Consensus on Ethereum & Cardano

Introduction

An essential feature of any blockchain is its consensus mechanism - the way the network achieves distributed agreement about the ledger’s state. Bitcoin became the first widely established blockchain using a consensus mechanism called Proof of Work (PoW). It worked well in terms of secure consensus, but has some big drawbacks in the area of scalability and energy consumption. Other blockchains have since debuted another type of consensus mechanism, called Proof of Stake (PoS). PoS consensus offers the same security guarantees as PoW, yet doesn’t require exponential resources to achieve planetary scale.

This series is focused on two more recent blockchain platforms: Ethereum and Cardano. Both Ethereum and Cardano can be used to construct secure online systems that shift the control of money, personal data, and identity away from central authorities, to the individuals within the system. Each network accomplishes this in its own way, in terms of unique features and technical architecture.

In this 3-part installment of our series, we will explore the consensus mechanisms of Ethereum and Cardano, highlighting their similarities and differences. How are these two “Proof of Stake” systems similar? How are they different? What does it mean to participate as a validator node in Ethereum vs Cardano? What does it mean to be an end user who owns some crypto and wants to participate in securing the network?

PoS: the good, the complex, the untested

When it was launched in 2015, Ethereum initially relied on a Proof of Work consensus mechanism. However, it always planned to move to Proof of Stake eventually, as a way to achieve global scaling. Not long after its launch, Ethereum announced Ethereum 2.0, which would move the network to PoS, but it took another 7 years to get there. Ethereum successfully completed their “Merge” upgrade on Sept 15, 2022 at 6:43 a.m. UTC. With it, Ethereum’s core security mechanism switched to a PoS based consensus. The remaining upgrades are still in heavy development for a full transition. One fun and interesting thing about the remaining planned upgrades are the names given to each: after the Merge upgrade will come The Surge, The Verge, The Purge and The Splurge!

In the meantime, Cardano was launched in 2017, using a PoS consensus mechanism from its inception. Blockchain enthusiasts will know that before starting Cardano, founder Charles Hoskinson was also part of Ethereum’s founding team, so the crossover of ideas here is no mystery. Cardano has its own development roadmap with its own version of fun names The Cardano Roadmap: the history, the future, and YOU, but its consensus mechanism has been Proof-of-Stake from day one.

However PoS is not a silver bullet. By itself, it does not solve the blockchain trilema, which states that a blockchain system cannot simultaneously be secure, fast, and operated at a large scale. When a blockchain is set up to use PoS consensus instead of PoW, scalability is far more attainable. However, there must be additional complexity added and consideration given to the other elements of the trilemma.

The Good PoS makes it easier for individuals to contribute to the security of the network (and get paid for doing it) by running a validator node. In PoS systems, this can be done without major programming skills or wildly expensive computer systems. It can be done on commodity hardware, including laptops and personal computers. (In contrast to Bitcoin, a PoW system where the cost of hardware alone can be expected to run into the 10s of thousands of dollars to run a single node.)

PoS networks are harder and more expensive to revert to centralization.

Because the security is tied to the currency of the system, PoS offers greater economic security compared to PoW systems. In a PoW system, once the cost of the hardware investment is recuperated, attacking the system may not be as economically painful for the attacker. In a PoS system, being able to carry out most attacks requires buying huge amounts of the currency. Compromising the system in any way would mean risking the loss of value of the currency one had acquired in order to try to compromise the system.

PoS systems are drastically more energy efficient compared to PoW systems. As Ethereum shifts from Proof of Work to Proof of Stake, the claim is that network energy demands are reduced by 99.5%, indicating that staking is 2,000 times more efficient than traditional PoW mining. Cardano, which had energy consciousness baked into its very design, is even more efficient. Conservative calculations have found Cardano to be over 30,000 times more energy efficient than Bitcoin. Cardano’s PoS is so light and energy efficient, you can run a Cardano validator on a raspberry pie computer. The energy cost per transaction has been compared to using a conventional Visa card.

The Complex What PoS systems save on energy, they spend on complexity. Moving from hardware-based security to software means you have to protect against all the different ways the software can be compromised. Imagine a deadbolt lock on your door vs a software-based lock on your door. With software you get new special powers, like auto locking, asking Siri to lock your door, and remotely opening the door for relatives and service people while away from home. But along with that, your door is now susceptible to hacks from anyone anywhere in the world. Like a deadbolt, the PoW consensus is mechanical: hard to perform and easy to verify. Hardware computers race against each other to solve a computer puzzle. The first person to find the answer and provide the proof of having done that work gets to prepare the next block of data for consensus by everyone else. You don’t need special registration, waiting queues, deposits, central scheduling, central randomness; all these functions are performed by software in a PoS environment, and all are points of vulnerability.

The Untested The Cardano PoS system upgrade that allowed anyone to validate and join the network came online July of 2020. Ethereum’s move to PoS came on September 15, 2022. These systems have not been tested long enough to garner the same trust level as Bitcoin, which has been running since January 2009.

Since its launch, Ethereum 2.0 has stalled multiple times and was unable to finalize certain transactions that were affected by the incidents. In January of 2023, more than half of all Cardano nodes disconnected from the network and restarted on their own. During that incident, consensus was not affected and the network as a whole kept ticking along.

Comparison

Maturity While Ethereum’s PoS is still in its infancy, Cardano’s Ouroboros has been in operation since its inception. Other chains including Polkadot and Mina have borrowed designs and inspiration from Ouroboros for their own consensus protocols. The original research paper used to implement the protocol has been cited 382 times according to scite.ai.

Security Ethereum 2.0 aims to be secure and scalable, but is still in early days. Cardano’s Ouroboros already boasts a high degree of security based on its design and research. Cardano’s PoS is mathematically proven to be as secure as Bitcoin’s PoW, with defenses against most known attacks.

Staking & Validating As “Proof of Stake” networks, the ins & outs of Staking and running a Validator node on Ethereum and Cardano are really at the heart of the matter! This article introduced the big concepts and comparisons around PoW vs PoS, and how PoS is expressed in each network. In our next article, we will more closely examining the actual experience of running a node and staking in Ethereum and Cardano

Conclusion

Ethereum’s transition to PoS is a significant milestone in its evolution and promises increased scalability and energy efficiency. Cardano’s Ouroboros, with its academic backbone, offers a unique perspective on PoS systems, emphasizing security and decentralization.

Both Ethereum and Cardano’s PoS systems exemplify the blockchain community’s efforts to create sustainable, secure, and decentralized platforms. While they adopt different approaches and are at different stages in their development, both have the potential to shape the future of blockchain technology. As we’ve learned in our Ethereum/Cardano series, while these blockchains may have different foundations, their goals for a decentralized and efficient future align closely.

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