0:00:00.333,0:00:01.067 Hey, everyone. 0:00:01.068,0:00:03.402 Today's video topic is[br]about consensus protocols. 0:00:03.698,0:00:06.093 It doesn't sound very glamorous, [br]but it is something that's 0:00:06.119,0:00:09.109 very important to understand if you're [br]interested in cryptocurrency 0:00:09.135,0:00:10.786 or blockchain tech in general. 0:00:11.227,0:00:14.579 It is the groundwork for all of[br]these coins that are out there, 0:00:14.857,0:00:17.969 so it's important to understand it so[br]you can better understand the project. 0:00:18.199,0:00:19.699 Let's start with Proof of Work (POW). 0:00:19.832,0:00:23.523 This is one that you probably hear of[br]most often, it is what Bitcoin uses. 0:00:23.679,0:00:26.125 And it is basically exactly[br]what it sounds like. 0:00:26.434,0:00:28.996 Proving that work was done and[br]proving that the work was correct. 0:00:29.078,0:00:31.932 Bitcoin and many other altcoins[br]use this consensus system. 0:00:32.217,0:00:35.502 And they do that so the authenticity[br]of the chain can be validated, 0:00:35.748,0:00:39.615 and that all parties agree that transactions[br]that happen are correct and accurate. 0:00:39.895,0:00:44.278 I found an analogy online like usual that might[br]be more helpful in explaining Proof of Work. 0:00:44.630,0:00:49.315 So imagine that you are a kid in a math[br]class and you were taking an exam. 0:00:49.559,0:00:53.320 And the first kid to get to the answer [br]and be able to prove and show their work 0:00:53.320,0:00:54.963 that they're correct gets rewarded. 0:00:55.134,0:00:58.091 Now applying that to the crypto world, [br]the math exam is the transaction, 0:00:58.117,0:00:59.600 and the classroom is the blockchain. 0:00:59.731,0:01:01.258 The student is the computer or node. 0:01:01.591,0:01:04.397 And the brainpower is referring[br]to the computing power. 0:01:04.663,0:01:08.201 And then the reference to a lot of effort [br]on the side of the student refers to the 0:01:08.201,0:01:11.145 amount of electricity that's[br]needed to prove in Proof of Work. 0:01:11.306,0:01:12.805 Some downsides for Proof of Work. 0:01:12.919,0:01:17.043 Most obviously, it requires work to be[br]done and that requires electricity. 0:01:17.044,0:01:20.447 So as far as financial goes, [br]it's definitely the most expensive 0:01:20.447,0:01:21.690 of the consensus systems. 0:01:21.775,0:01:23.984 Some of you may have figured[br]this out on your own already, 0:01:23.984,0:01:26.894 but the hardware to mine is[br]also exceptionally expensive. 0:01:27.303,0:01:31.658 To the point that unless you have a[br]warehouse filled with mining equipment, 0:01:31.658,0:01:35.329 top end mining equipment, [br]it's basically not even worth it anymore 0:01:35.329,0:01:38.665 based on the price you have to pay for [br]the mining equipment and the amount 0:01:38.665,0:01:41.288 for electricity to run all of it, really. 0:01:41.510,0:01:44.304 So your bill at the end of the month[br]ends up being more expensive than 0:01:44.304,0:01:46.515 the amount of Bitcoin that[br]you're capable of mining. 0:01:46.681,0:01:51.078 Another issue is miners moving from the [br]Bitcoin blockchain to another more profitable 0:01:51.078,0:01:55.248 easier blockchain, which we've seen [br]happen in the past with Bitcoin and all 0:01:55.248,0:01:56.658 its little alternating forks. 0:01:56.798,0:01:59.352 Another downside is the issue[br]with circulating supply. 0:01:59.671,0:02:03.890 As the circulating amount goes up, [br]the incentive for miners to mine goes 0:02:03.890,0:02:07.603 down because the availability[br]of coins to mine is decreasing. 