When it comes to Proof-of-Stake (PoS), its primary merit of scaling the blockchain is also a critical point of weakness for it. The consensus mechanism somehow manages to challenge the very idea that cryptocurrencies are based upon – decentralization. A PoS system can be taken as a shareholding system, where only the strongest nodes would influence the consensus mechanism.
The Proof-of-Stake method offers around 1500 transactions per second (tps), compared to 20-30 tps on a Proof-of-Work (PoW) method. However, according to the Jax.Network Light Paper, the PoS consensus mechanism is a compromise on decentralization for higher scalability.
The problem with PoS
Proof-of-Stake gives way to a framework where majority stakeholders enjoy absolute power and oversight regarding all aspects of a digital token. Typically, this is where a monopoly arises since stakers can collide to favor their interests. It can also prevent new entrants from entering the governance system. The big difference in Proof-of-Work networks is that miners have resources to pay for in order to keep mining and have to sell the newly created coins to cover these expenses. The very aspect contradicts the concept of a distributed ledger-based cryptocurrency since its voting mechanism is centralized.
Most tokens are not evenly distributed. Therefore, those holding the majority share would eventually validate the transactions and run the overall network in a PoS system. Even on many top blockchain networks such as Tron, the top mining pools control >75% of all the mining activity, allowing the potential for collusion.
Due to this centralization, the network is susceptible to third-party or government intervention, compromising the security of the blockchain. Furthermore, if there is only a single point of consensus to add blocks on the network, it is also prone to becoming the only point of failure.
Jax.Network is built on a Proof-of-Work consensus mechanism to tackle the pertinent issue of blockchain centralization. The PoW system requires a large amount of energy to solve arbitrary mathematical and cryptographic problems to add blocks to a node. Such levels of energy are only possible when several miners join the network.
It hence provides a more decentralized system where each participant on the network is an equal stakeholder in consensus. It also increases the security of the network by implementing the PoW mechanism to ensure 51% of mining consensus is achieved in implementing any change to the blockchain. The network also possesses the scaling capacity to handle a large number of transactions at a given time, similar to Visa and Mastercard.
Moreover, Jax.Network compensates for scalability by allowing Bitcoin miners to merge mine the Jax.Network blockchain as well as the Bitcoin blockchain at a nominal cost.
The network protocol is also anchored to the Bitcoin blockchain in order to reduce risks of inflation on shards and promote early adoption. Through such an anchor, miners on Jax.Network would merge in mining at least 3 chains: the Jax.Network beacon chain, the Jax.Network shard chains, and Bitcoin, according to the Jax.Network Light Paper.
Finally, there is another reason why not to favor PoS on Jax.Network. In order to be equal in value while scaling, shards need to retribute miners proportionally to their hash power on the network. Therefore, rewards are not fixed and depend entirely on how many miners are mining JAX coins. On PoS, miners have incentives to stake because they receive interests and expect the value of the coin to grow over time. However, with this kind of reward, the incentive mechanism would completely break down because the coin you are mining is not an asset anymore, but has just transactional utility.
The PoS consensus mechanism provides greater throughput and scalability, along with requiring less energy to operate. However, it does so at the cost of compromising the security of the blockchain and taking the control away from the small stakeholders. Jax.Network identifies this problem to implement a PoW consensus mechanism and anchoring its network protocol to the Bitcoin blockchain.
Jax.Network reaps out from being anchored to BTC by getting global transactional value to promote early adoption, while not spending extra electricity at early stages. Mining Jax.Network merged with BTC also adds more stability and scalability to the Bitcoin ecosystem, and miners get JXN coins and additional transaction fees as rewards.
Disclaimer: This is a paid post and should not be treated as news/advice.