Macauley Peterson

Ethereum researcher Justin Drake introduced a proposal to overhaul Ethereum’s consensus layer, called the &#8220;Beam Chain.&#8221; This redesign, pitched to a packed house at Devcon Bangkok today, aims to modernize a part of Ethereum&#8217;s core infrastructure while maintaining compatibility and decentralization.



“I want to take what may sound like a totally crazy idea and convince you that it might not be so crazy,” he said.&nbsp;



The idea is to accelerate parts of the Ethereum roadmap to take advantage of cryptographic advancements, address inefficiencies and clear out existing technical debt incurred since the 5-year-old design of the <a href="https://app.blockworksresearch.com/glossary/#beacon-chain">Beacon Chain</a>, Ethereum&#8217;s current consensus layer.



<h2 class="wp-block-heading">From Beacon to Beam</h2>



The Beacon Chain officially launched on Dec. 1, 2020, marking the beginning of Ethereum&#8217;s transition to a <a href="https://blockworks.co/tag/proof-of-stake">proof-of-stake</a> (PoS) consensus mechanism and kicking off what was known as Ethereum 2.0. The Beacon Chain operated separately from the Ethereum mainnet <a href="https://blockworks.co/tag/ethereum-merge">until the Merge</a>, which unified them under the PoS consensus in September 2022.



Blockchain technology evolves rapidly and researchers now have a clearer understanding of complex elements like <a href="https://blockworks.co/news/0xresearch-newsletter-mev-trusted-execution-environments">Maximum Extractable Value</a> (MEV). Advances in cryptographic tools, especially SNARKs (succinct non-interactive arguments of knowledge) and zk-VMs (zero-knowledge virtual machines), offer Ethereum new methods to achieve decentralization and security with greater efficiency.



Beam Chain’s proposal includes improvements in three main areas. First, it tackles block production by decentralizing the builder and relay levels, enhancing censorship resistance, and introducing faster slot times — four-second blocks with faster finality — while still accommodating a wider range of validators, including home stakers.



“The truth is that five years ago our mindset was ‘security first’&#8230;performance was not really a main consideration,” Drake told the audience. “With the benefit of hindsight, we found that there are designs that preserve all the security that we want and at the same time take some of the low-hanging fruit that is available to us to prove performance.”



Second, the proposal reimagines Ethereum’s <a href="https://blockworks.co/tag/staking">staking</a> structure by lowering the minimum required ETH to become a validator. This reduction from 32 ETH to just 1 ETH potentially makes staking accessible to a larger audience.



Finally, Beam would incorporate SNARK-based, post-quantum cryptography using hash-based signatures that enable real-time consensus proof on standard hardware. This approach ensures that <a href="https://blockworks.co/tag/ethereum">Ethereum</a> remains resilient even as quantum computing capabilities develop.



Drake highlighted an important nuance — the off-chain nature of the proposed “SNARKification” within the Beam Chain. This design choice ensures flexibility, allowing validators to select their preferred zkVM implementations, whether based on RISC-V or other architectures.



That should not threaten alternative VMs such as StarkWare’s Cairo and <a href="https://blockworks.co/tag/zksync">ZKsync’s</a> custom zkVM.



Read more: <a href="https://blockworks.co/news/starkware-polygon-labs-stwo-zk-prover">A STARK breakthrough: Next-gen provers may be at least 100x faster</a>



This approach fosters a modular environment, keeping the zkVM choice adaptable and decoupling proof generation from the main Ethereum chain. Off-chain SNARK-ification also ensures that if one zkVM implementation encounters a bug or performance bottleneck, it can be updated independently without requiring onchain adjustments. As a result, alternative zkVMs can integrate seamlessly, preserving Ethereum’s compatibility with various zero-knowledge technology approaches and avoiding any lock-in to a single standard.



Drake emphasized that the Beam Chain proposal would be a “quantum leap” forward for Ethereum, consolidating essential upgrades into a single, holistic change to prepare Ethereum’s consensus layer to move into an ossified “maintenance mode.”



But he specifically avoids referring to his plan as “Ethereum 3.0” since the Beam Chain addresses only the consensus layer without altering the data layer — <a href="https://blockworks.co/news/ethereum-improvement-proposal-4844">blob channels</a> — or the Ethereum Virtual Machine (<a href="https://blockworks.co/tag/evm">EVM</a>).



<h2 class="wp-block-heading">A long road to change, or the right call?</h2>



Drake’s roadmap suggests that research and initial development would begin in 2025, followed by the development of production-grade code in 2026 and comprehensive testing throughout 2027 and 2028.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeQXS_dC6RAcjM22fri6XQedTXnWEVo_e7yb1-DwYf1Feq5AbYRP18ZMrOyTrpxoOigIIJYjKm71fNBTQqbYujGomiHulY5oS-t-XLqSLNiEDQQHVhLczMtzcbQ7FmR6j6moDIX?key=SfK5PPEYPbMgK74XIGmqCvTl" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://www.youtube.com/live/rGE_RDumZGg">Ethereum Foundation</a></figcaption></figure>



That timeline has raised eyebrows and provoked groans from the non-dev cognoscenti.



