When you are selling a pizza and accepting Bitcoin, usually you wait “for a while” before you “confirm the transaction” and deliver the pizza. You are cautious because a fraudulent user may “double spend”—use the same bill to pay two different vendors.
If you wait for a while before confirming, the block having your transaction will get deeper and deeper in the blockchain, making it harder for a fraudulent buyer to double-spend the money you received.
But how long should you wait?
Waiting too long means that only a fraction of the transactions get confirmed in a given timeframe—not good for the hungry buyers or the network when we compare it against the “almost instant” confirmation time for regular credit card transactions.
I gave a talk in our seminar about the proof-of-work vs. the proof-of-stake blockchain paradigm. Although I don’t have an audio/video recording, here is a Google Slides rendering of my original Powerpoint slides. Some of the animations are out of place/order, but in general, it feels okay.
I intended this talk to be accessible in nature, so I intentionally skipped many details and strived not to flaunt any equation in it.
Advertised Summary: Bitcoin is a blockchain protocol where finalized transactions need a “proof of work”. Such protocols have been criticized for a high demand for computing power i.e., electricity. There is another family of protocols which deals with a “proof of stake”. In these protocols, the ability to make a transaction depends on your “stake” in the system instead of your computing power. In both cases, it is notoriously difficult to mathematically prove that these protocols are secure. Only a handful of provably secure protocols exist today. In this talk, I will tell a lighthearted story about the basics of the proof-of-work vs. proof-of-stake protocols. No equations but a lot of movie references.
Please enjoy, and please let me know your questions and comments.
A blockchain protocol is essentially a distributed consensus protocol. A Proof-of-Work protocol such as Bitcoin requires a user to show a proof — such as making a large number of computations — before he can add a block to an existing chain. Proof-of-Stake protocols, on the other hand, would not require “burning electricity” since the ability to “mine” a coin would depend only on the user’s current stake at the system.
The growing computing power of the bitcoin miners is already consuming a significant amount of electricity. One can easily see the necessity of a provably secure and efficient cryptocurrency without the heavy energy requirement. However, it is easier said than done. So far, I am aware of only three Proof-of-Stake protocols which give provable security guarantees. These are Ouroboros, led by Aggelos Kiayias, Alex Russell, and others; Snow White, led by Rafael Pass and Elaine Shi; Ouroboros Praosfrom the Ouroboros team; and Algorand, led by Silvio Micali. There is also an open-source initiative to implement Ourorboros, named Cardano.
In this post, I am going to present the main theorems of Ouroboros.
[Contents of this post are based on an ongoing discussion with Alex Russell and Aggelos Kiayias. It contains potentially unpublished material.]
In a proof-of-stake blockchain protocol such as Ouroboros, at most half of the users are dishonest. While an honest user always extends the longest available blockchain, the dishonest users try to fool him into extending a manipulated blockchain. Here, the user who is allowed to issue a block at any time-slot is called the “slot leader.” As it happens, a number of future slot leaders are computed in advance using the random values present in the blocks. Although counterintuitive, such a scheme ensures that if the adversary does not control more than half the users now, it is very unlikely that he cannot control more than half the slot leaders. The time-slots are divided into “epochs” of length .