it feels lacking.
what points am I missing guys?
first draft Proof of Stake ScalabilityWhat is the problem?
Proof of stake systems are off to a great start. From our current vantage point these new ways of validating the blockchain implemented in currencies like Peercoin and Nxt, seem to adequately secure their respective blockchains while simultaneously promising to create a fraction of the carbon footprint that their Proof of Work based predecessors do. It has long been known that without increased transactions fees Proof of Work systems will eventually no longer be able to provide enough incentive to motivate a sufficient variety of miners to still call the network decentralized.
At smaller scales the effect of validation cost goes unnoticed. When you're only conducting 1/10000 of the number of transactions as a major credit card company, it doesn't cost that much to validate transactions, leaving all the attention on how decentralized the network is, and what is the cost per transaction.
With relatively few transactions in a market that has not yet gone mainstream it makes sense that validation cost has yet to become a serious matter in any as validation can be done with much less computer power. Already we see that in Peercoin and Nxt that to make gains from running a node, one must have a substantial amount of currency up for stake.
You can see this coming if you've ever tried to mint Peercoin with only a hundred coins to your name, or forge Nxt with only a thousand. It just doesn't happen in a timely manner, and that means you have to keep your node running for a longer amount of time to mint a given amount, and the longer a node runs the more resources it consumes. At this early stage, that extra time running a node is pretty much negligible because the electricity and computing resources to do so won't constitute much at this stage of the game, without very many people making transactions. Given more popularity, and thus more transactions that need validating, this problem will increase in time, given more general usage.
This problem can be mitigated with transaction fees but at a certain point, in order to remain profitable, transaction fees would have to increase to the point that spending the currency would become discouraging and people wouldn't use the currency for it's intended purpose so that's a non-option. This is less of a problem with Peercoin because it's designed to be leaner, and more oriented towards savings and larger transactions anyway, but Nxt is supposed to be more of a bread buying currency and this could lead to issues later.
The only option is centralization, which occurs naturally in both of these schemes over time because as it becomes more expensive to validate the network the only people doing it will be those with enough money to make the returns from validating the network profitable.How to balance centralization with scalability?
It seems an inevitability that no matter how you spin it one of two scenarios will play out in the current systems left unchecked, either centralization will take hold, or transaction fees will get unwieldy. So how should we mitigate this? The most recently posed solution to this is Decentralized Proof of Stake
. In a DPOS system centralization is anticipated, and introduced by design but voted on in a decentralized manner using a system similar to reddit's upvoting to determine delegates tasked with the duty of signing nodes and preventing the blockchain from forking. Delegates can be voted on automatically based on the systems own analysis of how it's performing, or in cases where it may be necessary, they can also be voted on manually. A vote happens with each transaction so it's like a continuously ongoing election.
In DPOS those delegates chosen to secure the system, unhindered by any process designed to enforce decentralization, are incentivised by transaction fees and the prospect of being re-elected, to do their job correctly. The difference here is that the number of delegates are limited, and the amount of stake one holds or amount of computing resources one owns is seperated from their ability to secure the network. This results in a much more financially efficient scheme for validating transactions while still achieving a measured amount of decentralization to keep the network from being taken over by a few small parties.