0:02:07.789,0:02:11.163 So eventually people are going[br]to switch to another blockchain. 0:02:11.164,0:02:14.768 A final downside to the Proof of Work [br]consensus systems is something 0:02:14.768,0:02:18.547 I discussed in my Crypto 101 video[br]where I covered blockchain tech. 0:02:18.991,0:02:21.195 The biggest issue is a 51% Attack. 0:02:21.449,0:02:25.379 And basically that means if you have [br]enough computational power to maintain 0:02:25.379,0:02:29.244 and run 51% of the network, [br]you then can control everything. 0:02:29.427,0:02:31.910 Proof of Stake (PoS) is the next[br]most popular consensus system, 0:02:32.077,0:02:34.521 and unlike Proof of Work, [br]it doesn't use computational 0:02:34.521,0:02:38.220 power and electricity to solve mathematical[br]equations to come to a consensus. 0:02:38.522,0:02:41.060 Instead, each node will bet on a block. 0:02:41.166,0:02:45.698 When that block gets added to the blockchain,[br]whatever node had bet on it will get rewarded. 0:02:45.699,0:02:48.869 A Proof of Stake system requires the [br]prover to show a certain amount of 0:02:48.869,0:02:52.981 staking weight and it's age to be able[br]to participate in the betting process. 0:02:53.006,0:02:56.509 In the Proof of Stake system, blocks[br]are said to be minted and not mined. 0:02:56.510,0:02:59.780 And those who validate the transactions[br]and help to maintain the network 0:02:59.780,0:03:01.719 are also referred to as nodes. 0:03:01.870,0:03:05.085 Those individuals receive the[br]cryptocurrency as a reward 0:03:05.111,0:03:08.095 for holding X amount of crypto [br]in their wallet, which helps 0:03:08.121,0:03:09.447 to again maintain the network. 0:03:09.472,0:03:12.092 In order to validate[br]transactions and create a block, 0:03:12.375,0:03:16.304 users must first put their coins at stake, [br]which is obviously where the name comes from. 0:03:16.614,0:03:19.800 In this system, if a node validates[br]a fraudulent transaction, 0:03:20.085,0:03:21.610 they're going to lose[br]all of their holdings. 0:03:21.635,0:03:24.237 And on top of that, they're not [br]going to be allowed to participate 0:03:24.237,0:03:25.847 in the minting process in the future. 0:03:25.963,0:03:29.409 Meaning the nodes will be incentivized [br]to validate only the correct transactions 0:03:29.639,0:03:31.898 and help maintain the health[br]and security of the network. 0:03:32.128,0:03:36.515 In a very loose comparison, it's kind of[br]like keeping money in a savings account. 0:03:36.880,0:03:39.286 You leave it there, you're not really [br]supposed to touch it and you will 0:03:39.286,0:03:41.463 acrue interest over X amount of time. 0:03:41.695,0:03:44.791 Unlike Bitcoin, where you would[br]need 51% of the mining power 0:03:45.021,0:03:47.694 in order to overtake the network, [br]with the Proof of Stake system, 0:03:47.694,0:03:50.637 you would need 51% of the[br]total circulating supply. 0:03:51.026,0:03:53.766 Depending on the project, that[br]could be a very pricey endeavour. 0:03:53.905,0:03:58.003 So because of that this isn't something that[br]most people are worried about happening. 0:03:58.138,0:04:01.708 A plus side to Proof of Stake is that [br]you don't need expensive mining [hardware] 0:04:01.708,0:04:03.418 in order to participate in the network. 0:04:03.639,0:04:06.913 You need to leave your computer on 24/7, [br]which is kind of a pain, and the wallet 0:04:06.913,0:04:09.091 needs to be up and running[br]and on the latest version. 0:04:09.116,0:04:12.586 And obviously a side effect of that [br]is that Proof of Stake is more efficient 0:04:12.586,0:04:16.005 and uses less energy because[br]it's not actively doing work. 0:04:16.315,0:04:18.023 It's kind of just sitting there passively. 