Critics like <a href="https://x.com/MaxResnick1/status/1856287518062457296">Max Resnick</a> and <a href="https://x.com/jon_charb/status/1856297632143913369">Jon Charbonneau</a> suggest that more immediate, radical scalability solutions are needed given Ethereum’s current competitive environment.



Some of the key components on the agenda, such as improvements to consensus and state management, are based on research proposals that may take years to implement fully, pushing tangible benefits well into the future. They may only bring marginal improvements to the status quo in the near term.



That’s not fast enough for a chorus of observers <a href="https://x.com/sachastleger/status/1856315267355467859">calling for</a> more rapid enhancements to Ethereum’s speed. Members of the broader Ethereum community, such as Gnosis co-founder Martin Koeppelmann, who <a href="https://x.com/koeppelmann/status/1856280673486811335">pooh-poohed</a> the plan as “a big refactoring” effort, worry the Ethereum Foundation is lacking urgency.



Taproot Wizards’ self-proclaimed “troll-demon” Eric Wall <a href="https://x.com/ercwl/status/1856323893985980936">responded</a> with a single word: “No.”



But, Beam Chain&#8217;s five-year timeline reflects the complexities of making major changes to the world’s second-largest blockchain, <a href="https://x.com/0xCygaar/status/1856363135633863043">argues</a> Ethereum developer Cygaar on X. With $60 billion in TVL and $400 billion in assets on the line, it pays to be conservative.



Unlike companies or other centralized systems, Ethereum&#8217;s decentralization demands extensive social consensus, meticulous specification, backwards compatibility and rigorous testing to avoid catastrophic vulnerabilities, especially for transformative updates like those proposed today.



Justin Drake welcomed the new consensus design as an opportunity to onboard new client teams from underrepresented regions like India and South America, signaling Ethereum’s commitment to decentralization through a global, diverse technical team.



While still in the proposal stage and thus likely to change, Beam represents a vision for Ethereum’s future — one that embraces zero-knowledge proofs and post-quantum cryptography for a faster, more secure and decentralized ecosystem.



The big question is, can it come soon enough to satisfy the market?



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Rethinking Ethereum consensus with Beam Chain

The quest to bring &#8220;covenants&#8221; to Bitcoin — a mechanism that enables more sophisticated transaction types by controlling how coins can be spent in the future — has been an ongoing challenge. Recent research sheds light on how covenants may be achieved without the contentious and complex process of a soft fork.



This new approach, outlined in <a href="https://x.com/avihu28/status/1854570598439014807">a paper</a> by Ethan Heilman, Victor Kolobov, Avihu Levy and Andrew Poelstra, introduces &#8220;ColliderScript,&#8221; an innovative methodology that could allow covenants on Bitcoin as it exists today.



The primary advantage of ColliderScript is that it enables covenants without requiring a protocol change such as OP_CAT. The concept of covenants on Bitcoin has been viewed by some as threatening due to the <a href="https://blockworks.co/news/starkware-bitcoin-scaling-upgrade-cat">substantial changes needed</a> at the consensus layer to enable it.



Read more: <a href="https://blockworks.co/news/op-cat-bitcoin-taproot-wizards">Satoshi-era Bitcoin code idea gets a boost from Taproot Wizards</a>



ColliderScript side-steps that issue by proving that covenant functionality is technically feasible on <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a> even now, albeit at a high computational cost — initially estimated at millions of dollars per transaction due to the significant computational power required.



While this may be impractical in its present form, the paper presents a valuable proof of concept. StarkWare’s Avihu Levy, one of the paper’s co-authors, expects that even costly covenants have a place in Bitcoin.



&#8220;If you have an alternative and people are using it, and it’s already there and maybe just more expensive,” Levy told Blockworks, “it potentially accelerates the social process towards the soft fork.”



ColliderScript&#8217;s approach relies on <a href="https://app.blockworksresearch.com/glossary/#secure-hash-algorithms-shas">SHA-1 cryptography</a>, which requires substantial computational power to achieve covenant-like outcomes. Levy and his co-authors project that advances in hardware or dedicated algorithms may eventually reduce these costs, making Collider Script more practical.



“I’m 100% certain we could improve, and improve significantly,” Levy said. “It’s very clear we can improve things on the hash function front.”



SHA-1 is also <a href="https://www.nist.gov/news-events/news/2022/12/nist-retires-sha-1-cryptographic-algorithm">slated for deprecation</a>, according to the National Institute of Standards and Technology (NIST).



That doesn’t worry Levy, however, so long as the cost to a malicious attacker remains about a million times greater than the cost of an honest one.



“If SHA-1 becomes problematic, you can replace it in the algorithm — for example, with SHA-256, which also exists on Bitcoin and with some changes, this would probably also work — so that&#8217;s not a problem.”



