Why PoS tends to favor those who have more money?


#1

Hi there,
This might be a silly questions for you guys, but this is smth that I understood from some of the videos out there.
So, if that’s the case:
CARDANO does smth to prevent it from happening?
Thanks.


#2

Because it provides a sustainable incentives model for the continuation of a protocol.

No. Not only there’s no real reason to do something like this, but also technically that would neither be possible nor sustainable, because of the nature of a blockchain system.


#3

Also, by favouriting you mean - providing a completely blind and equal solution that treats all participants completely the same, based only on the amount of their stake?


#4

PoS is proportional. I would not say it favours people with more. It’s the same rules for everyone, if you have a little or a lot.


#5

Not a silly question, a good question. And not sure if it favors more people with money is the right way to look at it. Another way to look at is, don’t associate the value of ADA but the quantity of ADA to POS. Because from my understanding of POS, the monetary value is negligible. POS focuses on the “quantity of ADA” not the monetary value of Ada.
Why? Because POS focuses on the amount of coins(Ada) a node has to be selected to generate a new block i.e slot leader to verify the transactions. The following Cardano docs for POS state the following:

Proof of Stake is a novel approach to block generation. The core idea of Proof of Stake is that instead of wasting electricity on cracking computationally heavy problems, a node is selected to generate (or “mint”) a new block with a probability proportional to the amount of coins this node has. If a node has positive (> 0) stake, it is called a “stakeholder”. If a node eventually becomes chosen to mint a new block, it is called a “slot leader.

I hope this helps why PoS does not favor people with more money, but because the nature of blockchains, a monetary value is assigned to a coin/token for security and the cost to maintain the distributed ledger/network as incentives.


#6

thank you for your answers.

Must confest that I have less to no knowledge about how a blockchain actually works. :frowning:

Yes.
But I would not call it equal since there there is one variable that makes a difference.

If you have the highest amount of coins, than the probability to become the next slot leader is higher, hence you are always “above” others.
At least this is my understanding of PoS.

A node is controlled by one entity?
If that’s the case and since PoS can work in mutiple layers, how many nodes can control, in the same time, one single person/organisation?


#7

Here’s a simple question. Do you want an equality of outcome for everyone despite any possible variables?


#8

A node is a Stake pool. And one node i.e stakeholder is selected. So remember:
Ada --> stake
Node --> % of Stakeholders
Group of Stakeholders --> electors
Electors --> elect slot leaders
1 Epoch = 5 days
1 Epoch --> 21,000 slots
Slots --> 20 seconds per slot
Slot leaders produces --> blocks i.e miner
Blocks produce --> verifies/computes transactions

If I mistranslated anything, please correct me.

As for how many nodes are selected per epoch? It is N during an epoch.

HOW SLOT LEADERS ELECTIONS WORK
Slot leaders are elected from the group of all stakeholders. Please note that not all stakeholders participate in this election, but only ones who have enough stake (for example, 2% of the total stake). This group of stakeholders are known as “electors”.

Electors elect slot leaders for the next epoch during the current epoch. Thus, at the end of epoch N it is already known who are slot leaders for the epoch N+1, and it cannot be changed.

You can think of this election as a “fair lottery”; anyone from the group of stakeholders can become a slot leader. However, an important idea of PoS is that the more stake stakeholder has, the more chances one has to be elected as a slot leader.

Note: One stakeholder can be elected as a slot leader for more than one slot during the same epoch.

MULTIPARTY COMPUTATION
One of the fundamental problems of the slot leader election process is its unbiasedness. A certain degree of randomness is needed as a base for election, in this case, results of this election are random and fair. So the question is where can this randomness be obtained from?

A multiparty computation (MPC) approach is used to achieve this randomness where each elector independently performs an action which is called “coin tossing” and after that shares results with other electors. The idea is that results are randomly generated by each elector, but eventually they agree on the same final value.

COMMITMENT PHASE
First of all, an elector generates a secret (or special random value). Next, an elector forms a “commitment” which is a message that contains encrypted shares (see an explanation below) and proof of secret.

The next step is when an elector signs this commitment with its secret key, specifies the epoch’s number and attaches its public key. In this case, everybody can check who created this commitment and which epoch this commitment relates to.

Subsequently, an elector sends its commitment to other electors, so eventually each elector collects commitments from all other electors.

Note: these commitments are put into the block, that is, they become a part of the blockchain.


#9

what I meant was that it would have been nice to see equal chance’s for all no matter the amount of tokens they possess. but because I don’t know how it actually works I suppose there’s smth more in there.


#10

Yeah, unfortunately it’s not really possible from the technical point of view, since blockchain systems are anonymous, so any bad actor then could pretend to be a lot of different people by basically just creating a lot of fake accounts and so getting a lot of chances at once.

Proof-of-Stake solves this problem by tying the chances not to a separate accounts (separate people, presumably) but to separate coins, and since the amount of coins is limited and they cannot be forged out of thin air - if a bad actor has a 1000 coins - no matter how many fake accounts he creates - all of them in total will still have the same 1000 coins - and the same chance to participate.


#11

So I think it’s important to keep in mind that if I have 1,000,000 ADA that I am staking, and you have 100,000, then I am trying-up 10x more capital of my own. This is capital that I don’t have access to during the epoch. It would be similar to: I put 1MM USD into a bank account and you put 100k USD into the same account. Would it be fair for us to both receive the same interest payment? If that is the case, what is my incentive to invest more than $1? The same holds true in PoS. If each ADA holder is to receive the same amount of returns, then what is the incentive for anyone to stake more than the minimum? What prevents someone from opening an exorbitant number of wallet addresses with the minimum amount to stake to maximize reward?


#12

i definitely need to look into what blockchain is all about
thank you for the explanations


#13

you’re right but what I don’t understand is why a node is given only to those who have max coins and not a join between more stake holders randomly chosen and than the interest to be split proportionally .
but again i m new to this


#14

Nodes are not given by anyone to anyone. Almost any person with a computer can run a node and receive a profit proportional to his stake.

Are you confusing the whole thing with EOS? :slight_smile: I hope not. In Cardano there’s no “node giving” - it’s a free participation system - anyone can join as a node.

This is exactly what a “staking pool” is and this is exactly why the whole Cardano system is heavily optimised toward the use of more pools - so anyone with almost any amount of coins can join one of many pools without asking anyone for a permission, and without need for his own server - and they will receive reward, proportional to their stake.


#15

apparently more than confused :slight_smile:


#16

Apparenty, Charles Hoskinson (hope I didn’t butcher his name :stuck_out_tongue: ) is fully aware of the possible inconvenience of the proportional system and he doesn’t exclude the need of a metric allowing to give an advantage to “reliable” or “useful” stakers, but as he said, we just need to start with something and proportionality is the most straightforward system…


#17

@wilfhunter and that proportionality is 1/k


#18

fyi - Proof of Work also favors those who have more money :slight_smile: (More money = faster computers, better chips = more mining rewards).

The difference is PoS has two advantages:
1 - Money is not wasted on an intermediate computer/power/chips - rather it is staked into the ecosystem.
2 - Because the money is tied into the ecosystem, large stakeholders inherently want what is best for Cardano/Ada as that maximizes their own holdings. By contrast, PoW miners are just going to mine what is most profitable and can have an inherent conflict of interest vs the coin they are mining b/c they may just take any mined coins, immediately sell and have zero holdings of the coin they are mining.

Hope that adds a bit of info to the discussion!