0:04:18.098,0:04:19.439 Some downsides to Proof of Stake. 0:04:19.836,0:04:22.510 So the same reason that it's[br]good is also a weakness. 0:04:22.669,0:04:25.369 The more you hold in stake,[br]the higher rewards you get. 0:04:25.575,0:04:28.267 And that's kind of a rich[br]getting richer situation. 0:04:28.351,0:04:31.338 And for obvious reasons, [br]because staking gives your rewards, 0:04:31.338,0:04:36.009 another weakness is usually this isn't [br]a great currency for transactionary things, 0:04:36.247,0:04:39.146 because people want to hold it [br]and maintain it in the wallet 0:04:39.146,0:04:42.449 to get rewards and because of that [br]people horde it and it's not going 0:04:42.449,0:04:44.904 out and doing things and there's[br]a lot less circulation. 0:04:45.032,0:04:48.355 Although this helps stabilize the network, [br]eventually some of these coins are going to 0:04:48.355,0:04:51.958 reach their max circulating supply, [br]and at that point they may become 0:04:51.958,0:04:55.228 scarce and difficult to get or[br]very expensive to purchase. 0:04:55.355,0:04:58.230 I want to touch on a little bit more[br]detail of the Proof of Stake system. 0:04:58.544,0:05:00.332 There's two kinds of rewards systems. 0:05:00.468,0:05:04.837 One is randomized, and a coin that uses[br]the randomized consensus system is PIVX. 0:05:04.981,0:05:08.707 Basically, this means the nodes that[br]are receiving the rewards are randomized. 0:05:08.989,0:05:12.144 This makes it more balanced and[br]more fair for the community. 0:05:12.234,0:05:14.513 Coin Aged Based Selection is the next one. 0:05:14.514,0:05:16.682 And that is pretty self explainatory. 0:05:16.941,0:05:21.187 Basically it means that the next node is picked[br]based on the age of the coins in the wallet. 0:05:21.276,0:05:26.059 This one is where it's a little bit more unfair, [br]because this is calculated by the number 0:05:26.059,0:05:29.963 of days that the coins have been staking [br]in the wallet times the amount you have, 0:05:30.185,0:05:31.498 which gives you a network weight. 0:05:31.918,0:05:35.202 So you can see where there would be a problem[br]if you're not holding a lot of coins 0:05:35.202,0:05:37.304 that your network weight[br]is going to be smaller, 0:05:37.304,0:05:40.574 and there's going to be a less chance [br]of you getting the reward as frequently 0:05:40.574,0:05:42.684 as somebody who has a lot[br]more coins than you. 0:05:42.814,0:05:45.411 Most projects have some kind[br]of staking requirement. 0:05:45.498,0:05:49.616 Meaning, when you send the coins to the [br]wallet they have to be in the wallet X amount 0:05:49.616,0:05:53.286 of days or they have to be confirmed [br]by X amount of confirmations 0:05:53.571,0:05:55.463 before they will be eligible to be staked. 0:05:55.488,0:05:57.858 Once a user has made a block[br]and received a reward, 0:05:57.858,0:06:00.622 their coin age resets to zero, [br]and that means that they have 0:06:00.648,0:06:03.972 to wait a certain amount of time again[br]to participate and get block rewards. 0:06:04.102,0:06:08.035 On to the next consensus system, which[br]is Delegated Proof of Stake or DPoS. 0:06:08.606,0:06:11.145 This consensus system was[br]first used with Bitshares, 0:06:11.383,0:06:14.248 but now you can see it being used[br]with projects like Lisk and Ark. 0:06:14.334,0:06:17.477 The difference between Proof of Stake [br]and Delegated Proof of Stake 0:06:17.878,0:06:22.056 is the difference between direct[br]democracy and representative democracy. 0:06:22.263,0:06:24.217 In a regular Proof of Stake consensus system, 0:06:24.542,0:06:27.395 every wallet that holds coins[br]has the ability to stake. 