Can I fix your car for you ... I'm a hard worker, and I'll do it cheap?

Your car needs fixed.

Do you take it to a trusted garage or trust someone who appears at your door and says that they will fix it? Both should be able to prove that they have done the work, but would you trust? Well, both "proof-of-work" guarantee (so that you only pay them once they have successfully completed the task), but you are more likely to give the work to the more trustworthy one ... the one who can offer proof-of-state.

Proof-of-stake works by being around and helping, and then being generally trusted to do a good job. So need someone to fix your car, you are more likely to go to a garage which you have been to in the past - or who have been around for a long time - and trust them for their good work. If someone knocks on your door and says they will fix your car for less, you are unlikely to take them up on their offer, as you just couldn't trust them.

On the Internet, we are now moving to a world which sees proof-of-state as more trustworthy that proof-of-work. To see read on...

Introduction

We are living in a world of financial tension. Do we trust banks to define our transactions, and apply the methods that they have done for 100s of years, or do we create new networks of trust, where there is almost an instance agreement to the validity of a transaction? This question is one of the most significant in the 21st Century.

In our traditional banking model, if Bob wants to pay Alice some money, he gives a transaction to our own bank, and then they forward it to Alice's bank, and Bob is debited and Alice is credited with the money. This is a method that uses sort codes and bank IDs to identity that payer and the payee.

In a Blockchain chain world, there is no need for a bank, and where Bob proves the validity of the transaction to Alice by signing with his private key. From a pure security point of view, the Blockchain method is much more secure unless Bob gives away his private key. In a traditional model, the two banks agree to the transaction and check its validity. But who checks the validity of the Blockchain method? Well, that's where we have a problem, as the method that Bitcoin is using is consuming more energy than Ireland.

Getting miners to work for their reward

The way that Bitcoin achieves a consensus on a transaction is to get miners to collect all the recent transactions, and then race to find a hash signature which has a number of proceeding zeros:

For this the generate a nonce value - a random value - and then add it to the transactions, and then aim to be the first to solve the challenge. They are then rewarded with some Bitcoins (currently 12.5 BTC). As the reward is currently attractive from a financial point-of-view ($125,000), then an organisation will invest in GPUs, and the more GPUs they have, the better the chance they have of winning the race.

This process is defined as mining, and the more computers there are mining, the more difficult the challenge becomes (and thus the more energy that will be consumed). The more miners, though, the most trustworthy the ledger created, as there is a lesser likely hood that a malicious miner will find the challenge. A malicious miner would thus have to spend a great deal of money to try and change the consensus, as they will have to consume masses of electrical power.

Step forward ... Ethereum ... the green option?

But Bitcoin - with its proof-of-work - is not the only show in town, and it is Ethereum which aims to solve the problem of the amount of energy consumed. Over the next year, Ethereum will change its proof-of-work method to a proof-of-state.

Ethereum will now offer proof-of-stake, and where those miners who have been most trustworthy in the past, will have a much higher chance of being trusted to do the mining. This will make the platform more attractive in building business-focused applications at an enterprise level - and also considerably save energy.

In a competition to this, we have Hyperledger - created by Intel and IBM - and which use blockchains and which do not use either proof-of-work or mining.

The whole mining process is thus holding back building blockchain applications at scale, and the new methods aim to increase the throughput, while keep trust (and in reducing costs over traditional methods).

Conclusion

If you can't see how blockchain builds a new trusted world and gets away from the trusted third party - Trent - then you perhaps think that PKI is the solution and that our world of unsigned emails and fake digital certificates is a way to create a digital world.

If you think that cryptography can build a better and more trustworthy society, then walk this way, and be part of the revolution ...