Levy acknowledges that even as efficiencies improve, soft-forking Bitcoin to formally include covenants would remain the &#8220;cleanest, safest and most efficient&#8221; path forward.



This research doesn’t just highlight a technical pathway; as Levy points out, it can serve to demonstrate covenants&#8217; utility, potentially accelerating the often slow-moving process of consensus-building among Bitcoin stakeholders.



Drawing parallels to the <a href="https://blockworks.co/newsletter/research/issue/post_d08feb9f-1ecf-4108-85fe-878d48edd78d">development of the BitVM</a>, which also started as a high-cost innovation before evolving into something more scalable, Levy believes that ColliderScript can follow a similar trajectory. Just as the BVM’s second version enabled more feasible usage for Bitcoin’s complex transaction environment, future iterations of ColliderScript could make covenant-based transactions increasingly viable.



The project arose out of a mix of curiosity and persistence, with Levy working on it in his spare time since April. As Bitcoin continues to face challenges around scaling and transaction flexibility, this type of grassroots experimentation could play a vital role in Bitcoin’s development, whether or not ColliderScript itself becomes a mainstream solution.



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ColliderScript: Advancing Bitcoin covenants without a fork

Knut Vinger

Alexander Kjeldaas

Anton Roos

We should be building cross-chain solutions as if consensus mechanisms are unnecessary — because they are. ​​Blockchain technology has been celebrated for its potential to revolutionize various industries through decentralization, security and transparency. However, as the ecosystem expands, the complexities and costs associated with interoperability between different blockchains have become increasingly apparent.&nbsp;



Consensus algorithms are essential for individual blockchain networks, ensuring that all participants agree on the state of the ledger to maintain integrity and security. Yet, when these mechanisms are applied to interoperability solutions like cross-chain bridges, they introduce significant inefficiencies and risks.



Implementing consensus in interoperability often leads to extreme over-collateralization — sometimes more than 100 times the value of the assets being transferred. Funds get locked up in validator nodes to secure the network, tying up enormous amounts of capital. For example, a common bridge is paying each validator around $30,000 per month, totalling a staggering $3 million per month for their 100 validators. The additional costs of incentivizing and maintaining a community of validators only add to this financial burden.



Read more from our opinion section: <a href="https://blockworks.co/news/web3-web2-interoperability-mistakes">Don’t let Web3 repeat Web2’s interoperability mistakes</a>



This over-collateralization isn&#8217;t just expensive; it&#8217;s economically inefficient. The total value locked (TVL) metric is frequently highlighted in the DeFi space. But, when it comes to bridges, these numbers <a href="https://blockworks.co/news/tvl-metrics-defi-lightspeed">often mask these underlying inefficiencies</a> by presenting them as indicators of success rather than sunk costs. While consensus aims to provide security, it doesn&#8217;t guarantee consistency in interoperability solutions.&nbsp;



Bridges introduce non-deterministic data, meaning the same input doesn&#8217;t always produce the same output across different chains. Without consistency, the stability of the entire system decreases with each additional blockchain connected. This instability increases the risk of tokens or transactions being duplicated, stuck or disappearing altogether. It is estimated that billions of dollars have been <a href="https://blockworks.co/news/in-second-largest-defi-hack-ever-blockchain-bridge-loses-320m-ether">stolen from bridges</a>, including $650 million from Ronin, $326 million from Wormhole and $566 million from Binance’s BNB Chain bridge.



The lack of consistency also hampers DeFi abstractions and composability. Bridges often rely on hardcoded primitives that require hard forks to modify, complicating innovation and slowing down the evolution of dapps. Many interoperability solutions struggle to scale effectively. Since these bridges can be considered blockchains, with their own consensus mechanisms, they introduce additional layers of complexity and potential bottlenecks. This not only slows down transaction times, but also adds more points of failure to the system.



Read more from our opinion section: <a href="https://blockworks.co/news/blockchains-still-arent-great-at-communication">Blockchains still aren’t great at communication</a>



The crux of the matter is simple: Consensus mechanisms are unnecessary for interoperability, and may in fact be counterproductive. By eliminating the need for consensus in cross-chain solutions, we can significantly reduce costs and complexity. Instead of relying on validators to maintain a consensus, we can use deterministic proofs and verification methods that are inherently secure and efficient.&nbsp;



The key to enable consensus-less interoperability is to move proof and verification mechanisms out of layer-1 smart contracts. This approach mitigates major bottlenecks like limited cross-chain data availability. By decoupling from individual layer-1 constraints, dapps are enabled to process data more freely and create additional value without being hindered by consensus-related limitations — benefiting not only blockchains, but most importantly, users.



Read more from our opinion section: <a href="https://blockworks.co/news/interoperability-buzzword-blockchains">Interoperability isn’t just a buzzword</a>



By focusing on deterministic computations, interoperability solutions can ensure that transactions are predictable and verifiable without the overhead of consensus mechanisms. Techniques like <a href="https://docs.coinweb.io/learn/protocol/refereed-delegation-of-computation-rdoc#:~:text=RDoC%20is%20the%20proof%20mechanism,that%20proves%20information%20between%20blockchains.">refereed delegation of computation</a> (RDoC) and cryptographic validation provide the necessary security assurances. This approach reduces the risk of inconsistencies and errors, enhancing the overall stability of cross-chain interactions.



