a system backed by PoW protocol, the block producers and the investors of the cryptocurrency are not necessarily the same people. Hence, miners control the whole system at odds with those who have only invested.

Miners are the people who profit by verifying and producing new blocks. Therefore, mining in a lot of cases has become a passage to centralize the system and destroy the blockchain. They can do this by making policy changes, creating or allowing the creation of hard forks and suchlike.

David also talked about ‘diminishing rewards’ for Bitcoin mining. He explained that the rewards keep diminishing by half every 210,000 blocks. This also lowers the incentive for miners to produce blocks and makes it a subject of worry for the system as it relies on these miners to run.

Now, when the rewards reach its minimum and then become nil, David raised the question of ‘what happens to the system’ in such case. He also told the audience that the PoW protocol passes centralization into the system. The technology professor also claimed that most of the Bitcoin network is run by a majority of the Chinese mining farms.

Majority pools in mining can create destructive scenarios for Bitcoin. For instance, if the regulations are modified in China, it can result in the collapse of the whole system. When the system is controlled by a few large parties, the failure points are also at a lower number when compared to a decentralized system.

There is a theory regarding mining pools that if a party has a control of 50% in mining a particular cryptocurrency, then it can take over the whole system. Moreover, PoW systems consume a large amount of energy leading to a wastage of resources. David also cited that ‘a whole Bitcoin mining pool spends more than the country of the Netherlands per day’. He added:

“To create a sustainable system, we don’t want to spend natural resources nor do we want to create more pollution. So what can be done to solve these issues?”

Coming to the discussion about the solutions to these drawbacks, David suggested a complete dump of the PoW mechanism to replace it with others, such as Proof-of-Stake [PoS] or Proof-of-Space. Though PoS has similarities with PoW, PoS differs from PoW by using storage instead of computation power.

Cardano uses PoS as the IOHK researchers and the community did not want to involve energy wastage in creating the mechanism. About PoS, the tech-expert explained:

“Proof-of-Stake is based on the concept that more investment in the system means more control
and you as a user can be sure that you can steer the way the project is going [with your voting power].”

Additionally, PoS is ‘energy efficient’, the block producer requires a mere signature to generate a block, along with cryptographic operations that consume or waste no energy or data. This efficiency in the mechanism ensures the growth of the blockchain and takes care of the resources utilized along the way.


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