The Bank of Canada recently released a report conducting new research into the different forms of consensus verifying technology used in blockchains all over the sector. In its report, the bank concluded that the superior form of consensus verification is PoW, or Proof of Work. This is the type of system employed by the biggest and most popular cryptocurrency, Bitcoin, in its own original blockchain.
But PoW is not the only system used on blockchains. Another popular proof of consensus system is called Proof of Stake, or PoS. PoS is the verification system employed by Ethereum, which is the second most popular cryptocurrency currently in circulation. But according to the Bank of Canada, Ethereum is running on the inferior proof of consensus technology, at least when compared to the PoW employed by Bitcoin.
Ethereum’s founder Vitalik Buterin has always been vocal about his opinions on the latest tech rulings, particularly when his project is targeted for not being up-to-par with its competitors. Now, he has released a statement on Twitter espousing his disagreement with the sentiments of the Bank of Canada, even hinting at the possibility of having a substantive discussion with the organization over the conclusions they made in their report.
Their arguments seem to criticize 2011-era PoS algorithms with "nothing at stake" flaws and say little about the security deposit-based Casper CBC/FFG/Tendermint family. I reached out to them and will see what they say :)
— Vitalik "Not giving away ETH" Buterin (@VitalikButerin) July 26, 2018
Bank of Canada’s Arguement
The report by the Bank of Canada primarily focused on the security capabilities of both systems. This makes sense, given that any Bank-related application of the technology would likely need to be backed with maximum security measures to prevent tampering with customer funds via the blockchain.
The Bank concluded that other consensus-achieving systems, particularly Proof-of-Stake, are incredibly susceptible to hacking attempts. The bank argues that PoS allows for users to “randomly gain” access to key information on some blocks, which could easily make it possible for a nefarious hacker to gain stake in a block and steal more information.
This isn’t to say that the bank doesn’t see flaws with Bitcoin’s favorite system. However, they outline that while hacking occurs in PoW consensus systems, it requires much more work and very significant computing power. PoS systems, however, require much less active work for a hacker to steal identifying information, or even gain access to a block.
Vitalik Buterin’s problem with the analysis by the bank is that it seems to point out flaws in an older version of the PoS algorithm now employed by platforms and blockchain such as Ethereum. Buterin argues that the newer versions of the tech make discussions of old security a moot point, and that the modern version of Proof-of-Stake is radically different than the older model.
Additionally, the tech personality commented that he is waiting to see how the organization responds to his messages when he reached out. It is entirely possible that Vitalik’s critiques may lead to the Bank of Canada re-evaluating its position on Proof-of-Work over Proof-of-Stake technology. However, as it stands the bank has made it clear that their position is that PoW is the more secure form of consensus system currently in use.