0:06:27.914,0:06:31.858 In a Delegated Proof of Stake system, [br]every wallet that holds a certain amount 0:06:31.858,0:06:33.980 of coins has the ability[br]to vote on a delegate. 0:06:34.226,0:06:36.363 These delegates perform [br]the functions of validating 0:06:36.363,0:06:38.106 transactions and maintaining the network. 0:06:38.700,0:06:42.068 They get to take the transaction [br]fees as profit and this process is 0:06:42.068,0:06:43.452 called forging or minting. 0:06:43.690,0:06:47.674 The idea is then that the delegates [br]will share the profit that they receive 0:06:47.991,0:06:50.619 as the transactions fees with[br]the people who voted for them. 0:06:50.855,0:06:53.046 For us in the United States, [br]this is almost identical to 0:06:53.046,0:06:55.307 how we receive representation in Congress. 0:06:55.672,0:06:58.885 So a small amount of people [br]that are elected from our States 0:06:59.170,0:07:00.965 represent us in the different Houses. 0:07:01.814,0:07:03.660 And we've seen how well that goes over. 0:07:03.977,0:07:08.028 A cool upside to Delegated Proof of Stake, [br]is because you're voting on someone 0:07:08.194,0:07:10.530 to do the transactions and[br]to maintain the network, 0:07:10.839,0:07:14.175 you're wallet doesn't need to be on because[br]somebody else is doing that work for you. 0:07:14.370,0:07:16.336 So you can still participate in the network 0:07:16.336,0:07:19.272 and you will still receive[br]some sort of minting reward, 0:07:19.510,0:07:22.518 but your wallet doesn't have to be on which[br]means your computer doesn't have to be on. 0:07:22.669,0:07:26.079 For people just entering the cryptospace, [br]Delegated Proof of Stake may seem 0:07:26.079,0:07:29.716 like a better option because they can join [br]staking pools meaning they don't have 0:07:29.716,0:07:31.826 to hold a lot and they can[br]pool with other people. 0:07:32.244,0:07:34.621 Whereas with Proof of Stake, [br]which I brought up before, 0:07:34.850,0:07:38.400 you have to hold a lot of the coin in[br]order for it to really be profitable. 0:07:38.604,0:07:41.760 Depending on how much that project is,[br]that could be a really hefty investment. 0:07:41.885,0:07:45.932 Delegated Proof of Stake gives people[br]with a small or medium bag of the coins 0:07:45.932,0:07:49.903 an option to participate in the network, [br]receive rewards, and incentivizes them 0:07:49.903,0:07:51.379 into buying into the project. 0:07:51.404,0:07:53.402 Some down sides to[br]Delegated Proof of Stake. 0:07:53.886,0:07:57.677 The argument is by voting for delegates [br]that we're concentrating the power 0:07:57.939,0:08:01.715 to a limited amount of people [br]and thus kind of recentralizing 0:08:01.715,0:08:03.290 a decentralized cryptocurrency. 0:08:03.440,0:08:06.707 It could also suffer from the same issues[br]that we see in the democratic party, 0:08:07.056,0:08:10.256 which is voters not being engaged[br]and the system not working properly 0:08:10.256,0:08:11.985 because there's not enough[br]community involvement. 0:08:12.192,0:08:15.028 If regular users fail to vote, [br]there will be a tendency 0:08:15.028,0:08:18.231 for the network to fall into larger [br]stakeholders who at that point 0:08:18.231,0:08:19.652 can just vote for themselves. 0:08:19.834,0:08:21.567 And we've actually already[br]seen this happen. 0:08:21.858,0:08:25.071 I touched on this in my Lisk video, [br]but there's a delegate group called Elite 0:08:25.071,0:08:28.775 and they stopped paying out people [br]who vote for them unless they vote 0:08:28.775,0:08:30.469 for the entire group of Elite. 