Bitcoin Consensus Explained: PoW, PoS, and DPoS Compared
Book: Cryptoeconomics
Authors: Jian Gong, Wei Xu
ISBN: 978-0-367-42993-5
Previous: What Is Cryptoeconomics? | Next: Optimized Consensus
Chapter 2 opens with drama. In February 2018, a Bitcoin community figure suggested revising the consensus mechanism. The backlash was instant. “You do not understand Bitcoin.”
Gong uses that fight to explain why consensus is not a settings toggle. It is the whole point.
Why consensus exists
Blockchain removes the middleman. No Taobao, no bank, no referee. Great for freedom. Terrible when two parties disagree about who paid whom.
You need a method for strangers to agree on one version of truth. That method is the consensus mechanism.
Byzantine generals and PBFT
Leslie Lamport’s Byzantine Generals Problem (1982) is the classic setup. Ten generals must attack or retreat together. Some are traitors. Messages can lie. How do honest nodes coordinate?
The math shortcut: with N nodes, you can tolerate up to F faulty nodes if N ≥ 3F + 1. So in a group of 10, up to 3 traitors.
PBFT (1999) gave a practical answer for closed, known-node networks. But it did not scale to open internet money. That gap stayed open until Satoshi.
CAP theorem: pick two
Eric Brewer’s CAP theorem says distributed systems cannot have consistency, availability, and partition tolerance all at once. Networks fail. Partitions happen. You choose CP or AP.
Bitcoin’s PoW leans CP under partition. It sacrifices some availability (10-minute blocks, confirmation delays) to keep one canonical chain.
Gong quotes Mencius: “fish or bear’s paw.” You cannot have everything.
Proof-of-work
Nakamoto’s fix: let miners compete to solve a hash puzzle. Winner updates the ledger. Everyone else copies it. Attackers need more than 50% of the work to rewrite history.
Honest mining pays block rewards. Dishonest mining costs hardware and power with no guarantee of winning.
Gong walks through three PoW complaints that were hot in 2018:
Resource waste. Iceland mining used more electricity than households, per media reports. Economist Buer Feimo said miners pay their own bills, so it is consumer choice. Vitalik disagreed: socially it is waste even if privately rational.
Environment. Climate fears vs Credit Suisse’s note that efficiency improves under competitive pressure (like data centers and grow ops).
Centralization. Chinese pools and Bitmain dominated hashrate. Gong tells the origin story: friedcat’s ASIC IPO, Wu Jihan’s delayed Avalon shipment, Antminer S1 beating rivals on power efficiency. By 2017 Bitmain revenue rivaled Nvidia’s, in a fraction of the time.
Changing SHA-256 to break ASIC dominance sounds simple. Poolin co-founder Zhu Fa called it a trap: hashrate migrates to BCH, miners eat losses, value leaks to GPU chains.
Proof-of-stake and variants
PoS gives voice to coin holders instead of hash power. Faster, cheaper electricity. But whales vote louder. Vitalik’s CryptoKitties answer for onboarding felt weak even in 2018.
Gong flags the “resource curse”: rich stakers get richer. Decentralization vibes suffer.
LPoS (leased proof-of-stake): small holders lend coins to bigger validators and share rewards. More nodes stay active.
DPoS (delegated proof-of-stake): token holders elect block producers on a rotation. Gong compares it to representative democracy. Faster, but “elites” run the show.
His closing line is market pragmatism: PoW, PoS, LPoS, DPoS all exist because someone adopted them. Let the market sort it out. He even tosses proof-of-reputation and proof-of-credits as thought experiments.
My reaction
This chapter aged in the details (hashrate geography, Vitalik quotes) but not in the structure. The Bitmain narrative is still useful context for why Bitcoin governance is so conservative.
Gong is fair to PoW defenders and PoS optimists. He does not declare a winner. He shows the trade-offs and the politics.
The Taobao analogy is cheesy but effective. If you have ever wondered why Bitcoiners treat consensus changes like constitutional amendments, this chapter explains it.
Previous: What Is Cryptoeconomics? | Next: Optimized Consensus