This is the second part of my trilogy of articles. The first being The case against Bitcoin’s energy usage, and the last one being The Case against Bitcoin’s governance.
In this post I will examine the view that a Proof-of-Stake (PoS) cryptocurrency, specifically Cardano, is fundamentally less secure than an energy hungry Proof-Of-Work (PoW) coin, specifically Bitcoin. We’ll see how both chains use similar mechanisms to ensure security.
Both chains use cryptographic signatures to stop fake transactions
Technically a Bitcoin miner can include as many “fake transactions” as it wants in a block. But without the appropriate digital signatures, no node will accept the block as valid, and no merchant will recognize that they have received coins for the purposes of offering a service. Trying to crack a digital signature is something that would require a quantum computer to do.
Likewise a Cardano stake-pool (the equivalent of a miner) could try to insert fake transactions when it has the chance to produce blocks. But constructing fake transactions for a wallet that it does not own would require figuring out the private key which would also require a quantum computer to do.
Both chains use the longest-chain rule to deal with chain splits
Next up is the issue of dealing with chain splits (aka forks). In both chains it’s possible for different versions of the chain to occur. In Bitcoin it could be due to one miner solving the cryptographic puzzle a few seconds later than the first miner and not issuing new blocks thinking it was the first. In Cardano (which randomly selects who gets to produce a block so there’s no such confusion), network delays may mean a new block does not get propagated fast enough and the next stake pool starts building on an outdated chain.
To deal with such naturally occurring chain splits, Bitcoin uses the longest-chain rule and Cardano uses a very similar “densest-chain rule”. The principal is the same for both – the chain that has the most history is always accepted as the true chain.
Both chains would incur a huge financial loss for anyone carrying out a 51% attack
This is a situation in which a malicious actor controls more than half the network which allows them to spend the same Bitcoin or Cardano more than once (aka double-spend).
Bitcoin is protected against this due to how much it would cost for a malicious actor to acquire 51% of the processing power in the network. This would cost more than 13bn USD. And after doing so they’d be left with a bunch of expensive hardware that had now plummeted in value.
Cardano is protected against this by how much it would cost for a malicious actor to acquire 51% of staked Ada in the network. At the time of writing circulating supply is 33.8bn, 72% of Ada is staked, and Ada is priced at $0.61. This would mean an attacker would need to have spent 7.6bn USD in order to have enough control of the network to commit a double spend – at which point the price of Ada would plummet and they’d end up losing their own investment.
Conclusion
Given that Cardano can be viewed as an upgraded form of Bitcoin (Bitcoin + Energy Efficiency + Smart contract + In-built governance), it’s not surprising that a lot of the security mechanisms are similar. In fact in the seminal paper on Cardano’s consensus protocol, Ouroboros: A Provably Secure Proof-of-Stake Blockchain Protocol, the authors go to great lengths to benchmark against Bitcoin:
“For illustrative purposes, we perform a comparison with Nakamoto’s analysis for
bitcoin regarding transaction confirmation time with assurance 99.9%. Against covert adversaries, the transaction confirmation time is from 10 to 16 times faster than that of bitcoin, depending on the adversarial hashing power; for general adversaries confirmation time is from 5 to 10 times faster.
Moreover, our concrete analysis of double-spending attacks relies on our combinatorial analysis of forkable and covertly forkable strings and applies to a much broader class of adversarial behavior than Nakamoto’s more simplified analysis.”
The fact that Cardano has been running as a multi-billion dollar chain for many years without any loss of funds or system outages is a testament to it’s security and stability. If you wish to dive deeper into Cardano’s security mechanism I suggest giving this a read or watch this for a great understanding of more advanced topics.
In the final article I’ll take a look at the longer-term security and stability of Bitcoin and why the governance component is so crucial in guaranteeing this.
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