0:08:30.850,0:08:34.022 Meaning that gives them control and[br]they're able to manipulate the network. 0:08:34.323,0:08:37.117 And for the last consensus system, [br]which is a little bit lesser known, 0:08:37.418,0:08:38.513 is Proof of Activity (PoA). 0:08:39.021,0:08:40.987 And this is only found [br]on the Decred network, 0:08:40.987,0:08:43.123 and I covered that topic not too long ago. 0:08:43.575,0:08:46.026 But basically what they do is [br]they're trying to take the 0:08:46.026,0:08:49.162 best parts of Proof of Stake [br]and the best parts of Proof of Work 0:08:49.471,0:08:52.240 and combining them into one network[br]so that they work in harmony. 0:08:52.265,0:08:55.769 Proof of Work miners are creating blocks, [br]and the job of the Proof of Stake miners 0:08:55.769,0:09:00.040 is to make sure that the Proof of Work miners [br]are creating blocks that are consistent 0:09:00.040,0:09:02.683 with the desires of the people[br]that are holding the currency. 0:09:02.842,0:09:05.512 Some downsides to Proof[br]of Activity would be that 0:09:05.512,0:09:10.417 Decred's the only project running it right now, [br]and that basically means that we don't 0:09:10.417,0:09:14.621 really know as far as Bitcoin level [br]of transactions if the Decred network 0:09:14.621,0:09:15.663 would be able to handle that. 0:09:15.688,0:09:18.758 A more major criticism that I've[br]read or seen online about 0:09:18.758,0:09:20.502 the Proof of Activity consensus system, 0:09:21.030,0:09:24.731 is that because it's using Proof of Work [br]and Proof of Stake that there is just 0:09:24.731,0:09:29.402 kind ofa lot of moving parts going on [br]and it's not as easy to get involved with 0:09:29.402,0:09:32.505 from the beginning, so it might be a [br]deterent from new people from getting 0:09:32.505,0:09:37.744 interested because these things by themselves [br]are difficult to understand so taking all 0:09:37.744,0:09:40.428 of those parts and putting them[br]together makes it even worse. 0:09:40.539,0:09:43.982 So to finalize my points, obviously[br]there's pros and cons to everything. 0:09:44.314,0:09:47.987 I think that Proof of Work [br]definitely laid the groundwork 0:09:47.987,0:09:52.065 to come up with more interesting and[br]more efficient consensus systems. 0:09:52.517,0:09:55.362 I think that eventually Proof[br]of Work is going to be, 0:09:55.362,0:09:59.365 I don't want to say obsolete, [br]but definitely less desirable 0:09:59.365,0:10:03.870 to use for the sole purpose of efficiency [br]and the fact that it's just going to be 0:10:03.870,0:10:06.018 way too expensive to continue to do that. 0:10:06.240,0:10:10.110 Overall I think that randomized selection [br]Proof of Stake consensus systems like 0:10:10.110,0:10:12.600 PIVX uses is going to be[br]the best for longevity. 0:10:12.965,0:10:16.149 It incentivizes people to stay [br]and help stabilize the network, 0:10:16.557,0:10:20.401 but it also gives everybody an honest shot[br]at actually earning some block rewards. 0:10:20.671,0:10:22.956 I'm sure eventually there'll[br]be more consensus systems, 0:10:22.956,0:10:26.493 and I may even have to do this video again,[br]but for the time being I think I covered 0:10:26.493,0:10:29.562 the ones that are at least the most popular,[br]and the ones that you're going to read 0:10:29.562,0:10:30.714 about the most online. 0:10:30.952,0:10:32.465 If any of you guys have any more questions, 0:10:32.690,0:10:34.876 please feel free to pop on[br]over to my Discord server. 0:10:35.095,0:10:36.535 I'll leave the info in the description. 0:10:36.753,0:10:39.706 I want to thank you guys again for[br]watching, and I'll see you guys soon.