Grayblock Explains Inherent Limitations of Proof of Work (PoW)

Grayblock, a “diverse group” of researchers with backgrounds in supply chain management and currently focused on building blockchain and internet-of-things (IoT) solutions, have compared and analyzed various distributed consensus algorithms.

According to Grayblock’s analysis, proof-of-work (PoW)-based finality and confirmation of on-chain transactions suffer from a fundamental problem. That being, “PoW finality and the consequence of the consensus mechanism which allows there to always be a chance the chain will be overtaken by another competing chain, thereby reverting transactions.”

PoW-based Network “Can Only Process As Many TXs As One Node Can Independently Process”

Because of this, Grayblock claims that PoW chains can never truly guarantee “transaction finality.” Going on to cite more limitations of the PoW consensus model, Grayblock’s researchers note: ”All nodes in the network verify all blocks and all transactions. Therefore, the network can only process as many transactions as one node can independently process.”

The researchers at Grayblock also mention that tweaking PoW algorithms ”by increasing block size and decreasing block frequency” still has its own limitations. For instance, these “changes are limited by how fast transactions and blocks can propagate the network,” the research team explains.

Only Need To Store Transaction History For Which “Current State Is Dependent On”?

Although total throughput “can be increased” up to 100 transactions per second (TPS), it does not provide a viable solution to the “constraint of the single node bottleneck,” the researchers claim. Going on to summarize the scope of the inherent problems with PoW systems, Grayblock’s research team states:

Scaling globally will require the network state validation responsibility to be divided between the nodes. This now becomes an issue of finality. If there is no probability of transactions beyond a certain age to be reverted, we wouldn’t need to store or verify against the entire history of transactions, only the ones which the current state is dependent on.

In addition to identifying these problems with PoW-based protocols, Grayblock’s research analysts assert that proof-of-stake (PoS)-based consensus algorithms produce new blocks through “probabilistic election.” This, they argue, effectively “nullifies the orphan block issue caused by speeding up block frequency in PoW consensus.”

Moreover, this also enables “immediate throughput gains by being able to push the network faster than before.” However, there are still certain limitations with this approach as “the time it takes for the block to propagate the network [is still significant] and [it also requires] 2/3 of the node pool to sign the block” - which is still quite inefficient.