eCash for Beginners 9: Proof of Work + Proof of Stake together at last

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One of the biggest criticisms of Bitcoin (and other cryptocurrencies that rely on proof of work) is that it’s bad for the environment. You always hear how Bitcoin mining consumes as much electricity as this or that country, and the bigger Bitcoin becomes, the more electricity it will consume.

Another criticism is the fact that in order to mine Bitcoin you need expensive hardware known as ASICs that can cost ten-thousand dollars a rig or more. Such a high barrier to entry limits the number of people who can participate, which can lead to the network becoming more and more centralized.

Proof of work is also difficult to scale, can lead to high transaction fees, and is generally viewed as an inefficient way to process transactions.

This is why Ethereum is looking to abandon proof of work in favor of proof of stake. Proof of stake is known to use significantly less energy, and also makes it easier for anyone to become a validator and share in the block rewards.

But proof of stake is known to have its own set of challenges. For example, one potential problem is that large stakeholders can have too much influence on the network. While you could argue that large proof of work miners can lead to the same result, the difference is that miners are ultimately beholden to holders who give the coins value. In proof of stake, the miners and holders are essentially the same, and the system lacks the same kind of checks and balances.

Also, with proof of work mining the significant hardware and electricity costs I previously mentioned means that miners aren’t able to just sit on their holdings indefinitely. This is because miners have to sell their mined coins in order to pay for those costs, ensuring that coins are fairly distributed to the open market rather than hoarded.

Proof of stake consensus mechanisms also face other challenges. One is that they are inherently self-referential. While you can measure the total accumulated proof of work that’s been performed on a given chain to determine which one is valid, you can’t do the same with proof of stake. Whereas the former can’t be faked (due to the high cost of generating valid hashes), with proof of stake it’s easy for anyone to create a fake chain and say it’s the valid one.

There’s also what’s known as the nothing-at-stake problem, where every validator can potentially mine every chain tip because it doesn’t cost them anything to do so. Or the fact that proof of stake simply hasn’t been as battle-tested as proof of work, which has been around much longer.

The point is, both proof of stake and proof of work have their fair share of pros and cons. But what would happen if you were to leverage both consensus mechanisms to take advantage of what they are good at while also compensating for each of their weaknesses?

I believe that is exactly what the eCash network is trying to achieve by layering Avalanche on top of proof of work. Avalanche will enable more efficient transaction processing and make it so users no longer have to wait for slow block confirmations to achieve transaction finality.

By using both consensus mechanisms, it will also drastically reduce the total amount of energy the network consumes. This is because a portion of the mining rewards will be allocated to staking nodes that burn much less electricity.

Surprisingly, this approach will lead to a higher level of security rather than the opposite because any would be attackers now need both the necessary hashpower as well as the necessary stake to take control of the network.

Simply put, Avalanche will make eCash transactions both faster and more secure.

Because the eCash network will still run on proof of work, the challenges that normally face proof of stake chains are made irrelevant. You get the benefits of proof of stake with none of the drawbacks.

This is why I’m so bullish on eCash. This project is about using elegant solutions to solve real problems in order to move the technology forward. The engineers at Bitcoin ABC are taking what Satoshi Nakamoto introduced to the world and making it better.

Imagine a chain that doesn’t have to worry about 51% attacks, doesn’t force users to wait for slow confirmations, runs on significantly less energy, as well as enabling greater decentralization by giving more people an opportunity to contribute to the network.

The crazy part is that’s just barely scratching the surface.


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