Removing consensus from interoperability is not just a cost-saving measure; it&#8217;s a strategic evolution in building blockchain networks. This paradigm shift allows for greater levels of abstraction, improved efficiency and more room for innovation. Developers can create more complex and composable dapps without being hindered by the limitations imposed by consensus-driven bridges.



The current reliance on consensus mechanisms for interoperability is both costly and inefficient. By rethinking our approach and eliminating unnecessary consensus layers in cross-chain solutions, we can build a more robust, scalable and efficient blockchain ecosystem. This strategic move not only reduces operational costs but also fosters innovation, allowing blockchain technology to reach its full transformative potential.



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Want cheaper and safer interoperability? Drop traditional bridges

John Lee Quigley

John Gilbert

What Is Proof-of-work (PoW)? All You Need to Know

Proof-of-stake is a type of blockchain consensus mechanism that evaluates the crypto stake of participating nodes when selecting one for block validation.



But first, why do blockchains need proof of anything when validating transactions?&nbsp;



In a sea of anonymous participants, the network needs a way to coordinate all well-intentioned players. The &#8220;proof&#8221; is evidence that a participant met the necessary conditions to validate a block of transactions and are acting in good faith. Our latest guide on <a href="https://blockworks.co/news/consensus-mechanisms-guide">consensus mechanisms</a> explains how these coordination games can differ.



Proof-of-stake is like a coordination game where players compete by proving they are committed to playing it forever.&nbsp;As long as a protocol&#8217;s token has some form of value outside of the network, staking it with a validator is a measure of commitment.



The popular proof-of-stake consensus mechanism is best known for its energy efficiency because it replaced the energy requirement of <a href="https://blockworks.co/news/what-is-proof-of-work">proof-of-work</a> with token collateral. Peercoin was the first to use the alternative model in 2012. And now, over 80 different cryptocurrencies are using the consensus mechanism.



Read more: <a href="https://blockworks.co/news/what-is-proof-of-work">What is Proof-of-Work?</a>



Proof-of-stake has recently shared a bulk of the spotlight as Ethereum transitioned from proof-of-work (PoW) to PoS in September 2022. But statements and actions from SEC Chair Gary Gensler have many concerned that PoS blockchains are vulnerable to security laws enforcement.&nbsp;



And as many familiar with consensus mechanism wars know, there are more concerns and trade-offs that critics argue limit its capacity to provide security and censorship resistance at scale.



Are these critiques honest, or are they primarily motivated by profit-driven incentives? This article will dig into these concerns and evaluate the advantages the PoS system offers popular blockchains.&nbsp;&nbsp;



<h2 class="wp-block-heading">Why was it invented?</h2>



Bitcoin&#8217;s creation introduced the world to the immense benefits internet-based communities could unlock through a distributed ledger. However, its limitations with scalability and infrastructure gradually came to light as increasing numbers of users adopted the network. Transactions were slow and expensive during peak demands, while concerns around its environmental impact emerged as specialized computers worldwide began focusing their power on mining activities.



Someone in the BitcoinTalk forum first introduced proof-of-stake as a possible solution to the computing resources problem. Sunny King, an anonymous author, and Scott Nadal later implemented it in their published whitepaper for Peercoin.&nbsp;&nbsp;



<h2 class="wp-block-heading">How does proof-of-stake work?</h2>



The proof-of-stake consensus model enables coin holders on the network to lock up or commit their assets in exchange for the power to verify and add new transactions to the blockchain. These stakers (called validators) usually meet a specified threshold of locked coins and receive new coins as a reward for their service to the network.



The primary principle behind the PoS model is that individuals with the highest stake in the system have a natural incentive to act honestly and maintain the network. Any attempt at dishonesty could lead to substantial losses in the value of their staked assets.



Most PoS chain algorithms use a lottery system that selects block validators. The higher the number of coins the validator has staked, the greater their chance of being chosen to create new blocks and earn associated rewards.&nbsp;&nbsp;



Network participants who cannot afford the costs of running a validator node may use various staking services to participate. For example, Ethereum staking has a lock-up period, so if a user wanted to stake directly, they would lose access to their funds for a time. They can stake with liquid staking platforms such as Lido and Rocket Pool if they want access to their funds before the release date. These platforms are decentralized smart contracts that stake ETH on users&#8217; behalf and provide a staking derivative called stETH in return. Users receive rewards in proportion to their stETH holdings. Market forces can cause these derivatives to depeg from the value of ETH.



Other proof-of-stake blockchains such as Cardano do not have lock-up periods for the delegated stake. So if a user doesn&#8217;t want to run their node, they can delegate their ADA directly to a stake pool without losing custody.



