There is a great deal of debate within the cryptocurrency community about what is the best consensus mechanism. For the majority of the industry, this is an overlooked debate. However, it is vital we delve into it since it truly is the basis of our monetary system.
Before getting into the specifics, we need to understand how important consensus is. The entire banking system is primarily a consensus apparatus designed to main the ledger of where all the money goes. Basically, it is up to them to determine what is where.
That is why the commercial banking system is such an important part of the monetary equation. Most want to look at the central banks or governments as having a major rile. They do not. It is the commercial banks who run the ledger, thus having a great deal of power.
Of course, blockchain is an answer to this. The entire debate between blockchain and banking breaks down to who controls the ledger. With the former, the proposed solution is letting the software monitor it all. For many, this is a more viable solution.
Blockchain is distributed ledger technology (DLT). That means, at its core, it provides the same service monetarily as the banking system. Now it simply comes down to a question of trust.
Ledger Security And Scaling
Our monetary system is, in part, a series of ledgers. Essentially, it is nothing more than accounting, giant spreadsheets if you will. We built an entire system based upon this, trying to determine the best way to keep records straight while also scaling.
We can see that the present banking system does this. Unfortunately, it comes with perils as we saw over the years. Bankers are not the most trustworthy bunch, operating in their own self interest. This is usually not much of a problem until a situation like the Great Financial Crisis arises. It all goes out the window when a system is corruptible as we saw with the rating and regulatory agencies.
Therefore, blockchain seems like a viable solution to this problem. The question comes back to consensus while adding non-corruptible along with scalability.
For that reason, we have to quickly look at the main mechanisms being discussed and see where they stand.
We might have to separate the mechanism from Bitcoin. Some feel PoW is the best option since it is secure and does not depend upon humans. That is correct. However, there is still the great possibility of 51% attacks with many chains.
Here is where Bitcoin stands apart. It is safe to say that network evolved past the point of this being a threat. Scalability does remain a major challenge.
Keep in mind, with PoW, coin distribution means nothing. It all comes down to the miners. HODLing Bitcoin gives one no influence over the network itself.
This is where coin voting does enter the picture. Under PoS, block validators are based upon the amount of coins staked.
The chance of being chosen to add a block, increases the more coins one holds. This is where many believe PoS falls short. It is susceptible to manipulation by the bigger players. Ultimately, it can be looked at as a "pay-to-play".
Once Ethereum does the merge, it will move from PoW to PoS. This will instantly make it the largest Proof-of-Stake chain.
This is the same as PoS with an added twist: those who are not interested in being block producers themselves are able to delegate the voting value of their stake to others. Thus, the one with the most coins owned might not attain the top levels.
Under this format, the belief is that reputation matters. Since users are able to vote their stake to others, the incentive is built in for them to run their nodes in accordance to the best practices for the chain.
Anyone who tries to operate in a nefarious way could end up seeing votes removed, dropping them lower on the scale.
The biggest advantage to DPoS is the ability to scale. It can handle more transactions as compared to the other main choices. The challenge is there it minimal track record with this mechanism since few chains utilize it.
What we have seen, with EOS and Steem is the ability for founder's and ninja-mined stake to be used against the chain. The chronicles of Block.One are well known. So are the antics of Justin Sun.
So how do we know which is the best? And where does Hive fit in?
Hive Moved Beyond
Hive stands out for one reason: the ability to scale.
Bitcoin is powerful but it falls short in this area. Proponents like to point to Layer 2 solutions such as Lightning Network. The challenge there is we are now dealing with a second layer which does not operate according to the same fundamentals as the base layer.
That said, as mentioned before, the security of Bitcoin is there since it is likely passed the point of any 51% attacks.
With DPoS, where EOS and Steem fall short, Hive might have moved beyond. With this mechanism, it is evident that the distribution of the cryptocurrency is vital. The same flaws that exist with the other two chains cited are no longer present with Hive.
There is not a single individual or entity with an overwhelming portion of the coins. We see the top account holder under 5%. Compare this with some other chains where there are ones with 20%, 30%, even 40%. It is anyone's guess how much of the total Block.One and those closely associated with it control.
The biggest stake on Hive is in the Decentralized Hive Fund (DHF), the DAO responsible for funding new developments for the ecosystem. This is non-voting and is under the control of no entity. Hence, those coins provide zero impact to the governance of the chain.
As we can see, there are some issues with all three formats. It does not appear that the consensus mechanism alone determines which approach is best. Since all are flawed, it is up to the project and what is sought.
Whereas PoW is more secure, outside of Bitcoin, many chains might be susceptible to attack. At the same time, scaling is an issue for them all.
With PoS, coin distribution is vital and the chains that exist all have large holdings in the hands of the early players. We are also seeing Wall Street enter the mix with Ethereum.
Finally, with DPoS, the same issues appear as with PoS, although not as clear cut. Due to the ability to delege, it is possible for the community to offset the early adopters or others larger players. However, the distribution of the coin must be present.
With Hive, from a governance standpoint, it achieved that end. The fork that resulted in the creation of the DHF removed a major point of vulnerability.
Therefore, it might not be the consensus mechanism that matters as much as where the blockchain system itself evolved to. Hive, through the events of a couple years ago, was born with the intention of removing that large stake from governance.
It looks like this is the major difference maker as compared to a lot of other blockchains out there, especially in the DPoS world.
What are your thoughts? Let us know in the comments below.
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