proof-of-stake

what is proof-of-stake?

from the ethereum.org website:

proof-of-stake is a way to prove that validators have put something of value into the network that can be destroyed if they act dishonestly. in ethereum's proof-of-stake, validators explicitly stake capital in the form of eth into a smart contract on ethereum. the validator is then responsible for checking that new blocks propagated over the network are valid and occasionally creating and propagating new blocks themselves. if they try to defraud the network (for example by proposing multiple blocks when they ought to send one or sending conflicting attestations), some or all of their staked eth can be destroyed.

what challenges are presented by proof-of-stake?

in today's environment, new proof of stake blockchains with their own set of validators, whether evm compatible or not, do not inherit the trust model of ethereum, or any other blockchain. these protocols are required to be actively validated and are secured by their own native token.

under this assumption, proof-of-stake systems are thus limited by several factors.

• bootstrapping. the larger the market cap of the staked assets that secure the network, the more expensive and difficult it becomes to execute an attack on the chain. new pos blockchains are required to bootstrap the network with staked capital, typically in the native token of the network. this takes significant time and significant capital to bring the security to an acceptable level.

• opportunity cost. when validators evaluate the decision to stake in a new network, they evaluate competing staking opportunities and the yield associated with each. therefore, new networks must offer a competitive return to these stakers in exchange for their capital (security). assuming 7% required apr, a network with $1 billion staked, would require $70 million in staking rewards. significant capital is required to meet today's staking demands.

• trust model for applications. an independently validated system built on a blockchain, does not inherit the security of the underlying chain. consider the example of a price oracle secured by $10 million in staked assets, where the threshold to attack the oracle is much lower than the cost to attack the larger chain.

in summary, proof of stake systems require significant capital.