Both approaches entitle stakers to receive a portion of rewards earned by the validator. Moreover, specific implementations, such as delegated proof-of-stake (DPoS), choose validators for new blocks based on the number of coins community members stake to the validator&#8217;s node.&nbsp;



<h2 class="wp-block-heading">How is proof-of-stake different from proof-of-work?</h2>



Proof-of-stake differs from proof-of-work in several ways. The most significant distinction is in terms of energy usage. PoS replaces miners with validators, thus eliminating the need to expend electricity or set up application-specific integrated circuit (ASIC) machines to verify and create new blocks.&nbsp;



PoS chains remove the infinite race that typically forces miners to compute the same transaction while only one wins. This leads to significantly less energy usage, as validator selection is based on the value of staked assets.



The introduction of validators is significant for another reason. The value of the network&#8217;s currency is no longer tied to a real-world asset – energy – as in the case of proof-of-work. Instead, the currency&#8217;s value primarily depends on economic activity on the blockchain network. Validators can increase their dominance and earnings through accumulation, creating inherent demand for the asset.



Another difference between a PoW and PoS chain is that the latter typically allows all coin holders to earn rewards by supporting the network&#8217;s security. PoW, on the other hand, only incentivizes miner participation.&nbsp;



<h2 class="wp-block-heading">Goals of proof-of-stake</h2>



The proof-of-stake consensus mechanism aims to make blockchains faster while reducing the environmental impact of operating these systems. PoS chains can handle more transactions per second despite consuming significantly less energy. However, the model takes a different approach to solving the blockchain trilemma.



The blockchain trilemma is the premise that blockchains can only offer two of three benefits in connection with decentralization, security and scalability. Although PoS chains can scale to handle other mainstream use cases, such as hosting decentralized applications, they are generally considered more centralized than Bitcoin&#8217;s PoW. Both systems also offer a degree of security designed to strengthen as adoption grows.



<h2 class="wp-block-heading">Proof-of-stake security</h2>



Proof-of-stake blockchains inherit security by delegating the role of verifying and confirming transactions to its biggest stakeholders. Having significant economic value locked in means validators must act honestly or lose substantially if the ledger&#8217;s integrity is compromised. Yet, even such a system faces the possibility of the theoretical 51% attack — where a malicious individual or group controls more than half of the network&#8217;s staked assets and can alter the ledger simply to destroy public faith in the network.



PoS chains take other approaches to mitigate against a 51% takeover. For instance, <a href="https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/rewards-and-penalties/">Ethereum implements &#8220;slashing,&#8221;</a> a feature that allows honest validators to vote against such malicious transactions and burn the ETH staked by the dishonest actor. This measure disincentivizes bad actors, who can easily start earning by acting in the network&#8217;s best interests.



Meanwhile, a PoS chain is as secure as the number of validator nodes. The higher the number of validators and distribution of staked assets, the less susceptible the network becomes to a security breach. The requirements for running a validator node vary between different PoS chains and may significantly impact the network&#8217;s decentralization and security.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1920" height="1080" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=1024&amp;h=1024" alt="" class="wp-image-53033" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=1920 1920w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/accessibility-by-network.jpg?w=80 80w" sizes="(max-width: 1920px) 100vw, 1920px" /><figcaption class="wp-element-caption">Source: <a href="https://xangle.io/en/insight/research/6401ac567d042bb664893d6d">Xangle</a></figcaption></figure>



Even though the number of validators on PoS chains tends to scale linearly following the network&#8217;s launch, factors such as the minimum staking limit and hardware requirements may impede growth. Networks with minimal setup demands and substantial economic value achieve greater security and decentralization in the long term.



<h2 class="wp-block-heading">Pros and cons of proof-of-stake in crypto</h2>



Like other consensus mechanisms, proof-of-stake has unique advantages and disadvantages. The benefits account for its wide adoption across the crypto ecosystem, while the weaknesses reveal why established networks such as Bitcoin continue to run on PoW consensus.



<h3 class="wp-block-heading">Pros</h3>



<ul class="wp-block-list">
<li>Energy efficiency: PoS chains are energy efficient because validators are chosen based on staked assets or arbitrary requirements such as reputation and stake duration. Hardware requirements are also relatively accessible compared with running a PoW mining operation.</li>



<li>Fast and cheap transactions: Some proof-of-stake chains offer fast and efficient transactions, which makes them ideal for decentralized applications and other modern blockchain use cases. It is important to note that not all proof-of-stake implementations reduce fees. For example, Ethereum&#8217;s transition to PoS did not make significant changes to the model (maximum extractable value) responsible for transaction cost and speed. As a result, the network is still prone to high fees and congestion.&nbsp;</li>



<li>Flexibility to change and evolve: Validators can easily vote to modify various PoS implementations to adapt to the network&#8217;s needs. However, such modifications are usually challenging to execute on a legacy model such as PoW because of technological limitations.</li>
</ul>



