The Stratis Network
Stratis uses a proof-of-stake algorithm to secure its network. Most traditional cryptocurrencies, such as Bitcoin, have employed a proof-of-work algorithm to facilitate trust. In a proof-of-work algorithm, so-called ‘miners’ use their computing power to solve a kind of puzzle. This puzzle is essentially done by rapidly guessing the solution. These puzzles are used to add new ‘solved’ blocks of transactions to the blockchain. Whenever this is done successfully, the miner involved is rewarded by the network. Because miners are expending a great amount of electricity to get the opportunity to add such a block, they are incentivised to do this correctly. If they include false information in their block, it will be rejected by the network as the other miners and nodes on the network check whether the included transactions are valid. If the network rejects the block, no reward is received and the computing power spent is wasted. Through this potential waste of resources, a proof-of-work algorithm thus introduces an economic safeguard aimed to ensure fair play. Only when a single actor or collaborating group of actors reaches 51% or more of the total computing power of the network will they be able to reliably introduce false transactions. Doing so, however, would require so much hardware that it becomes cost-prohibitive.
Although the proof-of-work system is very effective at generating consensus, all the computing power spent on securing the network bears a considerable price that is not just financial, but also environmental. In July of 2018 the total energy expended by the Bitcoin network was estimated at around 22 TWh per year, which is equal to that of Ireland. Furthermore, proof-of-work algorithms have a tendency towards centralisation. With Bitcoin, for example, mining has quickly become a project that depends on specialised hardware and cheap electricity. Because of this, mining operations have become progressively larger and are situated in locations where electicity costs are low. Since regular users do not possess the funds to buy a literal warehouse full of specialised hardware and are not in a position to negotiate the best electricity prices, the security of the Bitcoin network comes to rest with a small group of mining operators.
In Stratis, these issues are fixed by opting to use a proof-of-stake algorithm. Although Stratis is based on Bitcoin, it does not use the same method of ensuring fair play. In a proof-of-stake algorithm, the network does not require these very difficult puzzles to be solved through guessing. In a proof-of-stake algorithm, users who own coins can opt to stake these in order to secure the network and receive the rewards that would be reserved for miners in a proof-of-work algorithm. Proof-of-stake does not use expended computing power as a way to ensure that there is a strong disincentive to introduce false information, but rather requires stakers to prove ownership of coins in order to sign blocks of transactions. Where a proof-of-work algorithm would require an infeasible amount of computing power to be able to introduce false transactions, a proof-of-stake algorithm would require a prohibitively large number of coins to be owned by a single malicious actor. Both expended work, as well as coin ownership, cannot be falsified. Any attempt to introduce false transactions would thus be cost-prohibitive. A proof-of-stake algorithm, however, because of its low energy use, is far more environmentally friendly. Furthermore, as no difficult calculations need to be made, anyone with a computer, an internet connection, and some coins can start staking. This means that more people can take part in securing the network, allowing further decentralisation. For users, it is interesting to participate in the security of the network, since staking provides rewards that allow users to increase their assets over time.