<h3 class="wp-block-heading">Cons</h3>



<ul class="wp-block-list">
<li>Relative infancy: PoS and recent adaptations to the consensus mechanism are very new and thus unproven over extended periods. Fears remain that unique vulnerabilities may emerge as the model sees wider adoption.</li>



<li>Inferior security: The system remains vulnerable since PoS chains tie their value to the underlying currency instead of a real-world asset. PoS networks must make extra efforts to discourage wealthy participants from buying influence. This can increase the protocol&#8217;s complexity and make it more difficult to audit for bad behavior. PoW chains require energy investments which are not correlated with the crypto asset. They are still prone to wealthy centralized forces. However, it is more difficult to manipulate the cost of energy than crypto.&nbsp;</li>



<li>Centralization of power and governance problems: The system also tends to become more centralized as the rich perpetually increase their dominance due to having a high stake in the network. Validators with significant holdings can also have an excessive influence on transaction verification.&nbsp;</li>



<li>Stringent exit rules: To combat the ease at which validators can exit their position, some PoS chains may require locking up staked coins for a minimum amount of time – often with no end. Such arbitrary rules may impose huge losses on validators, as they cannot react to market developments.</li>



<li>Security laws enforcement: The SEC made proof-of-stake services the target of their enforcement when they <a href="https://blockworks.co/news/kraken-settles-sec-crypto-staking-program">charged Kraken for its staking service</a>. Gary Gensler also hinted that the protocols themselves may be a target when he said the group of entrepreneurs and developers behind protocols with locked tokens &#8220;should seek to come into compliance.&#8221; The SEC also listed three PoS tokens — ALGO, OMG and TKN — along with DASH, NGC and IHT, as securities in a <a href="https://blockworks.co/news/sec-names-other-tokens-bittrex-lawsuit">lawsuit against crypto exchange Bittrex</a>. Their argument was more rooted in the evidence of centralizing forces behind each token and the expectation of profit from token holders. Many argue that staking yield usually constitutes an expectation of profit – an essential tenet of the Howey Test.&nbsp;&nbsp;</li>
</ul>



Read more: <a href="https://blockworks.co/news/sec-staking-enforcement-explained">Will The SEC Target Crypto Validators and Protocols Next?</a>



<h2 class="wp-block-heading">Proof-of-stake cryptocurrencies</h2>



Proof-of-stake is most cryptocurrencies&#8217; preferred consensus mechanism, especially blockchains focused on hosting decentralized applications. At the time of writing, six of the top 10 cryptocurrencies implement the native PoS mechanism or a modified version. Here are the top PoS cryptocurrencies:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/tag/ethereum">Ethereum</a>: The second-largest cryptocurrency network, Ethereum migrated to PoS in 2022 as part of broader efforts to scale its ecosystem. The network had initially operated the PoW consensus model until making the switch.</li>



<li><a href="https://blockworks.co/tag/bnb">BNB</a>: Binance-backed BNB Chain implements a modified version of PoS called proof-of-staked-authority (PoSA). The model is considered more centralized but offers greater scalability.</li>



<li><a href="https://blockworks.co/tag/Cardano">Cardano</a>: Launched in 2017, Cardano adopts the native PoS, using its native Ouroboros protocol to determine the next block producer. Although the network&#8217;s speed pales compared to competitors, Cardano is generally considered one of the leading adopters of the PoS model.</li>



<li><a href="https://blockworks.co/tag/solana">Solana</a>: The Solana network uses PoS alongside other novel protocols to deliver extremely cheap and fast transactions. Notably, the network ranks high on the list of PoS cryptocurrencies despite persistent liveness issues.</li>



<li><a href="https://blockworks.co/tag/polkadot">Polkadot</a>: Polkadot is another blockchain project that adopts a modified PoS version. The network utilizes a nominated proof-of-stake (NPoS) protocol which selects validators based on past performance.</li>
</ul>



<h2 class="wp-block-heading">The future of proof-of-stake</h2>



PoS chains offer greater energy efficiency and scalability features that account for its wide adoption with the cryptocurrency system. But if there isn&#8217;t enough validator diversity, the protocol can suffer from censorship, security and slashing risks. These risks, though, are similar to PoW and many other consensus mechanisms.&nbsp;



And while PoS services and tokens have been the target of regulation by enforcement, it doesn&#8217;t mean that policy is settled. There is a strong argument for classifying many of these tokens as commodities – as long as they are properly decentralized and protocol staking risks are minimized.&nbsp;



The advent of the proof-of-stake consensus model has paved the way for blockchains to power multiple use cases previously unimaginable. These capabilities have already played a crucial role in onboarding mainstream audiences to the blockchain and look set to continue doing so for the foreseeable future.



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What Is Proof-of-Stake (PoS)? The Investor’s Guide

<h2 class="wp-block-heading">What are consensus mechanisms?</h2>



Blockchain consensus mechanisms are the cornerstone of an emerging decentralized society of Web3, finance and governance. However, the architects of this new world have long debated over the design of these mechanisms. And in a quest for a perfect balance between scalability, security and decentralization, they have created a never-ending list of options.&nbsp;



So anyone wanting to build on or compare blockchains and their corresponding ecosystems must comb through the history of trade-offs. Here is what you need to know to help catch you up to speed.



Takeaways:



<ul class="wp-block-list">
<li>A consensus mechanism is a gamified system of protocols that enables a decentralized computer network to agree on a blockchain state. They aim to provide a balance of security, scalability and decentralization to the network.</li>



<li>The industry has settled mainly on the proof of work (PoW) and proof of stake (PoS) consensus mechanisms.&nbsp;</li>



<li>User adoption and application development around the most popular blockchains have made it difficult for alternative consensus mechanisms to disrupt the industry.&nbsp;</li>



<li>But Ethereum’s recent transition from PoW to PoS demonstrated that disruption is possible.&nbsp;&nbsp;&nbsp;</li>
</ul>



This guide will explain how consensus mechanisms work and the critical differences between the most prominent types.&nbsp;



<h2 class="wp-block-heading">How consensus mechanisms work</h2>



To understand how consensus mechanisms work, it&#8217;s important to first recognize that the end goal is to maintain a secure and public record of all interactions and transactions of network participants. Miners or validator nodes manage all updates and changes to that record. In such a system, it&#8217;s crucial to establish a trusted way to ensure that no peer tries to cheat other participants and that they add honest transactions to the ledger. For example, users should not be able to double-spend assets they own or manipulate the system to hold more coins than they originally had.



A consensus mechanism provides the set of protocols and rules a blockchain ledger uses to protect itself against such potentially malicious transactions. In most cases, the protocol achieves this through cryptographic challenges and reward incentives that allow network leaders ( miners or validators) to verify the authenticity of each transaction users try to execute. Once validators reach an agreement (consensus) on the legitimacy of a transaction, the protocol adds it to the immutable blockchain record.



Consensus mechanisms use incentives and rewards, usually new coins, to encourage network leaders to propose only legitimate transactions to peers. This makes it difficult and expensive for anyone trying to cheat the system. In most protocols, users must control over 51% of the network’s computing power simultaneously or acquire a significant portion of the underlying network’s currency.



<h2 class="wp-block-heading">Why are there different types?</h2>



Blockchain architects designed different types of consensus mechanisms for various blockchain use cases and network conditions. They also provide multiple ways for projects to address the famous blockchain trilemma.



The trilemma proposes that distributed systems can only achieve two of the three requirements: scalability, decentralization and security. Thus, blockchains must make a trade-off based on their specific objective.



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/2VI-RMpHApXjN5KMELlo8-8MLvZFFfOg36tpWxT7mfzYPja62w-X2yUThRwxE8PcCXmLcta2uqBKtruiojS1rXSG1NAATCMQWy9ScscIqTVQylNfdybJQfOomn34pl-1DsVwfAQkrQnAGvfxHVcy1k0" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://www.ledger.com/academy/what-is-the-blockchain-trilemma">Ledger</a></figcaption></figure>



In a real-world example, Bitcoin’s <a href="https://blockworks.co/news/what-is-proof-of-work">proof of work</a> (PoW) favors decentralization and security, while Ethereum’s <a href="https://blockworks.co/news/proof-of-stake-investors-guide">proof of stake</a> (PoS) model leans more on scalability to power decentralized applications (dapps). However, this example is an oversimplification, as the debate on protocol security and decentralization is complex and nuanced.  



Read more: <a href="https://blockworks.co/news/ethereum-decentralization-after-the-merge">Why Ethereum Is More Decentralized After the Merge</a>



Moreover, other blockchain consensus mechanisms implement a modified version of PoW or PoS depending on the degree of speed, security or decentralization they wish to achieve.



<h2 class="wp-block-heading">Blockchain consensus mechanisms</h2>



Bitcoin’s creator introduced the world to a new way for peers on a computer network to reach a consensus on the ledger’s state in a decentralized fashion. Since then, technologists have experimented with other consensus models, making the trade-offs mentioned above. 



<h3 class="wp-block-heading">Proof of work (PoW)</h3>



The fist consensus mechanism, <a href="https://blockworks.co/news/what-is-proof-of-work">Proof of Work</a> was invented by Bitcoin creator Satoshi Nakamoto. Other blockchain networks, including Litecoin and Dogecoin, also adopted it. The model requires network leaders called miners to expend computing power to solve an extremely complex cryptographic puzzle. Being the first to complete the puzzle and submitting this “proof of work” to other peers qualifies the miner to add a new block to the blockchain and receive the associated coin rewards.



Read more: <a href="https://blockworks.co/news/what-is-proof-of-work">What is Proof-of-Work?</a>



The security of the PoW model lies in the vast amount of computing power miners expend in the never-ending race to solve the following proof of work. With several miners acting in the network’s best interest, the economic cost to attack the system grows significantly to the point that it becomes impractical for a malicious actor to try otherwise.



PoW makes Bitcoin the most secure computing network on the planet. However, many have misconceptions about the network’s energy usage addressed in our in-depth guide to PoW blockchains.



<h3 class="wp-block-heading">Proof of stake (PoS)</h3>



<a href="https://blockworks.co/news/proof-of-stake-investors-guide">Proof of stake</a> emerged in 2012 as an alternative to Bitcoin’s PoW. The model replaced miners with validators, requiring that interested entities stake a significant portion of the underlying network’s currency for a right to propose and add new blocks to the blockchain. The network derives its security from aligning incentives, because having a significant stake naturally requires validators to act in good faith.



Read more: <a href="https://blockworks.co/news/proof-of-stake-investors-guide">The Investor&#8217;s Guide to Proof-of-Stake</a> 



Ethereum became the largest PoS network after the historic switch from PoW in 2022. Although PoS coins <a href="https://cryptoslate.com/cryptos/proof-of-stake/">represent</a> only 29% of the entire crypto market value, the consensus mechanism is the most widely used. Other popular blockchains such as BNB Chain and Cardano implement the model, despite its widely known security trade-offs explained in Blockworks’ proof of stake guide.



Read more: <a href="https://blockworks.co/news/proof-of-work-vs-proof-of-stake-whats-the-difference">Proof of Work vs. Proof of Stake</a>



<h3 class="wp-block-heading">Delegated proof of stake (DPoS)</h3>



The delegated proof of stake (DPoS) consensus mechanism is a modified version of PoS, generally considered more democratic. Under this model, users stake tokens to vote for delegates who will validate transactions on the network. The more tokens delegated to a validator, the greater chance they have to produce blocks on the network and earn rewards that they share with stakers. Examples of leading blockchain networks running the DPoS model include Solana, Tron, EOS and Tezos.



<h3 class="wp-block-heading">Proof of authority (PoA)</h3>



Proof of authority (PoA) is a consensus model whereby network validators consist of pre-approved participants selected based on their reputation. It is usually ideal for private blockchains or specific organizational use cases where only a limited set of validators are needed to update the ledger. The few validators required for a PoA system make them highly scalable but centralized. Vechain and Blockstream’s Liquid sidechain are the most famous examples of public blockchains using a PoA implementation.



<h3 class="wp-block-heading">Proof of activity (PoA)</h3>



Proof of activity (PoA) is a hybrid consensus model that implements aspects of PoW and PoS. The process initially begins with miners solving a cryptographic puzzle to propose a new block, which is, in turn, signed by validators before it is added to the blockchain. Miners and validators receive a portion of block rewards for their contributions to the network’s security. Decred is the foremost example of a blockchain project running on proof of authority.



<h3 class="wp-block-heading">Proof of burn (PoB)</h3>



The proof of burn (PoB) consensus mechanism implements a novel approach to reduce the heavy energy requirements of PoW systems. Under this modified model, miners burn a portion of their coin holdings to receive virtual mining machines, which grant them the right to propose and mine new blocks. Miners transfer funds to verifiably unspendable addresses and focus on growing their virtual mining rigs to maximize profitability. Slimcoin, launched in 2014, implements the PoB consensus model, as does modular blockchain Koinos, which was launched in 2022.



<h3 class="wp-block-heading">Proof of capacity (PoC)</h3>



Proof of capacity (PoC) is another consensus model that attempts to lower the high energy demands of PoW. Blockchains that utilize this model require miners to use available hard drive space on their computers to provide solutions to a less complicated cryptographic puzzle. The answer to the dilemma is pre-stored when the user becomes a node, with a larger hard-drive space increasing a miner’s chances of winning block rewards. First-generation blockchains such as Chia, SpaceMint and Storj implement a PoC model.



<h3 class="wp-block-heading">Proof of elapsed time (PoET)</h3>



Proof of elapsed time (PoET) is a consensus algorithm developed by Intel Corporation and primarily utilized by permissioned blockchain networks. It implements a lottery-like model to choose a validator for the next block. Using immutable and openly verifiable code ensures that all participants have equal chances of being selected as validators. Notably, there are usually no economic rewards for PoET participants as this model is primarily used for organizations and corporations. The enterprise-focused distributed ledger solution Hyperledger Sawtooth implements the PoET model.



<h3 class="wp-block-heading">Proof of history (PoH)</h3>



Proof of history is a time-based consensus model pioneered by the Solana blockchain. It addresses a flaw in PoW systems: resources spent by validators to agree on the time and ordering of transactions. PoH implements an internal clock functionality based on cryptographic proof to enable near-instant processing and transaction finality. Solana is the only known public blockchain that utilizes this consensus model, although the project supplements it with PoS and other technologies to ensure scalability.



<h2 class="wp-block-heading">What this means for investors</h2>



Consensus models provide a metric for evaluating a project’s long-term potential. The most viable networks ideally have a clear path to sustainability and scalability while maintaining a reasonable level of decentralization. Although newer consensus models may emerge, the most widely-adopted implementations will continue to play a vital role as the industry advances toward mainstream adoption.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



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